End of Service Gratuity

What Is End-of-Service Gratuity in the UAE?

What Is End-of-Service Gratuity in the UAE? 

End-of-service gratuity is a mandatory severance benefit under UAE labour law, compensating private sector employees upon contract termination. Governed by Federal Decree-Law No. 33 of 2021, gratuity is calculated based on the employee’s final basic wage and years of service. 

This payment serves as a financial reward for service tenure and is designed to ensure a fair transition between jobs, while helping employers uphold compliant offboarding practices. 

Who Is Eligible for End-of-Service Gratuity? 

To qualify for gratuity in the UAE, employees must: 

• Have completed at least one year of continuous service 

• Work under a valid limited or unlimited term contract 

• Be employed full-time, part-time, or in job-sharing roles 

• Not have been terminated for gross misconduct 

Gratuity provisions apply to most private-sector expatriates, though UAE nationals are typically enrolled in pension schemes. 

How Is End-of-Service Gratuity Calculated? 

There are two models employers can use: 

1. Traditional Lump-Sum Gratuity (Default Model):

• 1 to 5 years of service: 21 days of basic wage per year 

• More than 5 years: 30 days of basic wage per additional year 

• Cap: Total gratuity cannot exceed two years' wages 

2. Voluntary Savings Scheme (2024 Onward):

• Monthly employer contributions into an investment fund 

• Managed by authorized financial entities 

• Employees own the full amount regardless of tenure 

• Offers portability between jobs and retirement savings flexibility 

What Are the Employer’s Responsibilities? 

Employers must: 

• Maintain accurate service records and salary history 

• Choose and apply one gratuity model consistently 

• Disburse gratuity within 14 days of contract termination 

• Ensure calculations are based on final basic wage 

• Stay updated on legal reforms and free zone rules 

Failure to comply may lead to fines, penalties, and reputational risks. 

 How Do Resignations and Terminations Impact Gratuity? 

• Resignation < 1 year: No gratuity entitlement 

• Resignation ≥ 1 year: Full gratuity payable 

• Termination for gross misconduct: No gratuity 

• Termination without cause or redundancy: Gratuity must be paid 

Post-2022 labour reforms removed the partial payout penalties for resignations, aligning end-of-service rules across contract types. 

How Does the New Gratuity Savings Scheme Work? 

The voluntary scheme—modelled after global retirement savings systems—offers: 

• Employer contributions based on employee grade 

• Professional fund management and oversight 

• Flexibility and ownership for employees 

• Reduced end-of-employment financial liability for employers 

Employers can opt into this scheme for enhanced retention, employee satisfaction, and long-term cost planning. 

How Can Employers Ensure Ongoing Compliance? 

Gratuity obligations are complex, especially across multiple jurisdictions or free zones. Employers must: 

• Regularly review payroll and labour compliance processes 

• Implement audit-ready systems for gratuity and leave settlements 

• Track legal changes in mainland UAE and special economic zones 

• Use technology to manage calculations and documentation 

How TopSource Worldwide Can Help 

TopSource Worldwide offers end-to-end payroll solutions and compliance support for UAE businesses, including: 

• Accurate gratuity calculations and real-time payroll reporting 

• Compliance with both the traditional and investment-based models 

• Onboarding and offboarding workflows aligned with UAE Labour Law 

• Expert advisory on DIFC, ADGM, and mainland regulations 

• Seamless integration into your existing HR/payroll systems 

With a global infrastructure and local expertise, TopSource Worldwide simplifies gratuity compliance and ensures peace of mind. 

Conclusion: Navigating Gratuity Compliance with Confidence 

Managing end-of-service gratuity isn’t just about payouts—it’s about legal integrity, financial accuracy, and employee experience. As the UAE evolves its employment frameworks, businesses need a trusted partner to stay ahead. 

TopSource Worldwide enables employers to meet every legal requirement with clarity and efficiency, reducing risk while strengthening employee trust. 

Simplify Gratuity and Payroll Compliance Today 

Are you ready to take the guesswork out of end-of-service gratuity and align with UAE labour law seamlessly? 

TopSource Worldwide delivers expert payroll and compliance solutions tailored to your business’s UAE workforce needs—from traditional gratuity calculations to full support with the new voluntary savings scheme. 

Speak with our payroll experts today to learn how we can support your compliance and employee experience goals.