Gratuity is a financial benefit or compensation offered by employers to employees in recognition of the services rendered for five years or more in a company. It is only payable when the worker leaves a job due to disability, death, or retirement, as indicated under the new UAE labour law.
The law changes, effected in February 2022, provide additional provisions to benefit employees. First, it stresses that full-time foreign workers who complete one or more years in a company shall be paid gratuity based on the basic working day's wage, not calendar days. Next is how the new gratuity laws are enforced in the UAE, plus how and when employers will pay employees.
How Is Gratuity Enforced Under the New UAE Law?
The amended UAE labour law prohibits any form of workplace coercion. Employers shall not threaten or force workers to provide services against will. It also prohibits sexual, physical, or psychological harassment or bullying of workers. In addition, prejudice and discrimination based on social origin, sex, religion, or national origin are against the law and employment rights.
Women are eligible for the same wage as men if they are doing work of equal value, according to the decision of the Ministers' Council. Again, the law specifies that contracts of less than three years are limited but extendable or renewable, as stated in Federal Law no 8 of 1980. It also entitles all private-sector workers to a paid weekly rest day and paternity leave.
How Is Gratuity Calculated?
A service gratuity is calculated in reference to employees' final basic salary; bonuses are often excluded. The payment doesn't include:
Overtime pays
Recreation allowances
Social service allowances
House or travel allowances
Children or any other allowances
In case of incomplete working years, the end-of-service gratuity is pro-rated.
An employee is exempt from gratuity in a limited-term contract of one to three years. The compensation reduces by two-thirds in an unlimited term contract. Also, if the contract is indefinite, workers get one-third in a three-five-year contract and nothing in a limited-term contract.
For example:
Five or more years of limited contract gratuity pay
Assuming the salary is Dh20,000
The daily wage will be: 20,000÷30= Dh 666.67
For 21 working days: 666.67×21= Dh14,000
For five years' service: 14,000× 5= Dh70,000
Note: gratuity cannot exceed Dh240,000 in a limited contract, regardless of the work duration.
Unlimited contract gratuity pay
Assuming the salary is Dh20,000
The daily wage will be: 20,000÷30= Dh 666.67
For 21 working days: 666.67×21= Dh14,000
For one to three years: 1/3×14,000= Dh4,667
For three to five years: 2/3×14,000=Dh9,333.30
Note: Employment gratuity for more than five years applies to 21 days of all the years served and is payable in full.
When Is Gratuity Forfeited?
The employer will not pay gratuity if:
An employee opts to be part of the company's pension scheme.
A work contract ends due to an employee's misconduct as set out in Articles 88 and 120 of the UAE labour law.
The employee receives a Social Security Authority Pension or General Pension from their home jurisdiction.
Employees resign without notice in an unlimited contract or before completing a five-year service in a limited contract, according to UAE Labour law, Article 139.
On termination of employees, the employer must cancel their UAE visa within 30 days. The employer must also make all payments within 30 days. Workers must sign a visa cancellation form to acknowledge they have received all their dues.
In part-time contracts and other work arrangements, employment gratuity is calculated following the number of working hours per year multiplied by 100, then divided by the full-time contract per year.
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