UAE End of Service Gratuity (EOSG)

End of Service Gratuity is the statutory lump-sum payment a UAE private-sector employer owes an expatriate employee when their employment ends. The legal basis is Article 51 of Federal Decree-Law No. 33 of 2021 on the Regulation of Labour Relations, which took effect on 2 February 2022. Because expatriates are not covered by the UAE national pension system, gratuity functions as their principal end-of-service entitlement, while UAE nationals follow a separate pension and social security regime rather than the gratuity formula.

Who qualifies

Full-time workers who complete one year or more of continuous service are entitled to gratuity when their service ends. Days of unpaid absence are excluded from the service calculation, and a worker with less than one year of service is not entitled to any gratuity.

How it is calculated

The entitlement accrues on two tiers, both based on the employee’s last drawn basic wage:

• 21 days of basic salary for each completed year during the first five years of service
• 30 days of basic salary for each additional year beyond five years
• The total payment is capped at two years’ wages, regardless of length of service

Basic salary means the fixed wage stated in the employment contract. Housing, transport and utility allowances, bonuses, commissions, overtime and in-kind benefits are all excluded – which is why the gratuity figure is often far smaller than employees expect when their package is heavily weighted toward allowances.

For flexible and part-time staff, the entitlement is pro-rated by comparing the employee’s contracted annual hours against full-time annual hours.

Employers processing UAE payroll can find the wider statutory framework – WPS, Emiratisation, leave and termination rules – on the Mercans UAE country guide: https://mercans.com/country-intel/united-arab-emirates

Frequently Asked Questions

Is gratuity calculated on basic salary or total salary?

Basic salary only. Housing allowance, transport allowance, food allowance, commission and all other benefits are excluded entirely, and the figure used is the last drawn basic salary at the point of termination or resignation, not an average across the employment period. Employers should check that the basic-wage line in the MOHRE-registered contract matches what payroll is accruing against.

Does an employee who resigns still receive full gratuity?

Yes. The old resignation-based reductions were abolished under Federal Decree-Law No. 33 of 2021, so an employee who resigns receives the full 21/30-day rate provided they have completed at least one year of service. Resigned and terminated employees are now treated identically for gratuity purposes. The reform also removed the old limited-versus-unlimited contract distinction that previously drove different outcomes.

Can an employee dismissed for misconduct lose their gratuity?

The position changed materially under the current law. Under the former Federal Law No. 8 of 1980, employees dismissed for gross misconduct forfeited their entire gratuity; under Federal Decree-Law No. 33 of 2021, employees dismissed under Article 44 generally retain their right to gratuity provided they meet the one-year minimum. Employers may still pursue separate claims for proven damages, and courts may rule on forfeiture in extreme cases involving theft, fraud or assault. Employers should take legal advice before withholding a settlement on misconduct grounds.

When must gratuity be paid, and can the employer deduct from it?

All outstanding wages, other entitlements and gratuity must be paid within 14 days of the termination of the contract. Employers may deduct any amounts owed to them by the worker from the gratuity. Missing the 14-day window is a labour-law breach, so the final settlement figure should be calculated and approved before the employee’s last working day. Mercans manages termination settlements and statutory filings end to end through its UAE payroll and EOR services: https://mercans.com/employer-of-record-payroll-peo/united-arab-emirates U.AE

What is the Savings Scheme, and does it replace gratuity?

It is a voluntary alternative, not a replacement. MOHRE launched the alternative end-of-service benefits system – the Savings Scheme – under which amounts allocated for gratuity are invested in approved investment funds, with participating employers contributing monthly. Contribution rates are 5.83% of basic salary for employees with under five years of service and 8.33% for those above five years, paid into a Securities and Commodities Authority-approved fund, and once an employee is enrolled the traditional gratuity formula stops applying for that period. Subscriptions must reach the fund within 15 days of the start of each calendar month. One point employers frequently miss: the scheme is not retroactive, so gratuity accrued before the enrolment date must be calculated and preserved separately. Note also that the DIFC operates its own separate savings-based alternative, DEWS, outside the federal gratuity rules.

Why it matters for payroll

EOSG is a continuously accruing liability, not a one-off termination cost. Booking it monthly against basic salary keeps the balance sheet accurate, avoids a large one-time charge at exit, and makes the 14-day settlement deadline achievable. Mercans’ UAE payroll platform handles gratuity accruals, WPS salary file generation and MOHRE-related workflows natively: https://mercans.com/payroll-software/uae/