If you’re working in the UAE or planning to, one of the biggest financial perks to look forward to is your end-of-service gratuity. Whether you’re finishing up a short-term role or closing a long career chapter, this lump-sum payment can be a significant financial boost. But what exactly is it, how is it calculated, and what changes are coming in 2025?
What Is Gratuity in the UAE?
Gratuity is a mandatory payment provided to employees at the end of their service, provided they have completed at least one year of continuous employment. It’s a way for employers to say “thank you” and help their staff transition into the next stage of life or career. This end-of-service benefit is especially important for expats who don’t get pensions or long-term savings contributions.
Whether you’re in a government job, a private company, or a free zone, this benefit applies to you, although the exact rules and amounts may vary slightly depending on the company or authority you work under.
New Gratuity Rules in 2025
The UAE introduced updates to the Labour Law through Federal Decree Law No. 33 of 2021, which became active in February 2022. While the core rules remained the same, many employers and employees are now paying closer attention to the options they have for gratuity savings.
By 2025, more companies are adopting new saving schemes where gratuity funds are invested on behalf of the employee throughout their career. This is a move toward financial wellness and long-term wealth building. It also adds more clarity and structure for employees who want to track and manage their end-of-service payouts.
One such initiative is the Voluntary Alternative End-of-Service Benefits Scheme, launched by the Ministry of Human Resources and Emiratisation, offering employees the chance to grow their benefits via trusted investment platforms.
If you’re interested in calculating your expected gratuity or learning more about the new scheme, official calculators and portals are available through the UAE government’s labour services.
Gratuity Computation: The Formula You Need
If you’re not under a savings plan, your gratuity will still be calculated the traditional way. Here’s how it works:
For employees with unlimited contracts:
- First 5 years: 21 days’ basic wage for each year of service
- After 5 years: 30 days’ basic wage for each additional year
However, the total gratuity should not exceed the equivalent of two years’ wage.
Let’s say you earn AED 10,000 as your basic monthly salary, and you’ve worked for 6 years.
- First 5 years: 21 days × 5 = 105 days
105 ÷ 30 = 3.5 months of salary = AED 35,000 - Year 6: 30 days = 1 month of salary = AED 10,000
Total gratuity = AED 45,000
Keep in mind: only the basic wage is considered, not your total salary with bonuses or allowances.
You can also find online tools to help you calculate your gratuity with ease.
What Affects Your Gratuity?
A few factors can affect your final payout:
- Resignation before 5 years: If you resign before completing 5 years, your gratuity may be reduced based on the duration of service.
- Termination for misconduct: You could lose your gratuity altogether if terminated for reasons such as fraud or violation of the law.
- Unpaid leave: This may be deducted from the final service period.
- Gratuity savings schemes: If you’re under a scheme, your benefits might grow over time with investments and employer contributions.
To stay updated or to check your current benefits status, employees can contact their HR department or the Ministry of Human Resources and Emiratisation.
What If You Switch Jobs?
If you change jobs within the UAE, your service years typically start fresh unless you transfer within the same company or group. Your gratuity from the previous employer is calculated and paid out, and a new cycle begins with the next employer.
However, with the growing popularity of pooled gratuity savings schemes, there may soon be ways to transfer your funds between companies, allowing long-term growth and continuity. These developments are still in early stages but are expected to expand significantly in the next few years.
Gratuity and Freelancers: A Grey Area
Currently, gratuity is only applicable to those on employment contracts. Freelancers or those on part-time contracts may not be eligible unless explicitly mentioned in their agreement. However, as the UAE continues to support freelancers through new visa options and regulatory changes, it’s possible we may see more inclusive policies in the near future.
Tips to Maximise Your Gratuity
- Negotiate a higher basic salary – since your gratuity is based on this figure, it directly affects your final amount.
- Track your service period accurately – keep records of leave, contract changes, and salary revisions.
- Join a savings scheme – if offered, this can grow your benefit while you’re employed.
- Avoid early resignation – complete at least 5 years if possible to unlock the full benefit structure.
- Stay informed – use online tools and speak to your HR to monitor your entitlements.
Final Thoughts
Gratuity is more than just a lump sum—it’s a recognition of your service, a financial cushion for future plans, and a reward for loyalty. With the UAE’s evolving labour laws and new saving schemes rolling out, it’s becoming more transparent, structured, and beneficial for employees.
Whether you’re planning a career switch, eyeing early retirement, or just want to understand your entitlements better, knowing how gratuity computation works can help you make smarter decisions.
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