HZLegalHow is gratuity computed under the new UAE labour law?

18/09/2024by Hossam Zakaria0

Table of Contents

Gratuity under the new UAE labour law: Know your entitlements.

Introduction

Under the new UAE labour law, gratuity is computed based on the employee’s length of service and final salary.

Calculation of Gratuity under the New UAE Labour Law

Gratuity is a significant aspect of employment benefits in the United Arab Emirates (UAE). It is a form of end-of-service payment that employers are required to provide to their employees upon the termination of their employment contract. The calculation of gratuity has recently been updated under the new UAE labour law, providing more clarity and transparency for both employers and employees.

Under the new UAE labour law, gratuity is calculated based on the employee’s total length of service with the employer. The formula for calculating gratuity is as follows: for employees who have completed one year or more of continuous service, they are entitled to receive 21 days of basic salary for each year of service. If the employee has not completed a full year of service, the gratuity is calculated on a pro-rata basis.

For example, if an employee has worked for five years and their basic salary is AED 5,000 per month, their gratuity would be calculated as follows: 5 years x 21 days x AED 5,000 = AED 52,500. This means that the employee would be entitled to receive AED 52,500 as gratuity upon the termination of their employment contract.

It is important to note that the new UAE labour law has also introduced a cap on the maximum amount of gratuity that can be paid to an employee. The maximum amount of gratuity that can be paid is two years’ worth of the employee’s basic salary. This means that even if an employee has worked for more than 10 years, they will only be entitled to receive gratuity equivalent to two years’ worth of their basic salary.

Furthermore, the new UAE labour law has also clarified the calculation of gratuity for employees who are paid on a daily or hourly basis. In such cases, the gratuity is calculated based on the average daily wage earned by the employee. The average daily wage is calculated by dividing the total wages earned by the employee during the last 12 months by the number of days worked during that period.

Overall, the new UAE labour law has brought about more transparency and fairness in the calculation of gratuity for employees. Employers are now required to provide clear information to their employees about how gratuity is calculated and ensure that they receive their entitlement upon the termination of their employment contract.

In conclusion, gratuity is an important aspect of employment benefits in the UAE, and the new labour law has made significant changes to the calculation of gratuity to ensure that employees receive their entitlement in a fair and transparent manner. By understanding how gratuity is computed under the new UAE labour law, both employers and employees can ensure that their rights are protected and that they receive the benefits they are entitled to.

Understanding the New Gratuity Rules in the UAE

Gratuity is a significant aspect of employment in the United Arab Emirates (UAE), as it serves as a form of end-of-service benefit for employees who have completed a certain period of service with their employer. The calculation of gratuity has recently undergone changes with the implementation of the new UAE labour law, which has brought about some key adjustments to how gratuity is computed for employees.

Under the new UAE labour law, gratuity is calculated based on the employee’s total length of service with the employer. The formula for calculating gratuity is as follows: for employees who have completed less than five years of service, they are entitled to receive 21 days of their basic salary for each year of service. For employees who have completed more than five years of service, they are entitled to receive 30 days of their basic salary for each year of service.

It is important to note that the basic salary used in the calculation of gratuity does not include any allowances or bonuses that the employee may receive. The basic salary is the fixed monthly salary that the employee is entitled to receive as per their employment contract. Additionally, the maximum amount of gratuity that can be paid to an employee is capped at two years’ worth of their basic salary.

Transitional phrases such as “in addition,” “furthermore,” and “moreover” can help guide the reader through the complexities of the new gratuity rules in the UAE. In addition to the changes in the calculation of gratuity, the new UAE labour law also introduces the concept of pro-rata gratuity for employees who resign before completing a full year of service.

Pro-rata gratuity is calculated based on the number of completed months of service, with the employee entitled to receive a portion of their gratuity based on the number of months worked. For example, if an employee resigns after completing six months of service, they would be entitled to receive half of their gratuity entitlement for that year.

Furthermore, the new UAE labour law also clarifies the rules around gratuity for fixed-term contracts. Employees on fixed-term contracts are entitled to receive gratuity at the end of their contract, provided they have completed at least one year of service. The gratuity entitlement for employees on fixed-term contracts is calculated based on the total length of service, similar to employees on unlimited contracts.

