Table of Contents
- UAE End of Service Gratuity: The Short Answer
- What the Law Says About the UAE End of Service Gratuity
- A Simple Budgeting Model for the UAE End of Service Gratuity
- When the UAE End of Service Gratuity Is Paid
- Resignation, Termination and Probation
- Free Zones, DIFC and ADGM
- Accrue It or Fund It: The Savings Scheme Option
- My View: Treat It as Debt, Not as an HR Detail
- Limits of This Article
- FAQ
- Your Next Step
UAE End of Service Gratuity: The Short Answer
Most foreign founders treat the UAE end of service gratuity as something that happens at the end of a contract. For the company, it starts on the first day of the second year. From then on every employee builds a claim against your business, and you pay it in cash within 14 days of the contract ending.
The rule sits in Article 51 of Federal Decree-Law No. 33 of 2021. A foreign full-time worker with at least one year of continuous service receives 21 days of basic salary for each of the first five years and 30 days for each year after that. The total cannot exceed two years’ remuneration. As of 19 October 2026 that is the position on the mainland and, with the exceptions covered below, in the free zones.
This article is written for owners of foreign-owned companies who need to put a number for the UAE end of service gratuity in the budget. It covers the formula, a monthly accrual model with a worked example, the payment deadline, the difference between resignation and termination, and what changes in DIFC and ADGM.
What the Law Says About the UAE End of Service Gratuity
I read the text of Federal Decree-Law No. 33 of 2021 (the Lexis Middle East copy) and compared it with the UAE Government portal. The two agree on the points that matter for a budget.
| Rule | What Article 51 and 53 say | Budget effect |
|---|---|---|
| Who qualifies | Foreign worker, full-time pattern, at least one year of continuous service | Nothing accrues in practice before month 12, but the claim then covers the whole year |
| Formula | 21 days per year for the first five years, 30 days per year afterwards | About 0.7 of a month’s basic salary per year early on, one full month per year later |
| Part years | Pro rata for fractions of a year once one year is completed | Six extra months adds half a year’s amount |
| Salary base | Last basic salary, which excludes allowances | Every raise to basic reprices all past service |
| Unpaid absence | Days of absence without pay are not counted as service | Unpaid leave slows the accrual |
| Cap | Two years’ remuneration in total | Reached after roughly 25 and a half years on basic pay |
| Deductions | The employer may deduct amounts due legally or by court ruling, under the Implementing Regulation | Do not assume you can offset informally |
| Payment | Within 14 days of contract termination | A cash event, not a bookkeeping entry |
Two details deserve more attention than they usually get. First, the law defines basic salary as the pay fixed in the employment contract that excludes other allowances and benefits in kind. Remuneration is a wider term that includes allowances. The formula uses basic salary, while the cap is written in terms of remuneration, so on a strict reading the ceiling could be higher than two years of basic pay. For planning I use the stricter basic-pay figure, and it hardly matters, as the example below shows.
Second, the statute says “days” and does not say how a daily rate is derived. Published calculators and advisers generally divide monthly basic salary by 30. I use that convention here. If your contracts state a different method, confirm it with the Ministry of Human Resources and Emiratisation (MoHRE) or a labour lawyer before you fix your accounting policy.
A Simple Budgeting Model for the UAE End of Service Gratuity
The easiest way to budget the UAE end of service gratuity is to convert the formula into a percentage of basic payroll. This is my own arithmetic, not a figure from the law. Twenty-one days a year is 21 out of 360, which is 5.83% of basic salary. Thirty days a year is 30 out of 360, which is 8.33%.
Those are the same two percentages that MoHRE sets for its Savings Scheme and that DIFC uses for DEWS, and Mercer notes that DEWS contributions were set to broadly match the old gratuity levels.
Here is the model for an employee on AED 10,000 monthly basic salary who stays with the company. Allowances are ignored because they do not enter the formula.
| Years of service | Calculation | Gratuity owed (AED) |
|---|---|---|
| 1 | 1 x 21 days x 333.33 | 7,000 |
| 3 | 3 x 7,000 | 21,000 |
| 5 | 5 x 7,000 | 35,000 |
| 7 | 35,000 + 2 x 10,000 | 55,000 |
| 10 | 35,000 + 5 x 10,000 | 85,000 |
| 25.5 | 35,000 + 20.5 x 10,000 | 240,000, the two-year basic-pay cap |
For a team, multiply the monthly basic payroll by 5.83% while employees are in their first five years. A company with ten people on AED 100,000 of combined basic salary should set aside about AED 5,833 a month, or AED 70,000 a year, as a reserve for the UAE end of service gratuity. A person who passes year five moves to the 8.33% rate, which is AED 833 a month on a AED 10,000 basic salary.
The raise effect is the part of the UAE end of service gratuity that most budgets miss. Because the law uses the last basic salary, a raise applies to every year already served. Take an employee with four years of service on AED 10,000, whose gratuity stands at AED 28,000. A 10% raise to AED 11,000 lifts the liability to AED 30,800 the day it takes effect. The raise costs the company the extra salary going forward and AED 2,800 of back-dated gratuity at once.
