Gratuity Rules in UAE: Eligibility, the 24-Month Cap and Unlimited Contracts
Published · 8 min read
Searching for the gratuity rules in UAE usually means one of two things: you want to know whether you qualify at all, or you already know you qualify and want to understand exactly how the number is built. This guide covers both — the one-year eligibility test, the two accrual tiers, the 24-month cap, and the cases where the entitlement can be lost or reduced — using the same calculation engine that powers the calculator on this site, so every figure below is a real output, not a rounded estimate.
Gratuity Eligibility in the UAE: The One-Year Rule
Before any accrual math applies, gratuity eligibility UAE law sets one hard condition: at least one full year of continuous service with the same employer. Serve less than that and no gratuity is owed at all, regardless of basic salary or reason for leaving. Serve exactly one year, and the entitlement kicks in from day one of that first year — an employee on AED 10,000 basic salary who completes precisely one year of continuous service and then leaves accrues 21 days at the first-tier rate, for a final gratuity of AED 7,000.00.
“Continuous” is the operative word. Two details matter here:
- Unpaid leave does not count as service. Days taken as unpaid leave are subtracted from the qualifying period before the one-year test and the accrual calculation are applied. The effect compounds with service length: an employee on AED 10,000 basic salary who completes 3 years of service with no unpaid leave accrues a gratuity of AED 21,000.00, but the same employee taking 60 days of unpaid leave somewhere across those 3 years sees their countable service drop to roughly 2 years and 10 months, cutting the final gratuity to AED 19,849.32 — a difference of over AED 1,100 driven purely by those 60 days.
- The break has to be real. Resigning and being rehired shortly afterward, or a gap that is really the same job under a different label, does not reset a genuine one-year clock in your favour — the test is continuous service, not paperwork.
An employee who leaves at, say, eight months of service simply is not covered: run that case through the calculator and it returns an explicit ineligibility result rather than a partial figure, because the law does not prorate below the one-year threshold — it is a binary gate, not a sliding scale.
How the Calculation Works: Basic Salary, Daily Wage and Accrual Tiers
Every UAE gratuity figure, whatever the headline salary looks like, is built from the same three ingredients:
- The base is basic salary only. Housing allowance, transport allowance, and any other allowance are excluded entirely. A generous housing allowance does not raise your gratuity — only the basic salary line on your contract does.
- The daily wage is basic salary ÷ 30. This is a fixed monthly convention, not a count of actual calendar days in the current month.
- The accrual rate depends on how many years you’ve served:
- 21 days of basic salary per year for each of the first five years.
- 30 days of basic salary per year for every year from the sixth year onward.
Crucially, the higher 30-day rate is not applied retroactively to earlier years — it only applies to the years of service beyond the fifth. This two-tier structure is where most manual calculations go wrong, because it’s tempting to apply one flat rate across the whole tenure.
Worked Example: 8 Years of Service
Take an employee on a basic salary of AED 12,000 whose employment ends — by resignation or termination, it makes no difference under the current law — after exactly 8 years of continuous service.
- Daily wage: AED 12,000 ÷ 30 = AED 400.00
- First 5 years: 21 days × 5 = 105 days
- Remaining 3 years (years 6–8): 30 days × 3 = 90 days
- Total accrued: 195 days × AED 400.00 = AED 78,000.00
- Cap check: 24 × AED 12,000 = AED 288,000.00 — the accrued amount sits well under the cap, so it is paid in full
The final gratuity for this case is AED 78,000.00.
The 24-Month Cap on Gratuity
No matter how long someone stays with the same employer, UAE gratuity rules cap the total payout at 24 months — two years — of basic salary. This matters most for very long tenures, where the 30-day accrual rate from year six onward can otherwise produce a figure that exceeds the cap.
Take an employee on AED 15,000 basic salary who resigns after 30 years of continuous service. Uncapped, 30 years of accrual (21 days × 5 years, then 30 days × 25 years) works out to a gross gratuity of AED 427,500.00. But the cap for this basic salary is 24 × AED 15,000 = AED 360,000.00, and because the uncapped figure exceeds it, the cap is what actually gets paid — the final gratuity is AED 360,000.00, not the larger uncapped number. The cap applies to basic salary only, in line with every other part of the formula.
How to Calculate Gratuity in UAE for Unlimited Contract Employees Today
Anyone searching for how to calculate gratuity in UAE for unlimited contract terms is working from a premise that stopped being accurate in February 2022. Before that date, UAE labour law recognised two separate contract types — limited (fixed-term) and unlimited (open-ended) — and they carried different consequences on resignation, including a reduced gratuity payout for unlimited-contract employees who resigned early. That distinction was abolished. Since February 2022, every private-sector employment relationship falls under a single unified contract framework, and the old limited/unlimited split no longer changes how gratuity is calculated for service under the current law.
In practical terms, this means there is no special formula for “unlimited contract” gratuity anymore — there is only the one formula described above, applied the same way regardless of what your contract used to be called. To show this concretely: an employee on AED 9,000 basic salary with what would formerly have been called an unlimited contract, who resigns after exactly 4 years of service, accrues a gratuity of AED 25,200.00. Run the identical case as a termination instead of a resignation, and the result is exactly the same — AED 25,200.00 — because resignation and termination are treated identically under the current law. The old ⅓/⅔ reduction that used to apply to unlimited-contract resignations belongs to the previous 1980 labour law and is not part of the formula in force today.