Moreover, the new UAE labour law also introduces the concept of a gratuity calculator, which is a tool that can be used to estimate the gratuity entitlement for employees based on their length of service and basic salary. The gratuity calculator can help both employers and employees understand how gratuity is computed under the new rules and ensure that employees receive their rightful entitlement at the end of their service.

In conclusion, the new UAE labour law has brought about significant changes to how gratuity is computed for employees in the UAE. By understanding the new rules and regulations around gratuity, both employers and employees can ensure that they are compliant with the law and that employees receive their rightful entitlement at the end of their service.

Impact of the New Labour Law on Gratuity Payments

Gratuity is a significant aspect of employment benefits in the United Arab Emirates (UAE). It is a lump sum payment made by an employer to an employee as a token of appreciation for their service upon the termination of their employment contract. The calculation of gratuity has always been a topic of interest and discussion among employees and employers alike. With the recent changes in the UAE labour law, there have been updates to how gratuity is computed, which has implications for both parties involved.

Under the new UAE labour law, which came into effect in February 2019, there have been changes to the calculation of gratuity payments. Previously, gratuity was calculated based on an employee’s basic salary. However, under the new law, gratuity is now calculated based on an employee’s total remuneration, which includes basic salary as well as any housing allowance and other allowances that are regularly paid to the employee.

This change in the calculation of gratuity has been welcomed by many employees, as it means that they will receive a higher gratuity payment upon the termination of their employment contract. By including housing allowance and other allowances in the calculation, employees are now entitled to a more comprehensive gratuity payment that reflects their total remuneration package.

For employers, this change in the calculation of gratuity means that they will need to budget for higher gratuity payments when employees leave their organization. This may have financial implications for some employers, especially those who have a large workforce or who regularly have employees leaving their organization.

It is important for both employees and employers to understand how gratuity is now computed under the new UAE labour law. To calculate gratuity under the new law, the following formula is used: (Total remuneration ÷ 30) x 21 x number of years of service.

In this formula, total remuneration includes basic salary, housing allowance, and any other regular allowances that are paid to the employee. The number 30 represents the number of days in a month, and the number 21 represents the number of working days in a month. The number of years of service is rounded up to the nearest full year, with any partial year of service being calculated on a pro-rata basis.

For example, if an employee has a total remuneration of AED 10,000 per month and has worked for 5 years, their gratuity payment would be calculated as follows: (10,000 ÷ 30) x 21 x 5 = AED 35,000.

It is important for employees to be aware of their entitlement to gratuity under the new UAE labour law and to ensure that they receive the correct payment upon the termination of their employment contract. Employers should also be aware of their obligations to calculate and pay gratuity correctly to avoid any potential disputes or legal issues.

Overall, the changes to the calculation of gratuity under the new UAE labour law have had a positive impact on employees, who are now entitled to a more comprehensive gratuity payment that reflects their total remuneration package. Employers should be prepared for the financial implications of these changes and ensure that they calculate and pay gratuity correctly to avoid any potential issues. By understanding how gratuity is now computed under the new law, both employees and employers can ensure a smooth and fair process when it comes to gratuity payments.

Changes in Gratuity Calculation Methods in the UAE

Under the previous labour law, gratuity was calculated based on an employee’s last drawn basic salary. However, the new law has introduced a more comprehensive method for calculating gratuity. According to the new law, gratuity is now calculated based on an employee’s total remuneration, which includes basic salary, housing allowance, and any other fixed allowances that are regularly paid to the employee.

This change in the calculation method has been welcomed by many employees, as it ensures that their gratuity reflects their total compensation package rather than just their basic salary. This means that employees with higher allowances will receive a higher gratuity payment upon the termination of their employment contract.

Employers, on the other hand, may find the new calculation method more complex and potentially more costly. By including all fixed allowances in the calculation of gratuity, employers may be required to pay a higher gratuity amount to employees with significant allowances. This could have financial implications for businesses, especially those with a large workforce.

