Every gratuity article online is written for the employee who wants to know what they will get. If you run the company, the more useful question is different: how much is each person quietly costing you in end-of-service liability, and when does the bill arrive? This guide gives you the formula, worked examples with real numbers, and a monthly provisioning rule so the payout never surprises your cash flow.
- 21 days of basic salary per year for the first 5 years.
- 30 days of basic salary per year after year 5.
- Daily wage = monthly basic salary divided by 30. Allowances are excluded.
- Needs 1 year of continuous service. Cap: 2 years of wages.
- Must be paid within 14 days of the contract ending.
Worked examples at AED 10,000 basic salary
The daily wage here is AED 10,000 / 30 = AED 333.33. Here is what the liability looks like as service grows:
| Years of service | Days owed | Gratuity (AED) |
|---|---|---|
| 1 | 21 | 7,000 |
| 3 | 63 | 21,000 |
| 5 | 105 | 35,000 |
| 8 (105 + 3 x 30) | 195 | 65,000 |
| 15 (105 + 10 x 30) | 405 | 135,000 |
Notice the jump: years six onward cost 43% more per year (30 days versus 21). A long-serving team member is not just loyal, they are an increasingly expensive liability line.
When does the 2-year cap actually bite?
The cap is two years of wages, which is 720 days of salary. At 105 days for the first five years plus 30 days per extra year, you only reach 720 days after about 25.5 years of service. For almost every SME, the cap is irrelevant. Plan for the full formula.
The provisioning rule: put money aside every month
Accrue the liability monthly instead of discovering it at exit. As a rule of thumb, set aside roughly 5.8% of basic salary per month in years 1 to 5 (21 / 365) and roughly 8.2% from year 6 (30 / 365).
| Team (all on AED 10,000 basic) | Monthly provision | Annual provision |
|---|---|---|
| 1 employee, years 1 to 5 | about AED 575 | about AED 7,000 |
| 5 employees, years 1 to 5 | about AED 2,875 | about AED 35,000 |
| 10 employees, years 1 to 5 | about AED 5,750 | about AED 70,000 |
Your accountant should book this as a liability. Our guide to UAE bookkeeping and records explains why unprovisioned liabilities show up badly in audits and bank reviews.
Three mistakes employers make
- Using total salary instead of basic. Only basic counts. Housing and transport allowances are excluded, which is why the split in your contract matters.
- Forgetting partial years. Time beyond full years is paid pro-rata, so 4 years and 6 months pays 4.5 years of entitlement.
- Paying late. The 14-day deadline is the one that triggers disputes. Settle final dues on time to avoid a MoHRE complaint.
Free zones and DIFC are not all the same
Most free zones follow the federal formula. DIFC replaced gratuity accrual with a funded savings scheme (DEWS) where employers contribute monthly. If your company sits in DIFC, ADGM or another zone with its own employment rules, verify the local rule before copying these numbers. Checking the audit and compliance side of your zone? See our note on free zone audit requirements.
Planning to hire or to wind down?
Gratuity is part of the real cost of the first hire. Our guide to hiring your first employee in the UAE shows the full cost stack, and if you are closing the business, our liquidation guide explains why final dues must be cleared before cancellation.
FAQ
Is gratuity paid if an employee resigns? Under the current labour law, entitlement depends on completed service rather than the reason for leaving, so check your contract and MoHRE guidance for exceptions.
Does unpaid leave count? Unpaid leave days are normally excluded from the service period.
Official guidance is published by MoHRE. Want a clean employment-cost model before you hire? Speak to the BizDaddy team.
