Under the UAE Labour Law (Federal Decree Law No. 33 of 2021), end-of-service gratuity is calculated only on the employee’s basic salary, not on allowances, bonuses, or other benefits.
Key Points:
Key Points:
- Basic Salary Only
- The basic salary is the fixed amount agreed upon in the employment contract for the employee’s role.
- It excludes variable components such as housing allowance, transportation allowance, telephone allowance, or performance bonuses.
- Why Allowances Are Excluded
- Allowances are considered additional benefits rather than a core component of salary.
- The law ensures consistency in gratuity calculation across all employees, regardless of the allowances their employers may provide.
- Example:
Suppose an employee earns:- Basic Salary: AED 10,000/month
- Housing Allowance: AED 3,000/month
- Transport Allowance: AED 1,000/month
- Implications for Employers and Employees
- Employers cannot legally include allowances in the gratuity calculation.
- Employees should verify their final settlement to ensure gratuity is calculated correctly based on basic salary alone.
- Exceptions
- If an employment contract explicitly states that certain allowances are considered part of the basic salary for gratuity purposes, then they may be included—but this is rare and must be documented.
- Best Practice
- Employers typically provide a final settlement breakdown, showing basic salary, allowances, and gratuity separately.
- Employees can calculate their expected gratuity by taking basic salary × years of service × applicable days per year.