How to Calculate Gratuity in UAE: The Full Step-by-Step Formula

If you are trying to work out how to calculate gratuity in UAE, the process comes down to five numbers: your basic salary, your years of service, a daily wage, an accrual rate that changes after year five, and a cap that limits the total payout. This guide walks through the exact formula used by MOHRE-aligned calculators across the UAE, with nine worked examples so you can check your own numbers against the same method rather than trusting a single output blindly.

Everything below follows Federal Decree-Law No. 33 of 2021, Art. 51, and its executive regulation, Cabinet Resolution No. 1 of 2022 — the law currently in force for private-sector employees across the UAE mainland and the large majority of free zones. If you’d rather skip the manual arithmetic, the gratuity calculator UAE tool on this site runs the same formula and shows a full breakdown instantly, with JavaScript on or off.

How Is Gratuity Calculated in UAE? The Full Formula

How is gratuity calculated in UAE, in one sentence: daily wage × accrual days, where the daily wage is your basic salary divided by 30, and the accrual days depend on how many years you’ve worked.

Broken into its parts:

• Eligibility. You need at least one full year of continuous service. Below that, gratuity is zero — there is no partial payout for, say, eight months of service.
• Calculation base. Basic salary only. Housing allowance, transport allowance, bonuses and commissions are all excluded from the figure that feeds the formula, even though they are part of your total monthly pay.
• Daily wage. Basic salary ÷ 30. This is a fixed convention used regardless of whether the actual month has 28, 30 or 31 days.
• Accrual rate. 21 days of basic salary per year of service for each of the first 5 years, rising to 30 days per year for every year of service from the sixth year onward.
• Cap. The total gratuity payout cannot exceed 24 months (2 years) of basic salary, no matter how long the employee has worked.
• Fractions of a year. Partial years are prorated — for example, 2 years and 6 months is treated as 2.5 years, and 21 days × 2.5 = 52.5 days accrue at the first-tier rate.
• Unpaid leave. Any period spent on unpaid leave is excluded from the service period used in the calculation; it does not accrue gratuity and does not count toward the one-year eligibility threshold either.

One point trips up a lot of people searching for this topic: resignation and termination pay exactly the same gratuity under the current law. The distinction between limited and unlimited contracts, and the old rule that cut a resigning employee’s gratuity to one-third or two-thirds depending on tenure, were both abolished when the new Decree-Law took effect in February 2022. That reduction rule only survives in this site’s content and calculator as a historical “old regime” mode for reference — it does not apply to any gratuity calculated under current law.

Step-by-Step: How to Calculate Gratuity in UAE

Here is the six-step process broken out on its own, matching the formula above one step at a time.

Step 1: Confirm you are eligible

Check that you have completed at least one full year of continuous service with your employer. An employee with less than one year of continuous service is not entitled to any gratuity payment, whether they resign or are terminated. Time spent on unpaid leave does not count toward this qualifying period, so if you took an extended unpaid break, subtract it before checking whether you clear the one-year threshold.

Step 2: Identify your basic salary

Find the basic salary figure in your employment contract — the fixed monthly amount before housing allowance, transport allowance, commissions or any other benefit is added. This is the single most important number in the whole calculation, because every subsequent step is a multiple of it.

Step 3: Calculate your daily wage

Divide your basic salary by 30. A basic salary of AED 10,000 gives a daily wage of AED 333.33; a basic salary of AED 5,000 gives AED 166.67. This 30-day convention is fixed and does not vary by calendar month.

Step 4: Apply the accrual rate for your years of service

Multiply your daily wage by 21 days for each year within your first 5 years of service. If you have more than 5 years, multiply your daily wage by 30 days for each additional year beyond the fifth. An employee with exactly 8 years of service accrues 21 days/year for years 1-5 (105 days total) and 30 days/year for years 6-8 (90 days total).

Step 5: Add both tiers for the gross gratuity

Add the first-tier amount to the second-tier amount (if any) to get your gross gratuity before the cap is checked. For a partial final year, convert the remaining months and days into a decimal (6 months = 0.5 years, for instance) and accrue proportionally within whichever tier that fraction falls in.

Step 6: Apply the 24-month cap

Compare the gross gratuity to a cap of 24 months (2 years) of basic salary. If the gross figure is higher, the cap becomes the final gratuity instead. In practice, this cap only bites at long tenures combined with the second-tier 30-day rate — most calculations well under 20 years never reach it.

Worked Examples: 9 Cases Across 3 Salaries and 3 Tenures

The table below applies the six steps above to three basic salaries (AED 5,000, 10,000 and 20,000) across three tenures (2, 5 and 8 years), all assuming termination — remember from Step 1 above that resignation gives the identical figure under current law. Every number is taken directly from the calculation engine behind this site’s calculator, not re-typed by hand.

Basic salary	2 years	5 years	8 years
AED 5,000	AED 7,000.00 (42 days)	AED 17,500.00 (105 days)	AED 32,500.00 (195 days)
AED 10,000	AED 14,000.00 (42 days)	AED 35,000.00 (105 days)	AED 65,000.00 (195 days)
AED 20,000	AED 28,000.00 (42 days)	AED 70,000.00 (105 days)	AED 130,000.00 (195 days)

A few things worth noticing in this table. At 2 years of service, every case sits entirely in the first tier (21 days/year × 2 years = 42 days), so the gratuity simply scales in proportion to salary: doubling the basic salary from AED 5,000 to AED 10,000 exactly doubles the gratuity, from AED 7,000.00 to AED 14,000.00. At exactly 5 years — the boundary of the first tier — the accrual is 105 days (21 × 5) for every salary band, still purely first-tier. By 8 years, the second tier kicks in: 105 days at the first-tier rate plus 90 days at the second-tier rate (30 days × 3 years beyond the fifth) gives 195 days total, which is why the 8-year column jumps by more than the 2-to-5-year columns did proportionally — the 30-day rate for years 6 through 8 accrues faster per year than the 21-day rate did.

