How UAE gratuity is calculated: 21 days, 30 days and the two-year cap, worked on one salary

A basic salary of AED 10,000, seven years and six months of service, no unpaid leave. That is the example I keep coming back to when someone at the trading company where I work asks what their gratuity will be, because it crosses the five-year line and shows the part almost everyone gets wrong. The correct answer is AED 60,000. The two most common wrong answers are AED 75,000 and AED 90,000, and both come from misreading one sentence of the law.

The rule is Article 51 of Federal Decree-Law 33 of 2021, the UAE Labour Law. The government's own summary of it on u.ae is short enough to quote where it matters, so that is what I will work from.

What counts as the wage in a UAE gratuity calculation?

The u.ae page says the gratuity "is calculated on basis of last wage which the worker was entitled to, namely the basic salary. Hence, it will not include allowances such as housing, transportation, utilities, furniture etc."

Two things in that sentence do the work. Last means the basic salary at the end of service, not an average over the years and not the figure on the first contract. Basic means the line on the contract labelled basic salary, and nothing else. A package of AED 15,000 made up of AED 10,000 basic, AED 4,000 housing and AED 1,000 transport is calculated on 10,000. That is where the AED 90,000 answer comes from: someone multiplies on the full package, and overstates the number by half.

The page also sets the entry condition and what is excluded from the clock. "A worker who has completed at least 1 year of continuous service is entitled to gratuity upon termination. Days of unpaid absence are not included in service calculations." Under a year, nothing. Over a year, fractions count: "Workers are entitled to gratuity for fractions of a year, proportionate to the time served, provided they have completed one year of continuous service."

How do the 21-day and 30-day tiers actually stack?

Here is the calculation section of the page, verbatim:

• "If a worker has served for less than 1 year, he is not entitled to any gratuity pay."
• "If a worker has served for more than 1 year but less than 5 years, he is entitled to full gratuity pay based on 21 days' salary for each year of work."
• "If a worker has served more than 5 years, he is entitled to full gratuity of 30 days' salary for each year of work following the first 5 years."
• "In all cases, the total gratuity shall not exceed the wage of 2 years."

The phrase that matters is "following the first 5 years". The 30-day rate does not replace the 21-day rate once service passes five years; it applies only to the years after the fifth. Reading it the other way, as if crossing five years upgrades the whole history to 30 days, is where the AED 75,000 answer comes from.

The page says "21 days' salary" and does not say how to turn a monthly basic into a daily one. The convention every calculator I have seen uses is a 30-day month: daily basic = monthly basic ÷ 30. On AED 10,000 that is AED 333.33 a day. Which makes the tiers easy to read in months: 21 days is 0.7 of a month's basic per year, 30 days is one full month per year.

The first five years are paid at 21 days each and stay that way; only the years after the fifth earn 30.

Now the worked example.

1. Daily basic: 10,000 ÷ 30 = AED 333.33.
2. First five years: 5 × 21 × 333.33 = AED 35,000. (Or 5 × 0.7 months = 3.5 months of basic.)
3. Years after the fifth: 2 years 6 months = 2.5 years. 2.5 × 30 × 333.33 = AED 25,000. (2.5 months of basic.)
4. Total: 35,000 + 25,000 = AED 60,000, which is six months of basic salary.
5. Cap check: two years' wage is 24 × 10,000 = AED 240,000. Six months is well under it, so the cap does nothing here.

If the same person had taken 30 days of unpaid leave across those years, the page's rule strips those days from service. Seven years six months becomes seven years five months; the portion after year five drops to 2 years 5 months, which is 2.4167 months of basic, AED 24,167. Total AED 59,167. Small, but it is the kind of difference that turns into an argument in a final settlement.

The page adds two mechanics that sit outside the formula. "Employers must pay all outstanding wages, other entitlements and gratuity within 14 days of the termination of the contract." And "Employers may deduct any amounts owed by the worker, from the gratuity", so an outstanding loan or an unreturned advance comes off the top.

When does the two-year cap start to matter?

Reading the tiers in months makes the cap easy to place. The first five years earn 3.5 months of basic in total. Every year after that earns one month. The cap is 24 months. The remaining 20.5 months take another 20.5 years, so the cap is reached at about 25 and a half years of continuous service. For most people it is a line they will never touch; for someone who joined a firm in their twenties and stayed, it is real.

Two smaller points from the same page. For part-time and other work models, Article 30 of Cabinet Resolution 1 of 2022 pro-rates the full-time figure by the ratio of contracted hours to full-time hours, so a half-time contract earns half the full-time gratuity for the same years. And the calculation section above lists only length of service; it does not distinguish between resignation and termination, which surprises people who remember an older regime.

None of this is advice on what to do with the number. It is the arithmetic, and the arithmetic is small enough to do on paper once the three mistakes are out of the way: use last basic only, keep the first five years at 21 days, and subtract unpaid days before you count years. The studio's UAE gratuity sheet is that paper with the formulas already typed in, and the law reference sitting in the notes column so nobody has to take my word for it.

What I have noticed, doing this over and over for colleagues, is that the number is rarely what upsets people. It is finding out at the end that the housing allowance was never part of it. The formula was always public; it just was not read until the day it was needed.

Sources

• End of service benefits for workers in the private sector · u.ae, The Official Platform of the UAE Government (updated 12 Aug 2026)
• Federal Decree by Law No. (33) of 2021 Concerning Regulating Labour Relations · UAE Legislation portal