Employee End of Service Benefits in the United Arab Emirates (UAE)
In accordance with the UAE laws, the end of service benefit, commonly known as a gratuity or severance payment, is defined as a payment paid by the employer to its employee upon completion of the work relationship, provided the employment relationship continued for not less than one year. The rules relating to the end of service benefits are stipulated in Articles 132 to 141 of the UAE Federal Labor Law No. 8 of 1980 (the “Law”). Article 132 of the Law sets a general rule on the calculation of the end of service benefits as follows:
- twenty one (21) day's pay for each year of the first five years of service
- thirty (30) days pay for each additional year, provided that the entire total remuneration shall not exceed two year's pay
Days of absence from work without pay are not included in calculating the period of service. Fractions of a year after the first year of continuous employment is included in calculating the gratuity payment.
However, the above formula is subject to certain exceptions based on the type of the employment contract (i.e. limited or unlimited) and in the event the employment contract has been terminated by the employee or in cases where the employee has violated his obligations under the Law.
Unlimited Term Contract
According to the Article 137 of the Law, if an employee under a contract with unlimited term has left his work at his own will after a continuous service of not less than one year and not more than three years, he shall be entitled to one third (1/3) of the gratuity. If the period of his continued service is more than 3 years and less than 5 years he is entitled to two third (2/3) of the gratuity, but if his continued service exceeds 5 years, then he is rightful to get the full end of service benefit.
Limited Term Contract
If an employee under a contract with limited period leaves his work at his own decision before the end of the contract period he shall not be entitled to end of service gratuity unless the period of his continuous service exceeds five years, according to the Article 138 of the Law. Termination of the contract prior to its expire date constitute a breach of contract according to the Law. Therefore, the Law does not entitle the employee to receive the end of service benefits in such event. However, in the event that a worker works for than five years and leaves the work, then he is entitled to receive full end of service benefits.
Forfeiture of Gratuity
In accordance with Article 139 of the Law, an employee shall not be entitled to receive the end of service benefits, if the employee:
- adopts a false identity or nationality or if he submits forged documents or certificates;
- is appointed under a probationary period and dismissal occurred during or at the end of said period;
- commits an error causing substantial material loss to the employer provided that the latter advises the labor department of the incident within 48 hours from having knowledge of the same;
- violates instructions concerning safety of the place of business provided that such instructions are displayed in writing at conspicuous places and in case of an illiterate employee the latter be informed verbally of the same;
- fails to perform his basic duties under the contract of employment and persists in violating them despite formal investigation with him in this respect and warning him of dismissal if the same is repeated;
- divulges any secrets of the establishment where he is employed;
- is awarded final judgement by the competent court in respect of an offence prejudicing honor, honesty or public morals;
- during working hours he is found drunk or under the influence of drug;
- in the course of his work he commits an assault on the employer, the manager or any of his colleagues;
- absents himself without lawful excuse for more than twenty intermittent days or for more than seven successive day during one year;
- leaves his work willingly and without notice, except for cases stipulated in Article 121 of the Law, with respect to unlimited period contracts or before he completes five years of continuous service with respect to limited period contracts.
Determination of Basic Wage
In compliance with the Article 134 of the Law, the end of service gratuity is calculated according to the last basic salary of an employee. This rule applies for all workers getting their salaries on monthly, weekly or daily basis. Other allowances paid to a worker such as housing allowance, transport allowance, overtime pay, representation allowance, cashier’s allowances, children education allowance, allowances for recreational and social facilities, and any other bonuses or allowances shall not be included in the calculation of a gratuity payment. However, employers should take into consideration that the split between the basic salary and allowances should be fair and can be justified. Reducing the basic salary artificially in order to decrease the gratuity payments may seem unfair and therefore judges can sometimes award the gratuity on the entire remuneration that includes allowances as well.
Note: This article is intended for general information only and should not be considered as legal advice.
