End-of-service gratuity in the UAE is calculated only on an employee’s basic salary and not on the total salary, a legal expert told Gulf News, clarifying a key point workers should know. The total pay-out, however, is capped at the equivalent of two years of overall wage, including allowances. A UAE-based lawyer explained how the law defines these terms and how gratuity is calculated for workers.
What counts as basic and gross salary
As reported by Gulf News, basic salary is the fixed component mentioned in an employment contract. It does not include allowances such as housing, transport, or other benefits.
Gross salary, or total wage, includes the basic salary along with these allowances and any additional benefits provided under the contract.
This distinction is important because gratuity calculations rely only on the basic salary component.
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Gratuity is based on basic salary
According to UAE-based lawyer, as cited by Gulf News, gratuity for full-time employees is calculated only on the basic salary.
“As per the law, it specifically defines basic wage as the wage stipulated in the employment contract, which is paid to the worker in consideration of his work under the employment contract, on a monthly, weekly, daily, hourly or piecework basis, and which does not include any other allowances or benefits in-kind,” he explained.
At the same time, the term ‘wage’ under UAE law has a broader meaning.
“Effectively, ‘wage’ means your total salary, including both basic pay and allowances. If the law had meant to include only the basic salary, it would have used the term ‘basic wage,’ which is clearly defined in the law,” he told Gulf News.
How the two-year cap works
If gratuity calculated on basic salary results in a higher amount, the final payout cannot exceed two years of total wage.
“However, if the gratuity calculation/end of service benefit which is calculated on ‘basic wage’ exceeds the two years 'wages', then the maximum which a person can get as a severance package would only be limited to the two years wages,” he told Gulf News.
Key gratuity rules
These are the standard gratuity rules under UAE labour law:
What counts as basic and gross salary
As reported by Gulf News, basic salary is the fixed component mentioned in an employment contract. It does not include allowances such as housing, transport, or other benefits.Gross salary, or total wage, includes the basic salary along with these allowances and any additional benefits provided under the contract.
This distinction is important because gratuity calculations rely only on the basic salary component.
(Join our ETNRI WhatsApp channel for all the latest updates)
Gratuity is based on basic salary
According to UAE-based lawyer, as cited by Gulf News, gratuity for full-time employees is calculated only on the basic salary.
“As per the law, it specifically defines basic wage as the wage stipulated in the employment contract, which is paid to the worker in consideration of his work under the employment contract, on a monthly, weekly, daily, hourly or piecework basis, and which does not include any other allowances or benefits in-kind,” he explained.
At the same time, the term ‘wage’ under UAE law has a broader meaning.
“Effectively, ‘wage’ means your total salary, including both basic pay and allowances. If the law had meant to include only the basic salary, it would have used the term ‘basic wage,’ which is clearly defined in the law,” he told Gulf News.
How the two-year cap works
If gratuity calculated on basic salary results in a higher amount, the final payout cannot exceed two years of total wage.“However, if the gratuity calculation/end of service benefit which is calculated on ‘basic wage’ exceeds the two years 'wages', then the maximum which a person can get as a severance package would only be limited to the two years wages,” he told Gulf News.
Key gratuity rules
These are the standard gratuity rules under UAE labour law:- No gratuity is paid if service is less than one year
- 21 days’ basic salary per year for one to five years of service
- 21 days’ basic salary for the first five years and 30 days per year after that for longer service
- Total payout is capped at two years’ total wage
