PAYMENT OF GRATUITY

What is the employee entitled to on the termination of his employment contract?

On the termination of the employment contract, an employee is entitled to the following:

1. A notice period, or any amount due in lieu of the notice period in the case of an unlimited contract.

2. In the case of an unlimited contract, compensation for unreasonable dismissal if the contract was terminated by the employer for unreasonable cause.

3. In the case of a limited contract, compensation equivalent to the period until the end of the contract, or three month’s wages, whichever is shorter.

4. Payments equivalent to the balance of unutilised leave or any part thereof.

5. Payments for overtime or any balance of wages due and not yet paid.

6. End of service gratuity calculated on the duration of the employment.

7. Repatriation expenses as per the Law or the employment contact, subject to the employee not being in violation or in breach of either the Law or the employment contract.


What does the term end of service gratuity mean in terms of compensation?

In the case of an employment agreement for a unlimited term, an employee who completes one year or more in continuous service shall be entitled to gratuity at the end of their service. The gratuity shall be calculated as follows:

(1) 21 days wages for each year of the first five years.

(2) 30 days wages for each additional year on condition that the total of the gratuity does not exceed the wages of two years.

I have been working in a shipping company for around seven years. I will be 60 years’ old by the first week of November. As far as I know, the Labour Law states that Dh5,000 need to be deposited to stamp the employment visa after 60 years. Now, I have been offered a job by one of the companies and they need my service urgently. Can I resign now from my present company and join the new organization? Would it affect my gratuity and other terminal benefits?

Since you have completed more than two years with your current company, you can resign the job any time with a thirty-day notice as per Article 117 of the UAE Labour Law or otherwise in accordance with the terms and conditions provided in your employment contract.
Furthermore, your resignation from your current employment will not affect your gratuity and other end of employment benefits. At the time of resignation, you will be entitled to full gratuity in accordance with Article 132 of the UAE Labour Law.
According to the said article, “The employee who has completed one year or more in continuous service is entitled to the end of service benefits at the end of his service at the firm. Days of absence from work without pay are not included in computing the period of service, and the remuneration is to be calculated as follows:-

1. Twenty one days’ pay for each year of the first five years of service.

2. Thirty days’ pay for each additional year, provided that the entire total remuneration shall not exceed two years’ pay.”

I have been working in a company here on an unlimited contract. I have resigned recently with 30 days notice period. I would very much appreciate if you kindly advice me on the labour ban, if any, end of service benefits, and my passport which they kept with them.

First of all, the employer does not have the right to hold the employee’s passport without the latter’s consent. Secondly, according to Articles 125, 131, 132,133 and 137 your end of service benefits are; a certificate of service (free of charges), the expenses of sending you back to your home country (a ticket and any other agreed upon expenses according to the labour contract), and your gratuity would be the salary of 21 days for each year divided by three. Finally, Under the UAE laws, if an employee leaves a job without completing two years, then, the Ministry of Labour will impose a work ban for six months or for one year if requested by the employer (KT).

How is gratuity calculated?

Gratuity is calculated on an annual basis or part thereof provided that the employee has actually completed one year of employment with the employer or more. Days of absence from work without pay are not included in calculating the length of service. However, he will be entitled to end of service gratuity for fractions of a year he spent in service provided that he has completed at least one year in continuous employment.

On what basis is gratuity calculated?

Without prejudice to what is stipulated by the policies of some establishments in the granting of pensions or retirement benefits to employees, gratuity for those who are paid monthly, weekly or daily wages is calculated according to the employee’s last received basic wage before the employment was terminated. This wage is the basis for calculating the gratuity for the whole period of an employee’s employment.

Would a commission or payment by percentage be considered a basic wage?

According to a court ruling delivered by the UAE court, except for allowances and bonuses, any amount payable to an employee as wages including wages paid by percentage basis, commissions, or for performance will be considered as wage and will be taken into consideration in calculating gratuity.

Can the employer deduct any payment from the gratuity payable to the employee?

The employer may deduct any amount owed to him by the employee such as outstanding loans from the employees end of the service gratuity. If there is any dispute over the payment of gratuity or the amount of gratuity payable, the matter should be referred to the Ministry for mediation.

