An Overview of End of Service Gratuity in the UAE

According to the UAE Labor Law, employees of UAE companies are entitled to certain benefits upon the end of service with these companies. The legislation provides for the following benefits:

  • a notice period;
  • payment for the unused vacation days;
  • payment for extra hours;
  • compensatory payments in case of early dismissal;
  • end of service gratuity.

Employees have defined end-of-service benefits under the UAE Labour Law (EoSB). These benefits—which in the UAE also include gratuity—are provided in recognition of the employee’s steadfast commitment to the business. EoSB is paid for the duration served cumulative after the employment contract has ended.

Under the employment legislation, the end of service gratuity is defined as the amount of money an employee is entitled once their contract with a company has come to an end. However, in order to receive the gratuity, the employee must have at least 12 months of continuous work rendered for the employer.

The end of service gratuity in Dubai is granted as it follows:

  • the remuneration for 21 days for each year of employment for the first 5 years;
  • the remuneration for 30 days for each year of employment for more than 5 years.

The maximum end of service gratuity is 2 years, provided that the employee has been working for 26 continuous years for the Dubai company. Also, the end of service gratuity is paid without taking into consideration any allowance, bonus or other benefits. Only commissions are included in the end of service gratuity. These payments also apply to foreign citizens working in Dubai.

Calculations for gratuity pay

A worker who has spent one year or more in continuous service shall be entitled to an end of service gratuity upon the termination of his service. The days of absence from work without pay shall not be included in the calculation of the period of service and the gratuity shall be calculated as follows:

  • If a worker has served for less than 1 year, he is not entitled to any gratuity pay.
  • If a worker has served for more than 1 year but less than 5 years, he is entitled to full gratuity pay based on 21 days’ salary for each year of work.
  • If a worker has served more than 5 years, he is entitled to full gratuity of 30 days’ salary for each year of work following the first five years.

In all cases, the total gratuity shall not exceed the wage of two years.

New savings retirement scheme

H.H. Sheikh Hamdan bin Mohammed bin Rashid Al Maktoum, the Crown Prince of Dubai, recently announced a retirement savings plan for foreign workers employed by the Dubai government (the “Scheme”), which went into effect on July 1st, 2022. The introduction of the Scheme is intended to make Dubai’s labour market more appealing, protect the interests of both employers and employees, and support ex-pat retirement planning following global best practices.

The Dubai government has decided to deliver and operate the Scheme through the DIFC Employee Workplace Savings Scheme (or “DEWS”), which Zurich runs in conjunction with Equiom as the Master Trustee and Mercer as the Investment Advisor.

In the DIFC, DEWS was introduced as of 1 February 2020, replacing the statutory ESG scheme. DEWS is generally seen as a first of its kind in the region, introducing a monthly defined contribution saving scheme (akin to a pension), and transforming the way in which end of service benefits are managed. Since its implementation, there have been ongoing discussions in a number of the other free zones concerning the potential introduction of DEWS (or an equivalent scheme). To date, the DIFC is the only UAE free zone that has opted for an alternative to ESG for private sector expatriate employees. 

The long-awaited retirement savings plan for international residents Depending on an employee’s length of service, DIFC employers are required to make monthly contributions into DEWS (or an alternative qualifying scheme) for all eligible employees at the rate of either 5.83% or 8.33% of the employee’s monthly basic income. An employee’s choice to make additional voluntary contributions is theirs (through salary deductions). Employees can either take their collected funds from DEWS upon the eventual cessation of employment or maintain the funds invested and withdraw at a later time.

What happens if the Ex-employer refuses to pay End of Service benefits?

According to the UAE gratuity law, an employee is entitled to immediate payment of their end of service gratuity upon termination, even if the employee is terminated for gross misconduct as detailed in article 120.

The changes made to the gratuity rules under the new labour law have further secured this right. According to the updated law:

  • All end of service benefits of an employee must be paid within 14 days of the end of employment.
  • Employees cannot be terminated without end of service benefits (EOSB) payment.
  • Where employment is terminated due to the death of an employee, the entitlements must be paid to the deceased’s family after deduction of body repatriation costs (where applicable).
  • Unless granted by the law, the employer must not reduce or deduct the gratuity amount based on the employee’s contract type and/or resignation date.

Disputes arise when the ex-employers refuse to pay the due end of service benefits to the employee. The best way to deal with the issue is to file an immediate complaint at the Labour Office and then pursue legal proceedings in the Labour Court. 

In such matters, each case is different from the other and so, a resolution that worked for another employee might not be the best one for you. You can consult Marwa Al Reyami Lawyers and Legal Consultants for legal counsel and dispute resolution.