End‑of‑Service Benefits (EOSB) and Gratuity in UAE: 2025 Guide for Employers & Employees
- Aamer Jarg
- Nov 15
- 8 min read
Introduction
In the UAE, the term End-of-Service Benefits (EOSB) (often simply called gratuity) refers to the statutory lump-sum payment made to an employee when their employment comes to an end, provided they have completed at least one year’s continuous service. (UAE Government)
This benefit is calculated primarily on the basis of the employee’s last basic salary (not including allowances) and the length of service. Employers are required to pay it within a specified timeframe after contract termination. The rules differ slightly depending on whether the employment falls under mainland regulation, a free-zone such as Dubai International Financial Centre (DIFC) or Abu Dhabi Global Market (ADGM), or other special arrangements.
Because the legislative framework changed significantly in recent years (notably under Federal Decree‑Law No. 33 of 2021) it is more important than ever for employers and HR professionals to be fully across the rules and for employees to know their rights. (Morgan Lewis)
Talent Shark Gratuity Calculator: To simplify calculation and ensure accuracy, use our internal tool: Talent Shark Gratuity Calculator
What Counts as Salary for EOSB?
One of the most common misunderstandings relates to which salary components are used in the calculation. Only the basic salary that is used for Gratuity Calculations, allowances such as housing, transport, utilities, bonuses or overtime are not included.
If you include allowances, you’ll over-state the liability (as an employer) or the entitlement (as an employee).
Determine the “basic salary” figure (this should be clearly defined in the employment contract).
Calculate the daily rate by dividing the basic monthly salary by 30 days (per the UAE regulatory guidance). (Dubai Development Authority)
Use that daily rate as the basis for the “days of gratuity” in the calculation (see next section).
How EOSB Is Calculated in Mainland UAE
Step 1: Eligibility
An employee must have completed at least one continuous year of service to be entitled to gratuity.
Points to note:
Periods of unpaid leave or “absence without pay” are not counted as part of the continuous service period.
If the service is less than 1 year, the standard gratuity does not apply under federal law.
The nature of contract termination (resignation vs dismissal) no longer affects the entitlement (see later section).
Step 2: Calculation Formula
Under the UAE’s current law (Federal Decree-Law 33/2021 and its Executive Regulations): (UAE Legislation)
For the first 5 years of service: employee is entitled to 21 days basic salary per year.
For each year beyond 5 years: entitlement rises to 30 days basic salary per year.
Total gratuity paid cannot exceed the equivalent of 2 years basic salary (i.e. 24 months of basic wage) despite longer service.
Example Calculation
Let’s walk through a worked example (and you may mirror this in your blog for clarity).
Suppose:
Basic monthly salary: AED 12,000
Service period: 6 years and 4 months
Assume the employee had 2 months’ unpaid leave, so the “countable service” = 6 years 2 months
Daily basic salary = AED 12,000 ÷ 30 = AED 400
Gratuity days = (21 days × first 5 years) + (30 days × 1.1667 years) → = (21×5) + (30×1.1667) ≈ 105 + 35 = 140 days
EOSB = 140 × AED 400 = AED 56,000
Cap-check: 24 × AED 12,000 = AED 288,000 → so AED 56,000 is well under.
This aligns with formula and industry guides.
Step 3: Payment Timeline
Employers must pay the EOSB and all final dues within 14 days of the contract ending or termination of employment. Failure to do so may expose the employer to Labour-dispute risk via Ministry of Human Resources and Emiratization (MoHRE) or other relevant bodies.
Part-time, Temporary & Flexible-Hours Contracts
The modern Labour market increasingly features non-traditional working arrangements. The good news: employees working part-time or on flexible contracts are still eligible for EOSB, but their entitlement must be pro-rated according to their working hours compared with a full-time equivalent.
How to treat this:
Determine what constitutes full-time hours in your organisation.
Calculate the ratio (e.g., 20 hours/week vs 40 hours/week → 0.5 full-time)
Apply that ratio to the standard gratuity formula (i.e., basic daily wage × days entitlement × ratio).