A full exit costs more than the UAE end of service gratuity alone. The employee is also entitled to full remuneration during the notice period, which Article 43 sets between 30 and 90 days, and to all other entitlements under the contract. Budget the three together: notice pay, gratuity and the remaining entitlements.
When the UAE End of Service Gratuity Is Paid
Article 53 says the employer must pay the worker’s remuneration and all other entitlements, including the UAE end of service gratuity, within 14 days of the date the contract ends. The UAE Government portal repeats the same deadline.
The practical consequence of the UAE end of service gratuity is cash planning. An unfunded accrual is an accounting entry until one morning it becomes a payment of tens of thousands of dirhams due in two weeks. A company that loses three long-serving employees in one quarter, for example after a restructuring, feels that as a single cash event. I recommend a dedicated reserve account rather than a line in the general budget, and a quarterly update of the figure against the latest basic salaries.
Deductions from the UAE end of service gratuity are allowed only for amounts due legally or by judicial ruling, following the conditions in the Implementing Regulation. If an employee owes the company a loan or has caused a loss, treat the deduction as a legal step with documents behind it, not as a quiet adjustment on the final payslip.
Resignation, Termination and Probation
Under the previous law, an employee who resigned early received a reduced UAE end of service gratuity. The new Decree-Law removed that. Morgan Lewis notes that there is no longer a reduction for resignation and that an employer can no longer withhold the gratuity from an employee dismissed for cause. Article 51 itself makes the entitlement depend on one thing: a full-time foreign worker with one year or more of continuous service.
| Situation | Gratuity under the Decree-Law |
|---|---|
| Resigns after 11 months | None, because the one-year condition is not met |
| Resigns after 3 years | Full: 3 years x 21 days of basic salary |
| Dismissed with notice after 6 years | Full: 5 x 21 days plus 1 x 30 days, plus notice pay |
| Dismissed for cause, one year or more | Still payable according to Morgan Lewis; the employer cannot withhold it |
| Part-time or other work pattern | Pro rata by contracted hours under Article 30 of Cabinet Resolution No. 1 of 2022 |
The consequence for a founder is that the UAE end of service gratuity cannot be used as a retention tool or a penalty. It is a deferred wage. Teams with high turnover do not escape it, because even an employee who stays two years leaves with 42 days of basic salary. If you are planning the hiring side now, my guide on hiring your first team in the UAE covers the cost of each hire before this liability starts.
Free Zones, DIFC and ADGM
Free zone does not mean a separate labour law for the UAE end of service gratuity. Article 3 of the Decree-Law applies it to all establishments, employers and workers in the private sector in the State, and the exclusions are limited to government employees, the armed forces and security staff, and domestic workers. I found no source that carves out an ordinary free zone. The UAE Government portal also describes the Savings Scheme as applying to the private sector and free zones.
The two financial free zones treat the UAE end of service gratuity differently. Morgan Lewis states that the employment regulations of DIFC and ADGM remain unchanged by the federal Decree-Law.
| Jurisdiction | End-of-service treatment | Source |
|---|---|---|
| Mainland and ordinary free zones | UAE end of service gratuity under Article 51: 21 and 30 days, two-year cap, 14-day payment | Decree-Law 33 of 2021; UAE Government portal |
| DIFC | Funded DEWS plan since 1 February 2020; employer contributes at least 5.83% of basic salary for under five years of service and 8.33% for longer service; no new gratuity accrual from that date, while earlier accrued benefits remain | Mercer |
| DIFC, 2024 amendment | Top-up payments into a Qualifying Scheme for eligible UAE or GCC nationals where pension contributions fall short of DEWS, with a minimum of AED 1,000 | DLA Piper |
| ADGM | Employment Regulations 2024 in force from 1 April 2025; gratuity payable regardless of the reason for termination; two-year cap removed; employer may offer a pension or savings scheme instead | Clyde & Co |
The DIFC and ADGM rows come from law-firm summaries: Mercer, DLA Piper and Clyde & Co. I did not open the DIFC or ADGM regulations themselves, so before you hire in either centre, read the current text or ask your adviser, particularly on the ADGM calculation details and how pre-DEWS gratuity is valued in DIFC.
For a foreign-owned company the practical question is where the employees are contracted, not only where the company is registered. A DIFC entity pays into DEWS. A company with an ordinary free zone licence budgets the federal gratuity. This is one more reason to compare structures properly, a theme I come back to in why foreign businesses struggle in Dubai.
Accrue It or Fund It: The Savings Scheme Option
Article 51(8) allows the Cabinet to approve alternative systems to the UAE end of service gratuity. MoHRE’s Savings Scheme is one. According to the UAE Government portal, participating employers contribute every month to an investment fund approved by the Securities and Commodities Authority. The contribution is 5.83% of monthly basic salary for an employee with under five years of service and 8.33% above five years, transferred within 15 days of the start of each calendar month. Ministerial Resolution No. 668 of 2023 governs the subscription.