It is important for both employers and employees to understand how gratuity is now computed under the new UAE labour law. To calculate gratuity under the new law, employers must first determine an employee’s total remuneration, which includes basic salary, housing allowance, and any other fixed allowances. Once the total remuneration is determined, the gratuity amount is calculated based on the following formula:

Gratuity = (Total remuneration ÷ 30) x 21 x Number of years of service

In this formula, the total remuneration is divided by 30 to calculate the daily wage, which is then multiplied by 21 (the number of working days in a month) and the number of years of service to arrive at the gratuity amount.

It is important to note that the new calculation method applies to all employees, regardless of their nationality or type of contract. Whether an employee is on a limited or unlimited contract, they are entitled to gratuity based on their total remuneration under the new law.

Overall, the changes in gratuity calculation methods under the new UAE labour law have implications for both employers and employees. While employees may benefit from a more comprehensive calculation method that takes into account their total compensation package, employers may face increased costs associated with higher gratuity payments. It is essential for both parties to understand how gratuity is now computed and to ensure compliance with the new law to avoid any potential disputes or legal issues in the future.

Key Factors Affecting Gratuity Computation under the New Law

Gratuity is a significant aspect of employment in the United Arab Emirates (UAE), as it serves as a form of financial security for employees upon the termination of their employment. The new UAE labour law has brought about changes in how gratuity is computed, taking into account various factors that affect the final amount received by employees. Understanding these key factors is essential for both employers and employees to ensure compliance with the law and fair treatment in the calculation of gratuity.

One of the key factors affecting gratuity computation under the new UAE labour law is the length of service. The law stipulates that employees are entitled to gratuity payments based on their years of service with the employer. The calculation is as follows: for employees who have served less than one year, they are not entitled to any gratuity payment. For those who have completed one year but less than five years of service, they are entitled to receive gratuity equivalent to 21 days of basic salary for each year of service. Employees who have served between five and less than ten years are entitled to gratuity equivalent to 30 days of basic salary for each year of service. Finally, employees who have completed ten or more years of service are entitled to gratuity equivalent to 45 days of basic salary for each year of service.

Another important factor that affects gratuity computation is the basic salary of the employee. The law specifies that the gratuity payment should be based on the employee’s basic salary, excluding any allowances or bonuses. This ensures that the calculation is fair and transparent, as it is based on the core salary that the employee receives on a regular basis. Employers must accurately calculate the basic salary of employees to ensure that the gratuity payment is calculated correctly.

Additionally, the new UAE labour law has introduced changes in how gratuity is calculated for employees who resign from their jobs. Previously, employees who resigned were not entitled to receive gratuity payments. However, under the new law, employees who have completed at least one year of continuous service are entitled to receive gratuity payments upon resignation. The calculation is similar to that of employees who are terminated, based on the length of service and basic salary of the employee.

It is important for employers to understand these key factors affecting gratuity computation under the new UAE labour law to ensure compliance and fair treatment of employees. By accurately calculating gratuity payments based on the length of service and basic salary of employees, employers can avoid disputes and legal issues related to gratuity payments. Employees, on the other hand, should be aware of their rights under the law and ensure that they receive the correct gratuity payment upon the termination of their employment.

In conclusion, gratuity computation under the new UAE labour law is based on key factors such as the length of service, basic salary, and the reason for termination. Employers and employees must be aware of these factors to ensure compliance with the law and fair treatment in the calculation of gratuity payments. By understanding these key factors, both employers and employees can navigate the process of gratuity computation smoothly and ensure that employees receive their rightful entitlements upon the termination of their employment.

Comparison of Gratuity Calculation before and after the New Labour Law

Gratuity is a significant aspect of employment benefits in the United Arab Emirates (UAE). It is a lump sum payment made by an employer to an employee as a token of appreciation for their service upon the termination of their employment contract. The calculation of gratuity has always been a crucial factor for both employers and employees, as it directly impacts the financial well-being of the employee post-employment. With the introduction of the new UAE labour law, there have been some changes in the way gratuity is computed, which has led to a comparison between the old and new methods.

Before the implementation of the new labour law, gratuity was calculated based on the employee’s last drawn basic salary. The formula used was as follows: (Number of years of service) x (15 days’ salary) for the first five years of service, and (Number of years of service) x (30 days’ salary) for every additional year of service. This method was straightforward and easy to understand, as it provided a clear calculation based on the employee’s total years of service.