Ensure record-keeping is detailed so your HR system can justify pro-rations.
Voluntary EOSB Savings/Scheme Alternatives
The UAE has introduced optional schemes where employers can contribute monthly into a government-approved savings or fund instead of making a lump sum EOSB payment when employment ends. This benefits both sides: smoother cash-flow for employers and investment growth potential for employees.
Key considerations:
Check eligibility and approved funds under MoHRE or applicable free zone authority.
Communicate clearly to employees: choice of standard gratuity vs savings scheme (where available) must be documented.
Ensure your HR & payroll systems capture monthly contributions, employee records and opted-in status.
If you adopt the scheme, you may not need to calculate lump sum gratuity, but one must ensure authority approval and employee consent.
Special Rules for Free Zones: DIFC / ADGM
DIFC (Dubai International Financial Centre)
Within DIFC, the EOSB regime differs: instead of the standard lump sum gratuity under the mainland law, employers contribute monthly to the DIFC Employee Workplace Savings (DEWS) Scheme.
Contribution rates:
5.83% of basic salary for service under 5 years
8.33% for service over 5 years.
ADGM (Abu Dhabi Global Market)
From April 2025, under ADGM the employee may choose between the standard gratuity system or a savings/pension-plan alternative. If the savings plan is chosen, the lump sum gratuity does not apply.
Employer/HR action-points for Free Zones:
Check which law/regime your entity falls under (DIFC, ADGM or mainland)
If you are in a free zone with alternate scheme: ensure employee enrolment, monitoring and opting are handled
Adjust contract clauses accordingly (so that employees are aware of whether a standard gratuity or alternative scheme applies).
What Factors Affect UAE Gratuity?
Several elements influence the final gratuity amount in the UAE. Your entitlement is shaped by the following:
• Type of employment contract
• Last basic salary received
• Total years and months of continuous service
• Whether the employee resigned or was terminated
• Any unpaid leave that reduces service length
• Rules of the specific free zone, if applicable
• Whether the employee is under MOHRE, a free zone, DIFC or ADGM
These factors ensure the calculation is fully aligned with UAE Labour regulations.
Domestic Workers
For domestic workers (e.g., nannies, drivers, household staff) the situation is different: they are covered by a separate law and, currently, there is no fixed formula defined uniformly for their EOSB/gratuity. Employers must stay updated with the latest rulings by MoHRE or relevant authority. (The Sovereign Group)
Key take-aways for domestic employers:
Do not assume the standard 21-/30-day formula automatically applies
Document clearly in the employment contract how EOSB will be treated
When in doubt, seek legal/HR consultancy to ensure compliance.
Payment & Disputes
Employers must pay the EOSB (and all other final dues) within 14 calendar days of contract termination.
Employers can deduct lawful debts or advances owed by the employee from the gratuity, provided that the deductions are permitted and properly documented.
Importantly: under the new law the old reductions (e.g., paying only one-third or two-thirds of gratuity if the employee resigned early) are no longer valid. This means an eligible employee who resigns (after 1 year) is still entitled to full gratuity, subject to the standard calculation.
If an employment dispute arises (for example, EOSB not being paid on time), the employee may apply to MoHRE for resolution or may escalate to court. (UAE Legislation)
Common Mistakes to Avoid
For Employers and HR teams, slipping up on gratuity obligations can lead to legal risk, employee dissatisfaction, and HR reputation damage.
Here are frequently seen errors:
Using gross salary/total remuneration instead of basic salary for calculation.
Missing the 14-day payment deadline which leaves liability open to enforcement.
Counting unpaid leave (or extended absence without pay) as service time.
Applying old resignation rules (such as reduced entitlement for short service) which is now outdated under the newer law.
Incorrectly treating part-time / flexible hours employees as full-time, thereby over-paying (or mis-calculating).
Failing to enforce/cap at the two years basic salary ceiling.
Contract terms (for free zone vs mainland) not aligned with applicable law/regime.
Checklist for Employers
To ensure full compliance and HR best practice, work through this checklist:
Review and update employment contracts and HR policy to reflect the current law (Federal Decree-Law 33/2021) and applicable regime (mainland or relevant free zone).
