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Grasping the Computation of Gratuity

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Calculating end-of-service gratuity in the UAE plays a crucial role in employment, guaranteeing equitable compensation to employees upon the conclusion of their tenure. This article furnishes a comprehensive manual for the computation procedure, encompassing factors like tenure, final income, and relevant equations. Recent revisions and important considerations are also spotlighted, equipping both employers and employees to confidently and lucidly navigate the gratuity calculation process. To ensure compliance with prevailing regulations and address unique circumstances, it is imperative to seek guidance from legal experts or official authorities. The determination of your end-of-service gratuity is a straightforward and transparent procedure as per UAE labor laws. Notably, the UAE Ministry of Human Resources and Emiratization (MoHRE) recently issued a clarification stating that accrued unpaid leave days should be excluded when determining the final gratuity amount.

Understanding End-of-Service Gratuity in the UAE

End-of-service gratuity, often referred to as UAE gratuity, is compensation provided to employees when their employment contract concludes in the United Arab Emirates. Here’s a breakdown of key facts about UAE gratuity:

Calculation Method: UAE gratuity is computed using an employee’s basic salary, which comprises the fixed salary portion before any additional allowances or benefits are factored in. This computation excludes various allowances, including housing, transportation, utilities, and furniture.

Tenure Matters: The gratuity amount hinges on the duration of an employee’s tenure within a company. Both resignations and terminations are taken into account for the initial five years of service.

Initial Five Years: During the first five years of employment, employees are entitled to a gratuity payment equivalent to 21 days of their basic salary for each year of service if they resign or are terminated.

Beyond Five Years: After completing more than five years of uninterrupted service with the same employer, employees are eligible for an increased gratuity rate. For each year beyond the initial five years, the gratuity payment escalates to 30 days’ worth of the basic salary.

Unpaid Leave Deduction: A recent update in policy specifies that any unpaid leave days taken by an employee will be subtracted from the total gratuity payment. In the past, the calculation did not account for unpaid leave.

Based on Last Basic Salary: The gratuity is determined using the employee’s last basic salary, which is the basic salary they are entitled to at the time of contract termination. Additional allowances and benefits are not included in this calculation.

It’s crucial to be aware that the specifics and regulations surrounding UAE gratuity may differ, so it is advisable to consult UAE labor laws or seek guidance from relevant authorities or legal experts to obtain accurate information on the current regulations.

Unpaid leave days should be excluded from the computation of End of Service benefits

By Article 51 of the UAE Labour Law, specifically Federal Decree-Law No. 33 of 2021, the procedure for calculating severance pay for private sector employees is outlined. Subsection 4 of this Article specifies that periods of absence from work without pay should not be factored into the determination of an employee’s tenure. Consequently, unpaid leave periods will not be taken into account when assessing an employee’s duration of service.

Likewise, Article 33(2) of the legislation regarding unpaid leaves also stipulates that such unpaid leave intervals should not be factored in when determining the worker’s service period.

Article (51) of the Legal Provision addresses End of Service Benefits and outlines the entitlements for both UAE citizens and foreign full-time workers by the UAE’s legislation governing pensions and social security.

For UAE citizens (national workers), they are eligible for severance pay as per the relevant UAE laws

Foreign full-time workers who have completed at least one year of continuous service are also entitled to severance pay. The calculation is based on their basic wage, and the following guidelines apply:

1. For the first five years of service, the worker is entitled to receive severance pay equivalent to 21 working days’ wage for each year of service.

2. After completing five years of service, the worker’s entitlement increases to 30 working days’ wage for each subsequent year.

3. If a foreign worker serves for a fraction of a year, they are entitled to severance pay proportional to their period of service, provided that they have completed at least one year of continuous service to qualify for this benefit.

4. It’s important to exclude days of absence from work without pay when calculating the period of service for severance pay purposes.

It should be noted that, except for specific establishments that have their own pension or retirement benefit schemes, the calculation of severance pay is based on the foreign worker’s last basic wage. This applies to workers who are paid on a monthly, weekly, or daily basis.

The total severance pay for a foreign worker should not exceed two years’ worth of their wage.

Employers have the authority, following the conditions and procedures set by the Executive Regulations of this Decree-Law, to deduct any amounts that are legally due or ordered by the court from the severance pay.

You may be interested in Maximize Your End of Service Benefits: Calculate Gratuity in the UAE

Additionally, the Cabinet holds the power to introduce alternative systems in place of the severance pay system, upon the proposal of the Minister and after coordination with relevant entities. The decision outlining the conditions, regulations, and mechanisms for participating in such alternative systems will be issued accordingly.

What is the timeline for employees to receive their gratuity as per the new law?

As outlined in Article 53 of the new law, employers are obligated to settle any outstanding wages and end-of-service benefits owed to their employees within a 14-day timeframe following the expiration of the employment contract.

You may also read Computation of End of Service Benefits in the United Arab Emirates (UAE)

For individuals who find themselves in situations where they suspect they are not receiving the full entitlement of their benefits, it is advisable to seek assistance from legal consultants in Dubai. Lawyers and Legal Consultants stand as a valuable resource in such circumstances. Their team of proficient attorneys can offer expert legal counsel and direction, ensuring a seamless process during job transitions and navigating the intricacies of gratuity calculations.

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