However, with the new labour law in place, the calculation of gratuity has undergone some changes. The new formula for gratuity calculation now takes into account the employee’s total service period, including any partial years of service. The formula is as follows: (Total years of service) x (21 days’ salary). This means that even if an employee has worked for less than a year, their service period will be considered when calculating gratuity.

One of the key differences between the old and new methods of gratuity calculation is the inclusion of partial years of service in the new formula. This change ensures that employees are compensated for their service, even if they have not completed a full year of work. It also simplifies the calculation process, as employers no longer need to calculate gratuity based on the number of completed years of service.

Another important aspect of the new gratuity calculation method is the increase in the number of days’ salary used in the formula. Under the old method, the calculation was based on 15 days’ salary for the first five years of service and 30 days’ salary for every additional year. However, the new method uses 21 days’ salary for the entire service period. This increase in the number of days’ salary ensures that employees receive a higher gratuity amount compared to the old method.

Overall, the new method of gratuity calculation under the UAE labour law is more comprehensive and beneficial for employees. It takes into account the employee’s total service period, including partial years of service, and uses a higher number of days’ salary in the formula. These changes ensure that employees are fairly compensated for their service and provide a more transparent and simplified calculation process for both employers and employees.

In conclusion, the new method of gratuity calculation under the UAE labour law has brought about significant changes that benefit employees. By considering the total service period and using a higher number of days’ salary in the formula, employees are now entitled to a higher gratuity amount compared to the old method. These changes reflect the UAE’s commitment to ensuring fair and just treatment of employees in the workplace.

Employer Obligations for Gratuity Payments under the New Law

Gratuity is a significant aspect of employment in the United Arab Emirates (UAE), as it serves as a form of end-of-service benefit for employees who have completed a certain period of service with their employer. The calculation of gratuity has recently undergone changes with the introduction of the new UAE labour law, which has implications for both employers and employees.

Under the new law, gratuity is calculated based on the employee’s last drawn basic salary. This means that any allowances or bonuses that are not considered part of the basic salary will not be factored into the gratuity calculation. This change aims to ensure that employees receive a fair and consistent gratuity payment based on their basic salary, which is a more accurate reflection of their overall compensation.

Employers are required to pay gratuity to employees who have completed at least one year of continuous service with the company. The gratuity amount is calculated based on the employee’s length of service, with different rates applying to employees who have completed less than five years of service and those who have completed five or more years of service.

For employees who have completed less than five years of service, the gratuity calculation is as follows: the employee is entitled to receive 21 days of basic salary for each year of service. For example, if an employee has worked for three years, they would be entitled to receive 63 days of basic salary as gratuity.

For employees who have completed five or more years of service, the gratuity calculation is slightly different. In this case, the employee is entitled to receive 30 days of basic salary for each year of service beyond the fifth year. For example, if an employee has worked for seven years, they would be entitled to receive 210 days of basic salary as gratuity.

It is important for employers to ensure that they accurately calculate and pay gratuity to employees who are entitled to receive it. Failure to do so can result in legal consequences and penalties for the employer. Employers should keep detailed records of their employees’ length of service and basic salary to ensure that gratuity payments are calculated correctly.

Employers should also be aware of any additional factors that may impact the calculation of gratuity, such as unpaid leave or termination of employment. In these cases, the gratuity calculation may need to be adjusted to account for the employee’s actual length of service.

Overall, the new UAE labour law has brought about changes to the calculation of gratuity that aim to provide employees with a fair and consistent end-of-service benefit. Employers should familiarize themselves with the new regulations and ensure that they comply with their obligations to pay gratuity to eligible employees. By doing so, employers can maintain a positive relationship with their employees and avoid any potential legal issues related to gratuity payments.

Employee Rights and Entitlements regarding Gratuity under the New UAE Labour Law

Gratuity is a significant aspect of employee rights and entitlements in the United Arab Emirates (UAE). It is a form of end-of-service benefit that employers are required to provide to their employees upon the termination of their employment contract. The new UAE labour law has brought about changes in how gratuity is computed, ensuring that employees receive fair compensation for their service.