When Can You Lose or Have Your Gratuity Reduced?
Two situations affect the entitlement, and it is worth being precise about which ones actually still apply:
- Under one year of service. As covered above, this is an absolute bar — no gratuity is owed for service under one continuous year, regardless of who ended the contract or why.
- Unpaid leave. Periods of unpaid leave are excluded from the qualifying and accruing service period, which lowers the final figure without disqualifying the employee outright, as the AED 21,000.00 vs AED 19,849.32 comparison above illustrates.
What does not reduce gratuity under the current law, despite still circulating as received wisdom: resigning rather than being terminated. That reduction existed under the 1980 labour law for unlimited-contract resignations and is frequently repeated online as if it were still current — it is not, for service governed by the law in force since February 2022. If you believe a reduction has been applied to your case on the basis of “you resigned” or “your contract was unlimited,” it is worth checking that reasoning against the current law directly, since neither factor changes the outcome anymore.
Gratuity Rules in UAE at a Glance
| Rule | Detail |
|---|---|
| Eligibility | ≥1 continuous year of service |
| Calculation base | Basic salary only (excludes allowances) |
| Daily wage | Basic salary ÷ 30 |
| Accrual, years 1–5 | 21 days of basic salary per year |
| Accrual, year 6+ | 30 days of basic salary per year |
| Cap | 24 months (2 years) of basic salary |
| Resignation vs termination | Paid identically under the current law |
| Unpaid leave | Excluded from qualifying/accruing service |
| Limited vs unlimited contract | Distinction abolished Feb 2022 — no longer affects the calculation |
Basic Salary vs Allowances: Why the Split Matters
Because every rule above hinges on basic salary only, two employees with an identical gross monthly package can end up with very different gratuity payouts if their contracts split basic salary and allowances differently. There’s no fixed legal ratio between the two — it’s negotiated contract by contract — so it’s worth checking your offer letter for the exact basic salary figure rather than assuming it’s some standard fraction of your total pay. The salary calculator Dubai tool breaks a monthly package down into basic, allowances, gross and net pay side by side, which is useful for confirming exactly which number to plug into a gratuity calculation. If you’re also owed unused annual leave when your employment ends, that figure is calculated on basic salary too — see the leave salary calculator UAE for that separate entitlement. And if your employer is a government-linked MOHRE-regulated role or you want to cross-check a domestic-worker case, the MOHRE gratuity calculator applies the domestic-worker-specific 14-day accrual rate where relevant.
Legal Basis
The gratuity rules in UAE described on this page are set out in Federal Decree-Law No. 33 of 2021, Art. 51, and its executive regulation, Cabinet Resolution No. 1 of 2022, which together establish the one-year eligibility threshold, the basic-salary calculation base, the 21/30-day accrual tiers, and the 24-month cap. The abolition of the limited/unlimited contract distinction, and the removal of the resignation-based reduction for cases governed by the current law, both date to the same legal reform that took effect in February 2022. The older ⅓/⅔ resignation reduction referenced above for historical contrast belongs to Federal Law No. 8 of 1980 and no longer governs new cases. Domestic worker cases follow a separate 14-day accrual rate under Federal Decree-Law No. 9 of 2022 and are not covered by the worked examples on this page — use the domestic worker gratuity calculator for that scenario specifically.
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Try the full UAE gratuity calculatorFrequently asked questions
What are the gratuity eligibility UAE requirements?
You need at least one full year of continuous service with the same employer to qualify for any gratuity payment at all. Continuous means uninterrupted by resignation and re-employment; periods of unpaid leave are excluded from that count, so if you took unpaid leave partway through your first year, your qualifying clock effectively pauses for those days rather than counting toward the one-year threshold.
How to calculate gratuity in UAE for unlimited contract employees?
There is no separate calculation for unlimited contracts anymore. Limited and unlimited contracts were merged into a single employment framework in February 2022, and every private-sector employee today — regardless of what their contract used to be called — uses the same formula: basic salary only, 21 days per year for the first five years, 30 days per year after that, capped at 24 months of basic salary.
Does resigning reduce your gratuity under the current law?
No. Under the law in force since February 2022, resignation and termination pay exactly the same gratuity amount, calculated with the same formula. The older rule that cut a resigning employee's gratuity to one-third or two-thirds depending on years served only applied under the previous 1980 labour law and does not apply to service governed by the current law.
What is the maximum gratuity payout in the UAE?
Gratuity is capped at 24 months — two years — of basic salary, no matter how many years an employee has worked beyond that point. Someone with 20, 30 or 40 years of continuous service all hit the same ceiling: 24 times their monthly basic salary. Only basic salary counts toward this cap, not housing, transport or other allowances.
How many days of gratuity do you accrue per year in the UAE?
You accrue 21 days of basic salary for each of your first five years of service, then 30 days of basic salary for every year from the sixth year onward. The rate does not apply retroactively — years one through five always accrue at 21 days each, even if you go on to serve a sixth or seventh year at the higher 30-day rate.
Does unpaid leave count toward your qualifying service period?
No. Days spent on unpaid leave are excluded from the service period used to calculate both eligibility and accrual. An employee who takes an extended unpaid break partway through their tenure will see their qualifying service — and therefore their final gratuity figure — reduced by roughly that many days, even though their employment relationship technically continued.