Three points matter for the budget of this alternative to the UAE end of service gratuity. The scheme is voluntary, and an employer may enrol all staff or selected groups. Once an employee is enrolled, the employer stops applying the traditional gratuity to that person, but must still calculate and settle the gratuity accrued before enrolment. And the employee is entitled to the contributions plus investment returns, payable within 14 days after employment ends, so the company’s cost is the contribution rather than an open-ended liability.
| Approach | Monthly cash cost | Exit-day surprise | Best fit |
|---|---|---|---|
| Unfunded accrual with a reserve | None, unless you fund the reserve | Full gratuity within 14 days | Small teams, flexible cash, short expected tenure |
| Funded reserve account, company-controlled | 5.83% to 8.33% of basic | Covered if the reserve is kept current | Companies that want control and a clean balance sheet |
| MoHRE Savings Scheme | 5.83% to 8.33% of basic, paid to the fund | Employee is paid by the fund; employer must still settle pre-enrolment accrual | Larger teams that want predictable cost and lower dispute risk |
I could not confirm from the portal whether the 8.33% rate applies to the full basic salary once an employee passes five years, or how the scheme treats an employee who joins mid-year. Ask the fund provider for the contribution schedule in writing before you enrol anyone.
My View: Treat It as Debt, Not as an HR Detail
The weakest position I see on paper is the company that carries no reserve for the UAE end of service gratuity and learns the number when the first long-serving employee leaves. My recommendation is simple. Treat the UAE end of service gratuity as a debt that grows every month, put it into the financial model on day one, and decide deliberately whether you will hold the cash yourself or move it into a fund.
I would not use salary structuring to shrink the UAE end of service gratuity. A very low basic salary with large allowances lowers the gratuity base, but it also invites disputes about what the contract really agreed, and employees notice. The saving is small compared with the risk. A cleaner approach is to set a realistic basic salary and budget the 5.83% properly.
The liability also surfaces at the wrong moment. In a share sale the buyer usually takes over the employees, and the law counts service with a legal successor as continuous, so a missing reserve shows up in due diligence when selling a UAE company. And if some of your roles must go to UAE nationals under the Emiratisation requirements, remember that those employees follow the pension route, so the cost model changes for them.
None of this should discourage anyone from hiring in the UAE. A reserve of 5.83% of basic payroll for the UAE end of service gratuity is manageable if it is planned. It becomes painful only when it is a surprise.
Limits of This Article
The statute text on the UAE end of service gratuity comes from the Lexis Middle East copy of Federal Decree-Law No. 33 of 2021 and the UAE Government portal.
I could not open the official legislation portal, the Implementing Regulation text on deductions, the DIFC and ADGM regulations or the full Savings Scheme resolution. The 30-day daily-rate convention, the DIFC and ADGM details and the rate structure of the Savings Scheme need confirmation for your case. Figures and rules are as of 19 October 2026. The worked examples are illustrations, not payroll advice, and this article is general information, not legal advice.
FAQ
Is end of service gratuity paid in the UAE if an employee resigns?
Yes. Article 51 of Federal Decree-Law No. 33 of 2021 contains no reduction of the UAE end of service gratuity for resignation, and Morgan Lewis notes that the old resignation reduction was dropped. The condition is at least one year of continuous service. A worker who resigns after eleven months receives nothing under the UAE end of service gratuity rules, and one who resigns after three years receives the full 21 days of basic salary for each year.
Which salary is used to calculate the gratuity?
The last basic salary the worker was entitled to. The UAE Government portal states that housing, transport, utilities and furniture allowances are not included. The law defines basic salary as the pay set in the employment contract excluding other allowances and benefits in kind, so the split between basic and allowances in your contract decides the size of the liability.
Is there a cap on the UAE end of service gratuity?
Yes. Article 51(6) says the gratuity of a foreign worker shall not exceed two years’ remuneration, and the UAE Government portal repeats it as the wage of two years. On a basic-salary reading, the cap is reached only after about 25 and a half years of service, so most start-up and SME budgets will never meet it.
When must the employer pay the gratuity?
Article 53 requires the employer to pay the worker’s remuneration and all other entitlements, including the gratuity, within 14 days of the date the contract ends. The notice period is separate from the UAE end of service gratuity: during it the worker is entitled to full remuneration.
Do free zone companies have to pay end of service gratuity?
Companies in ordinary free zones owe the UAE end of service gratuity because they fall under the federal Decree-Law, whose scope covers private-sector establishments in the State. DIFC and ADGM run their own employment regimes. DIFC replaced the gratuity with the funded DEWS plan from 1 February 2020, and ADGM’s 2024 regulations keep a gratuity with a pension or savings option. I did not find a source that exempts any other free zone.
Does the employer pay gratuity to Emirati employees?
Not in the same way. Article 51(1) says UAE national workers receive their end-of-service benefits under the pension and social security legislation. The employer budgets pension contributions for them, not a 21-day and 30-day gratuity accrual. The rates are outside the scope of this article.
Your Next Step
If you are building a UAE payroll and want a second view on how the UAE end of service gratuity fits into your cash plan and employment structure, use our contact page to discuss it.