Identify and log each employee’s basic salary separately from allowances, for accurate calculation.
Maintain detailed records of service start date, any unpaid leave/absences, contract renewals/extensions, and hours worked (for part-time/flexible roles).
Set up automated HR reminders for contract termination/employee exit to trigger gratuity payment within 14 days.
Use a reliable gratuity calculator (e.g. Talent Shark Gratuity Calculator) to validate amounts.
For part-time/flexible staff: calculate pro-ration based on actual working hours vs full-time hours.
If operating in a free zone (DIFC, ADGM etc.), identify which rules apply (standard gratuity vs savings scheme) and communicate clearly to employees.
Document and manage any employer contributions into savings/EOSB schemes if adopted.
Handle employee termination/contract end process to ensure final payments include gratuity, unused leave, notice calculation etc.
Train HR/admin staff on the new law, eligibility rules and calculation methodology to avoid errors.
Conduct periodic audits of outstanding gratuity liabilities (especially for long-service staff) and plan cash-flow accordingly.
Quick Guide for Employees
If you’re an employee in the UAE, here’s what you should know to protect your rights:
Keep a record of your basic salary (as per your employment contract), based on this your gratuity will be calculated.
Make sure you know the start date of your continuous service and keep track of any extended unpaid leave or absences.
Identify whether your work is under mainland UAE legislation or a free zone (DIFC/ADGM) as rules may differ.
Upon contract termination, check the cash-out of your EOSB:
Are you entitled (≥ 1 year’s service)?
Has the employer paid the correct formula (21 days/year for first five years, 30 days/year after) based on your basic salary?
Has payment been made within the 14-day window?
If payment is delayed or you suspect mis-calculation, you can contact MoHRE or your free-zone regulator for help.
Use a reliable gratuity calculator (e.g., Talent Shark Gratuity Calculator) to estimate your entitlement.
Frequently Asked Questions (FAQ)
Q1. Do I still get EOSB if I am fired for misconduct?
A: Yes, under the new law, as long as you have completed at least one year of continuous service, you are entitled to the full gratuity entitlement. The employer cannot automatically withhold gratuity for gross misconduct.
Q2. If I resign, do different rules apply?
A: Under the old law there were reductions (e.g., one-third or two-thirds), but with the new Labour law regime, the focus is on the service years and basic salary since the “resignation reductions” are no longer automatically valid.
Q3. What about employees in free zones, do they follow the same rules?
A: Not always. Free-zones such as DIFC or ADGM may have different frameworks (e.g., savings schemes instead of lump sum gratuity). You must check the specific employment law applicable in the free zone.
Q4. Can the employer deduct debts/advances from my gratuity?
A: Yes, lawful deductions can be applied (for example repayment of advances) subject to the law and clear documentation. (UAE Legislation)
Q5. What happens if the employer doesn’t pay within 14 days?
A: The employee may lodge a complaint with MoHRE (or relevant authority) and the employer may face administrative penalties and be compelled to pay the outstanding dues. (UAE Legislation)
Q6. How do I know when I hit the maximum gratuity cap?
A: The law sets a maximum of two years’ basic salary for gratuity. Once the calculated entitlement reaches that ceiling, further years do not increase the amount.
Summary & Key Take-Aways
EOSB (gratuity) is a statutory entitlement in the UAE for employees with at least one year of continuous service.
Calculation is based solely on basic salary and uses: 21 days per year for first five years, then 30 days per year beyond five. Service periods of unpaid leave are excluded, and total gratuity cannot exceed two years’ basic salary.
Employers must pay within 14 days of service termination. Law no longer allows automatic reduction of entitlement for resignation or dismissal (assuming eligibility).
Part-time, flexible and free-zone arrangements require additional attention (pro-rations, alternate schemes).
Employers should have robust HR systems, accurate record-keeping, and clear communication to ensure compliance. Employees should proactively know their rights, track their service and salary components, and verify their entitlement.
For ease and accuracy in calculation, use our in-house tool: