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Calculating End of Service Benefits in UAE

Calculating End of Service Benefits in UAE

Calculating End of Service Benefits in UAE

The End of Service benefits (EoSB) is one of the unique features of UAE labour law. These benefits are given to the employees as a token of respect after their resignation or the termination of an employment contract. It is a legal right of the employee to receive all these benefits from its employer. The Federal Law No. 8 of 1980 (UAE Labour Law) deals with all the aspects of EoSB.

Among all the end service benefits, the most important is the Gratuity pay. It is a monetary compensation which is given to the employee on an accumulated basis  after the end of his/her service period.  The amount of gratuity mainly depends upon the type of contract between the parties, and the tenure of the job.

There are mainly two types of contracts in the UAE.

  1. Limited Contract – These contracts are made for a specific project, or for a limited time duration. After the lapse of time or the accomplishment of the project, the contract is terminated.
  2. Unlimited Contract – In this type of contract, there is no expiry date. However, the employer can terminate the employee from the job, or the employee can himself resign by giving a one-month written notice.

Amount of Gratuity in case of Limited Contract

In case the employee is terminated from the a limited contract, he will be entitled for a gratuity, which will be calculated as follows-

  • If the duration of the job is Less than 1 year, the employee will not be entitled for the gratuity amount
  • If the tenure of the job falls between 1 to 5 years, the gratuity pay would amount to 21 days salary for every year of service. For instance, if you have worked for 4 years in a company, your gratuity would be 21 days wage multiplied by 4.
  • If the employee works for more than 5 years, the gratuity would amount to 30 days salary for each year worked over the 5-year threshold.

It is important to note that if the employee resigns from the job voluntarily, then he only be eligible to receive the gratuity if he worked for more than 5 years.

Calculating Gratuity Amount in case of Unlimited Contract

When an employer terminates the employee from an unlimited contract, the gratuity will be calculated on the basis of the following guidelines-

  • If the service period is less than 1 year, there is no requirement of gratuity payment.
  • If the service period falls between 1 to 3 years, the employee will receive a gratuity amounting to 1/3rd of the basic salary of each year served.
  • On service of more than 3 years and less than 5 years, the employee would receive a gratuity amount of 2/3rd of the basic salary for each year served.
  • For employees who work for more than 5 years, the gratuity amounts to 30 days of the basic salary for each year served with a condition that the maximum amount doesn’t exceed the employee’s two years’ pay.

If the employee resigns from an unlimited contract voluntarily, the gratuity would be as follows-

  • If the service period is less than 1 year, no gratuity payment will be made.
  • If the service period is between 3-5 years, the employee would receive 1/3rd of 21 days basic salary. (The important difference between termination and voluntary resignation is that in the former, the gratuity is determined on the basis of 30 days salary whereas in the latter, the gratuity is calculated on the basis of 21 days).
  • If the service period falls between 3-5 months, the employee would receive a gratuity amounting to 1/3rd of 21 days basic salary.
  • If the employee serves more than 5 years, their gratuity entitlement amounts to 30 days basic salary for each year.

Further, If an employee is unfairly terminated from the job, then he will also be entitled for an additional remuneration of his/her 3 months salary.

The employee is entitled for the immediate payment of the gratuity amount. If your employer is not paying your legally entitled momey, you can contact a lawyer and initiate proceedings in the labor court.

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