Under the new UAE labour law, gratuity is calculated based on the employee’s total length of service with the employer. The formula for calculating gratuity is as follows: for employees who have completed one year or more of continuous service, they are entitled to receive 21 days of their basic salary for each year of service. If an employee has worked for less than a year but more than six months, they are entitled to receive half of the gratuity amount.

Transitional phrases such as “for example” and “in addition” can help guide the reader through the explanation of how gratuity is computed under the new UAE labour law. By providing clear examples and additional information, the reader can better understand the calculation process and how it applies to different scenarios.

It is important to note that the new UAE labour law has also introduced a cap on the maximum amount of gratuity that can be paid to an employee. The maximum amount of gratuity that can be paid is two years’ worth of the employee’s basic salary. This means that even if an employee has worked for more than 10 years, they will only receive gratuity equivalent to two years’ worth of their basic salary.

Furthermore, the new UAE labour law has clarified that gratuity is payable to employees who resign from their job after completing at least one year of continuous service. Previously, there was confusion surrounding whether employees who resigned were entitled to gratuity. The new law has made it clear that employees who resign after completing one year of service are entitled to receive gratuity based on their length of service.

In addition to the changes in how gratuity is computed, the new UAE labour law has also introduced provisions to protect employees’ rights in case of disputes over gratuity payments. Employers are now required to maintain accurate records of their employees’ length of service and basic salary to ensure that gratuity payments are calculated correctly. Employees who believe they have not received the correct amount of gratuity can file a complaint with the Ministry of Human Resources and Emiratisation for resolution.

Overall, the new UAE labour law has brought about positive changes in how gratuity is computed and paid to employees. By providing a clear formula for calculating gratuity, introducing a cap on the maximum amount payable, and clarifying the rights of employees who resign, the new law ensures that employees are fairly compensated for their service. Employers must adhere to these regulations to avoid penalties and legal consequences. Employees should be aware of their rights regarding gratuity under the new UAE labour law to ensure they receive the benefits they are entitled to upon the termination of their employment contract.

Strategies for Maximizing Gratuity Benefits under the New Regulations

Gratuity is a significant aspect of employment benefits in the United Arab Emirates (UAE), and it is crucial for both employers and employees to understand how it is computed under the new labour law. The new regulations have brought about changes in the way gratuity is calculated, and it is essential for individuals to be aware of these changes to maximize their benefits.

Under the new UAE labour law, gratuity is calculated based on the employee’s last drawn basic salary. This means that the gratuity amount is determined by the employee’s basic salary at the time of termination or resignation. It is important for employees to ensure that their basic salary is accurately reflected in their employment contracts to avoid any discrepancies in the calculation of gratuity.

In addition to the basic salary, the length of service also plays a crucial role in determining the gratuity amount. Employees are entitled to gratuity payments for each year of service completed, with a minimum of one year required to be eligible for gratuity. The new regulations have introduced a sliding scale for gratuity calculations, with employees who have served for less than five years entitled to 21 days of basic salary for each year of service, and those who have served for more than five years entitled to 30 days of basic salary for each year of service.

To maximize gratuity benefits under the new regulations, employees should aim to stay with the same employer for as long as possible. By accumulating more years of service, employees can increase their gratuity entitlement and secure a higher payout when they leave their job. It is also important for employees to keep track of their service records and ensure that they are accurately reflected in their employment contracts to avoid any disputes over gratuity calculations.

Employers can also take steps to maximize gratuity benefits for their employees. By offering competitive salaries and benefits, employers can attract and retain top talent, leading to longer tenures and higher gratuity payouts for employees. Employers should also ensure that they comply with the new regulations and calculate gratuity accurately to avoid any legal issues or disputes with employees.

In conclusion, gratuity is an important aspect of employment benefits in the UAE, and it is essential for both employers and employees to understand how it is computed under the new labour law. By staying informed about the changes in gratuity calculations and taking proactive steps to maximize benefits, individuals can ensure that they receive their rightful entitlement when they leave their job. Employers should also prioritize compliance with the new regulations and strive to create a work environment that values and rewards long-term commitment from employees. Ultimately, understanding and adhering to the new regulations will benefit both employers and employees in the long run.

