The gratuity formula itself is simple once you know the actual inputs. Most confusion comes from using the wrong salary figure or misapplying the rate once someone crosses the five-year mark.
So how do you actually calculate gratuity in the UAE?
Multiply basic salary, not gross salary, by 21 days for each of the first five years of service, then by 30 days for each year beyond that, and cap the total at two years’ worth of basic pay. Partial years beyond the first are pro-rated.
This guide walks through the formula with a worked example. Our detailed guide on employment termination law covers the broader legal framework gratuity sits within.
Quick Answer
Gratuity is calculated using basic salary only, excluding housing, transport, and other allowances. For each of the first five years of service, the rate is 21 days of basic salary per year. For each year beyond five, the rate rises to 30 days per year. The total is capped at two years’ worth of basic salary, regardless of how long the employment actually lasted. No gratuity is owed for service under one full year, and partial years beyond the first are pro-rated based on months actually worked.
A daily rate is generally calculated by dividing monthly basic salary by 30, then multiplying by 21 or 30 depending on which tier of service applies. Under the current law, gratuity can never be forfeited, even following a misconduct dismissal, a genuine change from the older 1980 labor law.
How is gratuity calculated in the UAE?
Gratuity is calculated using basic salary only, excluding housing, transport, and other allowances. For each of the first five years of service, the rate is 21 days of basic salary per year. For each year beyond five, the rate rises to 30 days per year. The total is capped at two years’ worth of basic salary, regardless of how long the employment actually lasted. No gratuity is owed for service under one full year, and partial years beyond the first are pro-rated based on months actually worked.
A daily rate is generally calculated by dividing monthly basic salary by 30, then multiplying by 21 or 30 depending on which tier of service applies. Under the current law, gratuity can never be forfeited, even following a misconduct dismissal, a genuine change from the older 1980 labor law.
The practical calculation can be checked in five stages: confirm the service period, identify the basic salary, calculate the daily rate, apply the correct tier to each part of service, and then test the result against the stated cap. Keeping those stages separate makes it easier to find the source of any difference.
Identify the Inputs Before Using the Formula
A calculator is only as reliable as the information entered into it. Before starting, place the employment contract, later salary amendments, payslips, joining date, termination date, and any employer calculation in one file.
Confirm which figure is labelled basic salary. Do not simply use the largest number on a payslip, because the original article expressly separates basic salary from housing, transport, and other allowances.
Write down the service dates exactly as they appear in the records. If the employee and employer are using different dates, calculate both versions separately and identify the document supporting each date rather than hiding the disagreement inside one total.
Think Your Gratuity Was Calculated Wrong?
A wrong basic salary, service date, or rate can change the final amount significantly. Our UAE employment lawyers can review your calculation and identify any shortfall.
The Formula
The original calculation can be read by Years of Service, Rate, and Basis:
• Years 1 to 5: 21 days per year. Basic salary only.
• Year 6 onward: 30 days per year. Basic salary only.
• Total, regardless of length: Capped at 2 years’ basic salary. The overall ceiling, however long the employment lasted.
Do not apply one blended rate to the entire service period. The first five years and the period after five years are separate parts of the same calculation.
A Reliable Calculation Sequence
Step 1: Confirm the Monthly Basic Salary
Use the basic salary figure identified in the employment records, not the combined amount that includes allowances. If the basic salary changed over time, preserve the documents showing the changes and identify the figure used in the employer’s final calculation.
Step 2: Calculate the Daily Rate
Use the method stated in the original article: divide the monthly basic salary by 30. Keep the unrounded result available while calculating, then show any rounding clearly in the final worksheet.
Step 3: Calculate the First Five Years
Multiply the daily rate by 21 days for each completed year within the first five years. Keep this subtotal separate so it is not accidentally recalculated at the later 30-day rate.
Step 4: Calculate Service Beyond Five Years
For the period beyond five years, multiply the daily rate by 30 days for each applicable year. If a qualifying partial year is involved, show the fraction used rather than placing it silently inside the result.
Step 5: Add the Subtotals and Check the Cap
Add the first-five-year subtotal and the later-service subtotal. Then compare the total with the overall ceiling stated in the source article. Keep both the uncapped calculation and the final figure in the working paper so the effect of the cap, if any, is visible.
A Worked Example
Take an employee with a basic monthly salary of AED 10,000, after 7 years of service.
