New UAE labour law 2022: How is gratuity calculated?

The end-of-service payment of an employee is subject to the provisions of federal employment law

By Ashish Mehta

Published: Sun 19 Dec 2021, 10:39 AM

Last updated: Sun 19 Dec 2021, 5:47 PM

Question: Can you please explain to me how gratuity is calculated? I have just been given a raise, but I have observed that my basic salary has been kept the same. Will this affect my gratuity?

Answer: It is assumed that your employment is subject to the provisions of the UAE's Federal Law No 8 of 1980 on the Regulation of Employment Relations as amended from time to time (the Employment Law), along with the Ministerial Resolutions and Decrees issued in pursuance thereof.

Following your query, Article 134 of the Employment Law may be referred. The end-of-service gratuity of an employee is to be calculated based on his/her last drawn salary subject to the condition that it shall not include anything given to the employee in kind, in addition to allowances for housing, transport, travel, overtime, representation, children's education, recreation and social services. The said Article 134 reads as follows:

"Article (134)

(1) Without prejudice to the provisions of some laws regarding the granting of pensions and gratuities to employees of some establishments, the end of service gratuity shall be computed on the basis of last wage which the employee was entitled to, in respect of those drawing their salary per month, week or day, and on the basis of average daily wage stipulated in Article (57) in respect of those drawing their wages on piece work basis.

(2) The wage which is considered as basis for computation of the end of service gratuity shall not include anything given to the employee in kind, housing allowance, transport allowance, travel allowance, overtime allowance, representation allowance, cashier's allowance, children education allowance, recreation and social services allowance or any other allowances."

Come February 2022, the Employment Law shall be abrogated and replaced entirely by the new Federal Decree-Law No (47) of 2021 On the Standard General Rules of Work in the United Arab Emirates (the New Employment Law).

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By Article 11 clause 2 of the New Employment Law, end of service benefits of a foreign/expatriate employee is to be calculated based on the basic wage. The provisions (as translated) read as follows:

"Article (11)

End-of-Service Benefit

2. A foreign Employee or Worker who completes (1) one continuous year of full-time service shall be entitled to an end of service benefit at the end of his service, which is calculated on the basis of the Basic Wage as follows:

a. 21 days for each year of the first 5 years of service.

b. 30 days for any subsequent year of service."

The New Employment Law shall apply to your employment, if you continue your employment with your current employer, till enforcement of the New Employment Law."

Ashish Mehta is the founder and Managing Partner of Ashish Mehta & Associates. He is qualified to practise law in Dubai, the United Kingdom and India. Full details of his firm on: www.amalawyers.com. Readers may e-mail their questions to: news@khaleejtimes.com or send them to Legal View, Khaleej Times, PO Box 11243, Dubai.