Common Questions and Concerns about Gratuity Calculation under the New UAE Labour Law

Gratuity is a common concern for employees in the UAE, as it represents a significant financial benefit that they are entitled to upon the termination of their employment. With the recent changes in the UAE labour law, many employees are curious about how gratuity is computed under the new regulations.

Under the new UAE labour law, gratuity is calculated based on the employee’s total length of service with the employer. The formula for calculating gratuity is as follows: for employees who have completed one year or more of continuous service, they are entitled to 21 days of basic salary for each year of service. If the employee has not completed a full year of service, the gratuity is calculated on a pro-rata basis.

It is important to note that the basic salary used in the calculation of gratuity does not include any allowances, bonuses, or other benefits that the employee may receive. It is based solely on the employee’s basic salary at the time of termination.

For employees who are terminated for cause, such as misconduct or poor performance, they may not be entitled to gratuity under the new UAE labour law. However, if the termination is deemed unfair or unjustified, the employee may still be entitled to gratuity based on their length of service.

Another common concern among employees is how gratuity is calculated for part-time or temporary employees. Under the new UAE labour law, part-time and temporary employees are entitled to gratuity based on their total length of service, just like full-time employees. The calculation is the same, with 21 days of basic salary for each year of service.

Employees who have worked for less than a year are entitled to a pro-rata gratuity payment based on the length of their service. For example, if an employee has worked for six months, they would be entitled to half of the gratuity payment they would receive for a full year of service.

It is important for employees to understand their rights and entitlements when it comes to gratuity under the new UAE labour law. Employers are required to calculate and pay gratuity to employees upon the termination of their employment, and failure to do so can result in legal action being taken against them.

Employees should keep accurate records of their length of service and basic salary to ensure that they receive the correct gratuity payment. If there are any discrepancies or issues with the calculation of gratuity, employees should seek advice from a legal professional or the Ministry of Human Resources and Emiratisation.

In conclusion, gratuity is an important benefit for employees in the UAE, and it is essential for both employers and employees to understand how it is calculated under the new labour law. By following the guidelines and regulations set out by the Ministry of Human Resources and Emiratisation, employees can ensure that they receive the gratuity payment they are entitled to upon the termination of their employment.

Q&A

1. How is gratuity calculated under the new UAE labour law?
Gratuity is calculated based on the employee’s last drawn basic salary.

2. Is there a specific formula for calculating gratuity under the new UAE labour law?
Yes, the formula is as follows: (Number of years of service x 21 days’ salary) + (Number of years of service x 30 days’ salary).

3. Are there any changes to the calculation of gratuity under the new UAE labour law?
Yes, the new law has increased the number of days’ salary used in the calculation from 21 to 30.

4. How is the number of years of service calculated for gratuity under the new UAE labour law?
Years of service are calculated based on the total number of years worked for the employer.

5. Are there any exceptions to receiving gratuity under the new UAE labour law?
Gratuity is not payable if the employee is terminated for gross misconduct.

6. Can an employee receive gratuity if they resign under the new UAE labour law?
Yes, employees are entitled to receive gratuity even if they resign, as long as they have completed one year of continuous service.

7. Is there a maximum limit to the amount of gratuity that can be received under the new UAE labour law?
Yes, the maximum amount of gratuity that can be received is two years’ salary.

8. Are there any specific rules for calculating gratuity for employees on fixed-term contracts under the new UAE labour law?
Yes, gratuity for employees on fixed-term contracts is calculated based on the total duration of the contract.

9. Can an employer withhold gratuity payments under the new UAE labour law?
Employers are not allowed to withhold gratuity payments, except in cases of legal disputes.

10. How is gratuity paid out to employees under the new UAE labour law?
Gratuity is typically paid out in a lump sum when the employee leaves the company.

Conclusion

Gratuity under the new UAE labour law is calculated based on the employee’s last drawn basic salary and the length of service. The formula for calculating gratuity is as follows:
– 21 days of basic salary for each year of service for the first five years
– 30 days of basic salary for each year of service after five years

In conclusion, gratuity under the new UAE labour law is computed by taking into account the employee’s last drawn basic salary and the number of years of service.