Embedded Files
As the UAE continues to update its labor regulations and strengthen its commitment to fair employment practices, end of service benefits remains a vital consideration for employers and investors.
Whether you’re going for a business setup in the UAE or managing an expanding workforce, understanding these benefits is key to maintaining legal compliance and building a transparent HR framework.
What Are End of Service Benefits?
End of service benefits, commonly referred to as gratuity payments, are lump sum amounts paid to employees when their employment ends, provided they’ve completed at least one continuous year of service.
These benefits are calculated based on the employee’s basic salary and total years of service and are mandated under the UAE Labour Law. While often viewed as a final obligation, gratuity also signals a company’s commitment to fairness and respect for long-term employees.
Eligibility and Contract Types
Eligibility is primarily determined by the type of contract and duration of service. Expatriates qualify after one year of continuous employment, while UAE and GCC nationals are typically enrolled in national pension schemes such as GPSSA or ADPF.
Both limited and unlimited contracts qualify, provided the employee has not been dismissed for gross misconduct. Termination scenarios, such as mutual agreement, redundancy, or arbitrary dismissal, can also impact gratuity entitlements. Employers need to be mindful of these distinctions to avoid disputes or penalties.
Special Employment Cases
In recognition of evolving work arrangements, UAE law also covers part-time, temporary, and flexible contract workers, offering proportional gratuity based on actual hours worked.
Beyond gratuity, employees are entitled to unused leave pay, unpaid wages, and any contractual benefits, all of which must be settled within 14 days of employment termination.
Gratuity Calculation
Gratuity is calculated as follows:
First 5 years of service: 21 days of basic salary per year
Beyond 5 years: 30 days of basic salary per year
The total payment is capped at two years’ salary. It’s crucial to note that only basic salary—not bonuses or allowances—is used in this calculation.
Required Processes and Documentation
To ensure a smooth and fair exit, employers should:
Review the employment contract thoroughly
Ensure proper notice periods are served
Keep comprehensive records of salary, service history, and benefits
Discuss final settlement details in advance
Seek legal counsel in case of disagreements
New Developments: Voluntary Savings Scheme
The UAE has introduced an alternative to traditional gratuity: a Voluntary Savings Scheme, allowing employers to contribute regularly to employee-managed investment accounts. This initiative enhances employee financial planning and offers employers more structured benefit management.
Compliance and Enforcement
The Ministry of Human Resources and Emiratisation (MOHRE) enforces labor laws, and employers who fail to meet gratuity obligations face penalties such as fines, license suspensions, and hiring bans. Fortunately, gratuity remains tax-free, as the UAE does not levy personal income tax.
Final Thoughts
For businesses aiming for company formation in the UAE, integrating end of service benefits into your HR policy is essential. Choosing a knowledgeable business setup consultancy like Nimbus Consultancy can help ensure compliance and prevent costly oversights.
Want to learn more about labor compliance and smart business setup in the UAE?
Read the full article and explore other valuable insights on our website blog.
Visit the link (website blog post).
Page updated
Google Sites
Report abuse