Is the amount calculated for gratuity affected if the employee resigns from employment?

An employee employed under a contract for an unlimited period who resigns after a continuous service of not less than one year and not more than three years is entitled to one third of the end of service gratuity provided above. If the period of continuous service is more than three years and less than five years he is entitled to two thirds of the gratuity. If his continuous service is more than five years, he is entitled to the full gratuity. If an employee who is employed under a contract for a limited period on the other hand chooses to resign before the end of the contract, he is not entitled to end of service gratuity unless his continuous service exceeds five years.

Under what circumstances can an employee be deprived of his end of service gratuity?

An employee may be deprived of his end of service gratuity if he has been dismissed for one of the reasons stated in Article 120 of the Law, or if he terminated his employment to avoid such dismissal.

Under what circumstances will an employee be entitled to gratuity if he terminates his employment contract without notice?

Under Article 121 of the Law, an employee will be entitled to gratuity on termination without notice in either of the following circumstances:

(1) The employer has failed to comply with his obligations towards the employee, as provided for in the employment contract or in the Law.
(2) The employee was assaulted by his employer or his legal representative.
The above applies to employees who have been continuously employed for a minimum period of one year, regardless of whether the contract of employment is for a fixed or unlimited term.

If the establishment or company has a pension scheme, which is beneficial to the employee, is this a substitution for the payment of gratuity?

If the employer has a pension scheme applicable to all the employees of the business, such a scheme must be published and known to all employees, and must specify that it will be a substitute to the gratuity rules outlined in the Law. It must also be more beneficial to the employees than the gratuity provision of the Law. Otherwise the employee may benefit from both unless the employee agreed or consented to the scheme in question.

Can the employee and the employer agree to pay gratuity for the termination of the employment contract for a preceding period?

The employer and the employee may, upon mutual agreement, decide upon the payment of the employee’s gratuity for the years that he has already served his employer. A new contract will then be entered into between the parties. The employee’s employment with the employer is still considered as a continuous period for the purpose of calculating interest, or, at the time when he resigns, calculating the employee’s total years of service with the employer.

Where an employee has worked for an employer in two or more countries, will he be entitled to gratuity?

This will depend on a number of factors such as the terms of the employment contract, the law of the country the employment is being conducted in and the general practice of the employer. For instance, many multinationals which transfer their employees to another country pay the end of service benefits applicable at the time of transfer. In such cases, the transfer is essentially considered as new employment for the purposes of gratuity payments.
The matter will however depend on the facts of each case as it is not covered by the Law but rather is addressed in certain judgments. Therefore, it should not be assumed that if an employee is transferred to another country that the UAE law will continue to apply or that his employment contract will continue to be enforced. The Law is considered as a matter of public policy and thus certain cases may be different in other jurisdictions. In addition, the country the employee is being transferred to may contain different regulations regarding the transfer of employees to and from other jurisdictions. Therefore, the law of the country the employee is transferred to may prevail and give regard (or otherwise) to the employee’s previous employment contract. In such cases therefore it is advisable to seek independent advice on the matter.
It is also not possible to apply a foreign law to a UAE employment contract. If the governing law in the employment contact is UAE law and filed with the Ministry, then gratuity will be calculated from the commencement date of that contract. This contract will take precedence over any other contract with a foreign governing law.

Can an employee mortgage or assign payment of his gratuity?

It is possible to mortgage or assign payment of an employee’s gratuity to the employer or to a third party by mutual agreement, provided that in the agreement with a third party, the employer and the employee agree to this in writing with an understanding of all parties that the employee may forfeit his right to gratuity which is not yet due if he violates a provision of the Law. In any event, an employee’s gratuity can only be assigned subject to the employee becoming entitled to it.

When does gratuity become due and payable?

Gratuity will only become due and payable on the termination of an employment contract.

Are the end of service gratuity and other dues payable to the employee considered priority debts?

The employee’s wages, overtime, and any other benefits, including end of service gratuity, are considered to be a preferential debt for which the employee shall have a lien over any movable or immovable property owned by the employer ranking second to government charges, judicial fees and family alimony payments.

How effective are foreign employment contracts in the UAE?