• Daily rate: AED 10,000 ÷ 30 = AED 333.33
• First 5 years at 21 days per year: 21 × 5 = 105 days × AED 333.33 = AED 35,000
• Remaining 2 years at 30 days per year: 30 × 2 = 60 days × AED 333.33 = AED 20,000
• Total gratuity: AED 55,000, well under the two-year basic salary cap of AED 240,000, so the full amount applies.
The value of writing the example in separate lines is that each assumption can be checked. If the salary, service period, or tier changes, the affected line can be recalculated without rebuilding the entire worksheet from memory.
Need your gratuity calculated accurately, or believe your final settlement was calculated wrong? A UAE employment lawyer from our team can verify the figure and pursue any shortfall.
How to Review an Employer’s Calculation
Ask for a written breakdown rather than a single total. A useful breakdown should make it possible to identify the basic salary used, the service period, the daily rate, the number of days assigned to each tier, any partial-year calculation, and whether the stated ceiling affected the result.
Recalculate the figure independently using the same inputs. If the result differs, identify whether the difference comes from salary, dates, rate, arithmetic, rounding, or the treatment of a partial year. A short comparison is more useful than saying only that the total looks wrong.
Keep the final settlement statement and any email or message explaining the employer’s position. If the issue remains unresolved, the firm’s guide on how to file a complaint against an employer in the UAE explains the connected preparation route.
Build a Calculation Comparison That Can Be Checked
Create two columns in a separate working sheet: one for the employer’s calculation and one for the employee’s calculation. Compare the service dates, monthly basic salary, daily rate, first-five-year subtotal, later-service subtotal, partial-year figure, cap, and final gratuity total.
Do not compare only the last line. Two calculations can reach different totals because they started with different salary or date inputs even when the arithmetic in both is internally consistent.
For every difference, add a short note identifying the supporting record. For example, point to the contract clause, salary amendment, payslip, joining record, termination letter, or calculation statement that produced the figure. Mark any unsupported item as a question rather than presenting it as a confirmed fact.
This comparison also prevents other final-settlement items from being absorbed into the gratuity figure. Record gratuity on its own line, then keep any other payments or deductions in their own labelled section so the point under review remains clear.
If the employer later provides a revised calculation, keep both versions and record the date received. A visible version history makes it possible to see which input changed and whether that change explains the new total.
Employer Gave You Only One Final Figure?
You should be able to see the basic salary, service period, daily rate, gratuity tiers, and any deductions behind the total. Let our team compare your employer’s calculation with your legal entitlement.
Documents to Keep With the Calculation
• The final employment contract and any salary amendment.
• Payslips or salary certificates identifying basic salary and allowances.
• Records confirming the joining and termination dates.
• The termination or resignation document relevant to the final settlement.
• The employer’s gratuity calculation and final settlement statement.
• Bank or payment records showing what was actually paid.
• Written questions sent to the employer and the answers received.
• A dated worksheet showing every calculation step and any rounding.
Use one version of the worksheet as the final record. If figures change, date each version so it is clear which calculation was based on which documents.
Common Calculation Mistakes
• Using gross salary instead of basic salary, which inflates the figure incorrectly.
• Applying the 30-day rate to the first five years instead of 21 days.
• Assuming gratuity is forfeited for a misconduct dismissal, when it cannot be under current law.
• Forgetting the two-year cap on genuinely long service.
• Entering the service period from memory without checking the contract and termination records.
• Rounding the daily rate differently on separate lines without explaining the method.
• Accepting a single final figure without requesting the inputs and subtotals behind it.
• Mixing gratuity with other final-settlement items, making the gratuity calculation difficult to audit.
A Simple Gratuity Review Checklist
- Confirm that the service exceeded one full year before applying the formula.
- Record the monthly basic salary separately from every allowance.
- Divide the monthly basic salary by 30 to show the daily rate.
- Calculate the first five years using 21 days per year.
- Calculate each year beyond five using 30 days per year.
- Show any qualifying partial year separately.
- Add the subtotals and compare the result with the stated two-year cap.
- Match the calculation to the employer’s written settlement and record every difference.
People Also Ask
Conclusion
So, how do you calculate gratuity in the UAE? Basic salary, tiered by years of service, capped at two years’ pay. A UAE employment lawyer from our team can verify your specific figure.
The most dependable approach is to show the calculation line by line. Confirm the inputs from records, keep the first five years separate from later service, preserve any partial-year working, and compare the result with the employer’s written settlement.
Missing Gratuity or Final Employment Dues?
If your gratuity, salary, or other final settlement amounts appear unpaid or underpaid, our employment lawyers can review the records and explain the next step before you file a complaint.
