The short version
Twenty-one days, thirty days, the two-year cap and the unpaid-leave exclusion, with the arithmetic written out, and the three places payroll teams most often get it wrong.
End-of-service gratuity is the calculation most often argued about at offboarding, and the one most often done in a spreadsheet that nobody owns. Federal Decree-Law No. 33 of 2021 (in force since February 2022) simplified the rules considerably, but the simplification introduced its own traps. This is the whole calculation, written out.
The base rule
For a foreign full-time employee covered by the federal private-sector gratuity framework, at least one year of continuous service is required. The calculation uses the last basic salary, excluding allowances:
- 21 calendar days of basic pay for each of the first five years of service.
- 30 calendar days of basic pay for each year beyond the fifth.
- The total is capped at two years' total wage.
The daily rate is the monthly basic divided by 30, a calendar-day divisor, not a working-day one. That single detail accounts for a large share of the disputes we see.
A worked example
An employee on AED 20,000 basic, leaving after 12 years of continuous service:
| Step | Arithmetic | Result |
|---|---|---|
| Daily rate | 20,000 ÷ 30 | AED 666.67 |
| First 5 years | 666.67 × 21 × 5 | AED 70,000 |
| Years 6–12 (7 years) | 666.67 × 30 × 7 | AED 140,000 |
| Total | 70,000 + 140,000 | AED 210,000 |
| Two-year wage cap | 20,000 × 24 | AED 480,000, not reached |
This example assumes the employee’s wage is AED 20,000 with no additional allowances. Review the applicable wage basis and cap for the actual employment arrangement rather than treating this example as a final settlement calculation.
Three places it goes wrong
1. Counting unpaid leave as service
Periods of unpaid leave do not count toward the length of service used in the gratuity calculation. If an employee took four months of unpaid leave across their tenure, the service used for accrual is reduced accordingly. A payroll system that computes service as a simple difference between joining and leaving dates will overstate the entitlement.
2. Using gross instead of basic
Housing, transport and other allowances are excluded from the accrual base. Where a contract is structured with a low basic and heavy allowances, the gratuity is correspondingly lower, which is lawful, but should be disclosed clearly at offer stage rather than discovered at exit.
3. Applying the old resignation reductions
Do not carry historical resignation-reduction formulas into a calculation under the current federal framework. Confirm the applicable employment regime, service history and any alternative end-of-service scheme before calculating the amount.
DIFC is a different regime
Employees under the DIFC Employee Workplace Savings scheme (DEWS) accrue into a funded plan through monthly employer contributions rather than a lump-sum entitlement calculated at exit. If you operate entities both inside and outside the DIFC, you are running two schemes simultaneously and they should not share a code path.
This article is general information about UAE labour law, not legal advice. Confirm the treatment of any specific case with your own counsel.