Such contracts are enforceable and valid as contracts executed in the UAE. However, if there is an additional local contract and a dispute arises, the provisions in the contract which are more favourable to the employee will probably be upheld, providing there is evidence in support of the provision in question.
In terms of the gratuity payable, where there are two contracts, the employee may only benefit from one.
The enforceable contract will in most cases be the one filed with the Ministry and gratuity calculated according to the salary specified in the UAE employment contract.

I finished my three-year contract. I told my employer I wanted to resign. My contract is limited. My employer claimed I am not entitled to end of service benefits. It is right? What are my entitlements? Whom should I talk to?

Since you have spent more than a year with your employer, according to Article 132 of the federal labour law, you are eligible to 21 days’ salary for each year you have worked for the employer. In addition to the gratuity, you are eligible for a ticket to your home country or to the country that you have agreed to travel to with your employer at the beginning of your work.
Moreover, you have the right to claim any outstanding rights that you did not receive yet, provided that these rights are not due before a year. If your employer refuses to pay your dues, you should report this to the labour office in the city where you are working (KT).

My husband, who works as an administration staff, will complete three years in his job in June. He has an unlimited contract and as per his offer letter, he is eligible for a ticket once in two years. Now he wishes to change his job. His salary as per the contract is Dh2,500, but now he is getting Dh3,750 because of a recent increment. He needs to give a one month notice. But should he mention that he no longer wishes to continue the contract or that he is resigning?

Gratuity is based on basic of last salary
If contract is unlimited, employer can terminate it with 30 days’ notice
The law is clear that if an employee leaves the job within the first three years, he is entitled to one third of the end of service gratuity. Since, your husband has not completed three years, he is only entitled to 1/3 of the gratuity as per Article 137 of the UAE Labour Law. Therefore, your husband may submit a simple resignation with 30 days notice. Besides, the end of service gratuity is based on the basic of the last salary without adding any benefits or allowances of any kind as per the terms of Article (134) of the Labour Law. (KT)

I work as a safety officer with a private company here on a three-year limited contract. I have completed three years in service but my company has not renewed my visa. The company did not give me a one-month notice period before terminating my service. The management has, however, made me sign a clearance paper and promised to pay my salary, the end of service benefits, air ticket, and one-month salary against notice period. A friend of mine said they are lying, and will give me nothing as I have signed the clearance paper in which I acknowledged that I have received all my entitlements. What should I do?

Don’t sign clearance paper before getting entitlements
As long as you have completed your three-year limited contract, you are entitled to the end-of-service benefits. According to Article (132) of the Federal Labour Law, an employee, who completes one year or more in uninterrupted service, is entitled to the end-of-service benefits as long as he has not committed any crime or serious mistake that led to the termination of his service.
Regarding your signature, you should not have done it. Your signature means that you have willingly acknowledged that you did receive your entitlements. To claim otherwise, you have to prove that you did not. It has become your responsibility to show the evidence.

Below is the original text of the UAE Federal Labour Law with the section on gratuity payments. Articles 132, 137, and 138 refer specifically to the calculation of gratuity.

Federal Law No 8, For 1980, On Regulation of Labour Relations
Chapter VII: Termination and Severance Pay
Section II: Severance Pay

Article 132

A worker who has completed one or more years of continuous service shall be entitled to severance pay at the end of his employment. The days of absence from work without pay shall not be included in calculating the period of service. The severance pay shall be calculated as follows:

21 days’ wage for each of the first five years of service.
30 days’ wage for each additional year of service provided always that the aggregate amount of severance pay should not exceed two year’s wage.
Article 133

A worker shall be entitled to severance pay for any fraction of a year he actually served, provided that he has completed one year of continuous service.

Article 134

Without prejudice to the provisions of laws that grant pensions or retirement benefits to employees in certain firms, severance pay shall be calculated on the basis of the wage last due for monthly, weekly and daily paid workers, and on the basis of the average daily wage referred to in Article 57 hereof for those paid on piecemeal. The wage used as a basis for calculating severance pay shall not include whatever is given to the worker in kind, housing allowance, transport allowance, travel allowance, overtime pay, representation allowance, cashier’s allowances, children education allowance, allowances for recreational and social facilities, and any other bonuses or allowances.