None of these nine cases hit the 24-month cap: even the largest, AED 20,000 basic salary at 8 years, produces a gratuity of AED 130,000.00 against a cap of AED 480,000.00 (24 × AED 20,000). To see the cap actually apply, consider a long-tenure case — a basic salary of AED 20,000 over 30 years of continuous service produces a gross gratuity of AED 570,000.00, which exceeds the 24-month cap of AED 480,000.00. In that case, the capped amount of AED 480,000.00 becomes the final gratuity instead of the higher gross figure.

Worked Example: A Fractional Year of Service

Gratuity calculations rarely land on a clean number of whole years, so here is one full walkthrough with months included. Take an employee on a basic salary of AED 8,000 who is terminated after exactly 2 years and 6 months of continuous service.

1. Eligibility: 2.5 years is well above the 1-year threshold, so the employee qualifies.
2. Basic salary: AED 8,000/month, confirmed as the contract’s basic-salary line.
3. Daily wage: AED 8,000 ÷ 30 = AED 266.67.
4. Accrual: the full 2.5 years falls within the first tier, so the rate is 21 days per year: 21 × 2.5 = 52.5 days.
5. Gross gratuity: 52.5 days × AED 266.67 daily wage.
6. Cap check: the result sits far below the 24-month cap, so no cap is applied.

The final gratuity for this case is AED 14,000.00. Notice how the 6-month fraction is handled cleanly by expressing it as 0.5 of a year and applying the same 21-days-per-year rate — there is no separate rounding rule for partial years beyond this proration.

How Basic Salary Changes the Result

Because gratuity is calculated on basic salary only, the same total monthly package can produce different gratuity figures depending on how it is split between basic salary and allowances. Two employees earning an identical AED 15,000 gross per month — one on an AED 10,000 basic salary plus AED 5,000 in allowances, the other on an AED 12,000 basic salary plus AED 3,000 in allowances — will accrue gratuity at different rates, because only the basic-salary portion feeds Step 3 of the formula above. If you want to see how basic salary, allowances, gross and net pay all fit together for your own package, the salary calculator Dubai tool breaks that down side by side. And if you’re leaving a role with unused annual leave still owed, that is a separate calculation on top of gratuity — see the leave salary calculator UAE for how leave salary is worked out on the same basic-salary principle.

When the Formula Changes

The six-step process above is the standard private-sector calculation, but a few situations change the numbers without changing the underlying method:

• Domestic workers. Employees covered by Federal Decree-Law No. 9 of 2022 accrue gratuity at a flat 14 days per year rather than the 21/30-day tiered structure, with a lower cap. See the MOHRE gratuity calculator for a dedicated domestic worker mode.
• Free zones with their own employment law. DIFC and ADGM run separate employment regimes rather than the federal Decree-Law; most other free zones, including JAFZA, follow the standard formula above. The JAFZA gratuity calculator guide covers that distinction in detail.
• Contracts governed by the old 1980 labour law. A small number of long-running disputes are still assessed under the previous law rather than the current Decree-Law; that older regime used the ⅓/⅔ resignation reduction described earlier in this guide, which no longer applies to new cases.

Common Mistakes When Calculating Gratuity by Hand

Most errors in a manual gratuity calculation come from one of five places, all of which are worth double-checking against the six steps above before you rely on a number.

• Using gross salary instead of basic salary. This is by far the most common mistake. Employment offers and payslips usually lead with a gross monthly figure that already includes housing and transport allowances. Plugging that gross number into Step 2 instead of the basic-salary line inflates the daily wage in Step 3 and every figure downstream of it.
• Applying 30 days per year across the whole tenure. It’s tempting to assume the higher second-tier rate applies retroactively to the entire period of service once an employee passes 5 years. It doesn’t: the 30-day rate only applies to years 6 onward, while the first 5 years stay at 21 days regardless of how long the employee ultimately stays.
• Forgetting the cap check. For most tenures under roughly 15-20 years, the 24-month cap never comes into play, which can make it easy to forget the step entirely. At high salaries combined with long tenure, though, skipping Step 6 can overstate the final gratuity substantially — as the AED 570,000.00-versus-AED 480,000.00 example above shows.
• Reducing the amount for resignation. Anyone calculating gratuity using rules learned before February 2022, or using an outdated online tool, may still apply the old ⅓/⅔ resignation reduction. Under the current law that reduction does not exist: resignation and termination pay the same amount.
• Counting unpaid leave as service. Time spent on unpaid leave doesn’t accrue gratuity and doesn’t count toward the one-year eligibility threshold either. Leaving it in the years/months/days figure used in Step 1 and Step 4 will overstate both eligibility and the final accrual.

None of these mistakes require a different formula to fix — they just require applying the six steps above in order, and using basic salary consistently as the base for every step that depends on it.

Legal Basis

The formula in this guide is based on Federal Decree-Law No. 33 of 2021, Art. 51 (the core gratuity entitlement, eligibility, accrual tiers and cap) and its executive regulation, Cabinet Resolution No. 1 of 2022. Final settlement, including gratuity, is due within 14 days of the end of the employment relationship under Art. 53 of the same Decree-Law. This guide does not cover the specific domestic-worker cap in detail — see Federal Decree-Law No. 9 of 2022 and the dedicated MOHRE gratuity calculator guide linked above for that regime.