A clear policy document explaining how end-of-service gratuity is calculated, accrued, and paid under Article 51 of Federal Decree-Law No. 33 of 2021. Use it to onboard new hires and resolve EOS disputes consistently.
EOS gratuity is the single most-disputed line item in UAE final settlements. Mistakes cost money on both sides — employees challenge under-calculations at the MoHRE labour office; employers over-pay when the policy is unclear. A written EOS policy aligned to Article 51 turns every separation into a rule-based calculation rather than a negotiation.
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END-OF-SERVICE GRATUITY POLICY
[COMPANY NAME]
1. PURPOSE
This policy explains how end-of-service gratuity ("EOS") is calculated, accrued, and paid to employees of [COMPANY NAME] in line with Article 51 of UAE Labour Law (Federal Decree-Law No. 33 of 2021).
2. APPLICABILITY
Applies to all UAE-based employees on private-sector contracts, after completing one (1) year of continuous service. Does not apply to UAE National employees covered by GPSSA contributions in lieu of gratuity.
3. CALCULATION BASIS
- Gratuity accrues on **basic salary** only (excludes housing, transportation, and other allowances).
- The calculation rate per year of service is:
- **21 days' basic salary** for each of the first 5 years of service
- **30 days' basic salary** for each subsequent year (years 6 and beyond)
- The total gratuity is capped at **24 months' total gross salary** under the legal maximum.
4. CONTRACT TYPE
Under the 2021 law, the calculation is identical for limited and unlimited contracts. The earlier distinction (with limited contracts giving full gratuity and unlimited giving 1/3 / 2/3 / full based on years) was abolished.
5. ACCRUAL METHOD
The Company accrues EOS each pay period in proportion to the employee's basic salary. Accrued balances are visible to each employee on the Peoplifi mobile self-service app.
6. WORKED EXAMPLE
Employee: 7 years, 4 months of service. Last basic salary: AED 20,000.
- First 5 years: 5 × 21 days × (AED 20,000 / 30 days) = AED 70,000
- Year 6: 30 days × (AED 20,000 / 30) = AED 20,000
- Year 7: 30 days × (AED 20,000 / 30) = AED 20,000
- 4 months pro-rata of year 8: (4/12) × 30 × (AED 20,000 / 30) = AED 6,667
- **Total EOS: AED 116,667**
7. PARTIAL YEARS
For service of less than one year, no EOS is payable. After year one, partial-year service is pro-rated against the relevant year's daily rate (21 days for years 1–5, 30 days for year 6+).
8. TERMINATION FOR CAUSE (Article 44)
Employees dismissed for one of the grounds enumerated in Article 44 of UAE Labour Law (gross misconduct, conviction, etc.) forfeit their EOS gratuity. The Company will document the basis and provide written notice of forfeiture.
9. RESIGNATION
Under the 2021 law, employees who resign after at least one year of service are entitled to the full EOS calculated above — there is no longer a 1/3 / 2/3 / full discount based on years of service or contract type.
10. PAYMENT TIMING
EOS is paid as part of the final settlement within 14 days of the last working day, alongside any unpaid salary, accrued unused leave, and other final dues.
11. ACKNOWLEDGEMENT
I have read and understood this end-of-service gratuity policy.
Employee Name: ____________________
Employee ID: ____________________
Signature: ____________________
Date: ____________________Federal Decree-Law No. 33 of 2021 (effective February 2022) unified the calculation across limited and unlimited contracts: 21 days' basic per year for years 1–5, 30 days' basic per year thereafter, capped at 24 months total. The pre-2022 distinction (where unlimited-contract resignations got 1/3 / 2/3 / full based on years) was abolished.
Basic salary only. Allowances (housing, transportation, education) do not count toward gratuity. This is why the basic vs total breakdown on the offer letter matters so much.
No. UAE Nationals are covered by GPSSA (General Pension and Social Security Authority) contributions throughout employment, which serves the same purpose. Employers contribute 12.5% and the employee 5% of GPSSA-eligible wages.
DIFC and ADGM have their own employment laws (DIFC Law No. 4 of 2021, ADGM Employment Regulations 2019) with EOS or 'qualifying scheme' rules that may differ. Most other free zones (JAFZA, DMCC, RAKEZ, etc.) follow Federal UAE Labour Law and Article 51.
End-of-service gratuity is the largest single contingent liability most UAE employers carry on their balance sheet, and the largest single payment most expatriate employees expect at separation. Despite the substantial financial significance to both sides, gratuity is one of the most-disputed areas of UAE employment relationships — typically because employees and employers have different mental models of how the calculation works, what counts as 'basic' for the calculation, when forfeiture under Article 44 is appropriate, and how the pre-2022 vs post-2022 service split applies for long-tenured employees. A written gratuity policy that documents the company's specific approach prevents these disputes and supports clean separation conversations.
The current Article 51 calculation (Federal Decree-Law No. 33 of 2021, effective February 2022) is: 21 days of basic salary per completed year for years 1-5, 30 days per completed year for years 6+, capped at 24 months of total gross salary. Calculation is on last drawn basic only — allowances do not count. Pro-ration applies for partial years beyond the 12-month qualifying threshold. The unified calculation replaced the pre-2022 dual regime where unlimited-contract resignations got reduced gratuity (one-third / two-thirds / full); under the current law, contract type and which party initiated separation no longer affect calculation. For long-tenured employees crossing the February 2022 boundary, hybrid calculation may apply: pre-2022 service under old rules, post-2022 service under Article 51, summed together. Many employers simplify by applying the new rules to all service, which is more generous to employees and avoids procedural complexity.
Because gratuity is calculated on basic salary only, the basic-vs-allowance split materially affects gratuity exposure. A 50% basic / 50% allowance split delivers half the gratuity that a 100% basic structure would; a 30% basic / 70% allowance split delivers materially less. Employers commonly load allowances (housing, transport, education, mobile, utility) to manage gratuity exposure while delivering competitive total compensation. However, extreme compression of basic — to 10-20% of total — has been challenged in MoHRE proceedings and labour courts on the grounds that the structure is artificial and designed to defeat the gratuity entitlement. Best-practice splits keep basic at 50-60% of gross, providing defensible gratuity calculations while still allowing reasonable allowance-driven cost management. The policy should clearly document the company's standard split and any role-specific variations.
Article 44 lists eleven specific grounds on which an employer can summarily dismiss an employee without notice and forfeit their gratuity entirely. The grounds include false identity at hire, errors causing material employer loss, repeated breach of safety instructions, failing essential duties despite warnings, disclosure of confidential information, criminal conviction for offences involving honour or honesty, drunkenness or psychotropic-substance use at work, assault on employer or colleagues, unauthorised absence (typically 7 consecutive or 20 non-consecutive days per year), misuse of position for personal gain, and joining another employer in violation of contract terms. Forfeiture under Article 44 requires (1) Substantive grounds genuinely fitting one of the listed categories. (2) Documented investigation with charge sheet, employee response opportunity, and findings. (3) Specific Article 44 sub-clause cited in the dismissal letter. (4) Action taken in close temporal proximity to the alleged misconduct. Procedurally-defective Article 44 dismissals are routinely overturned at MoHRE with full gratuity reinstated, plus damages.
Article 53 of the new Labour Law requires all final dues — gratuity, accrued unused leave, salary up to last working day, notice-period payment if applicable — to be paid within 14 days of the last working day. This is a tight window and one of the most policed compliance points. Failing to meet the 14-day deadline exposes the employer to labour-court claims for the underlying amounts plus delay damages. Best practice is to run final settlement in parallel with the notice period so funds are ready on day one of the 14-day window. Employers structuring early-exit pay-in-lieu-of-notice should pay all amounts (notice + gratuity + leave encashment + final salary) on the actual last working day to ensure compliance.
Employees in DIFC and ADGM are not covered by Article 51. DIFC operates DEWS (DIFC Employee Workplace Savings) — a defined-contribution scheme replacing traditional gratuity through monthly employer contributions of 5.83% of basic salary for years 1-5 and 8.33% for years 6+. ADGM operates a similar mandatory workplace savings scheme using approved providers (Mercer GIM and others). Multi-jurisdiction employers must apply the right end-of-service framework per employee location: Article 51 gratuity for MoHRE-jurisdiction, DEWS for DIFC, qualifying-scheme for ADGM. Employees moving between jurisdictions during their UAE tenure may have hybrid records reflecting time under each framework.
Article 51 gratuity creates a defined-benefit obligation that accrues over employment tenure and must be recognised on the employer's balance sheet under IAS 19 (the international equivalent of UAE-adopted IFRS). Most large UAE employers run actuarial valuations annually, projecting gratuity cash flows under expected attrition, salary growth, and discount rates. The provision is typically 5-10% of annual payroll for a mature workforce — material for any meaningful organisation. Some employers fund the provision through escrow or trust arrangements; others run it as an unfunded liability and pay out from operating cash flow at separation. The gratuity policy should document the company's provisioning methodology and reference the annual actuarial-valuation requirement for IFRS-compliant accounts.
Customisation points include (1) **Standard basic-vs-allowance split** — typically 50-60% basic; document any role-specific variations. (2) **Article 44 invocation procedures** — internal investigation steps, approval authorities, documentation requirements. (3) **Pre/post-2022 hybrid treatment** — whether long-tenured pre-2022 employees get hybrid or all-new-rules calculation. (4) **Final-settlement workflow** — timing, approval chain, and IBFT versus cheque disbursement. (5) **DIFC/ADGM scope** — clear boundary if the company operates entities in financial free zones. (6) **Provisioning methodology** — IAS 19 actuarial valuation timing and inputs. (7) **Voluntary additional gratuity** — some employers offer enhanced gratuity beyond statutory; document the formula. (8) **Death and disability provisions** — payment to nominees or legal heirs through proper UAE Sharia-court probate process. (9) **Repatriation airfare** — for non-UAE-Nationals returning home post-separation. Have UAE employment counsel review before rollout.
Peoplifi generates UAE-compliant offer letters, warning letters, and policy packs from your employee data in one click — referenced against the Standing Orders Ordinance and applicable provincial law, with no copy-pasting and no version drift.