Gratuity calculation in the UAE: why it uses basic salary, not the total package
UAE gratuity is 21 days of the last basic salary per year for the first five years and 30 days per year after, capped at two years' wage. Allowances and commission are left out, so one AED 10,000 package can pay AED 65,000 or AED 26,000 after eight years.
UAE gratuity is calculated as 21 days of basic salary for each of the first five years of service and 30 days for each year after that, capped at two years' wage. The salary in that formula is the last basic wage only, so an AED 10,000 package written as 6,000 basic and 4,000 allowances pays AED 39,000 after eight years, not the AED 65,000 most people work out on the full 10,000. Same person, same monthly pay, and an AED 26,000 gap fixed on the day the contract was signed.
At the trading company where I work, nobody argues with the 21 days or the 30 days. The surprise is the salary the days are multiplied by. The figures in this post are made up for the example; the rule is not.
What does UAE labour law count as the basic wage?
Federal Decree-Law 33 of 2021 defines two different things in Article 1, and the gap between them is the whole subject.
Basic Wage: "The wage stipulated in the employment contract, which is paid to the worker in consideration of his work under the employment contract, on a monthly, weekly, daily, hourly or piecework basis, and which does not include any other allowances or benefits in-kind."
Wage: "The basic wage, in addition to the cash allowances and benefits in-kind allocated to the worker under the employment contract or this Decree-Law". The definition then lists what those allowances may include, ending with "the allowances granted to meet the cost of living, a percentage of sales, or a percentage of the profits paid for what the worker markets, produces or collects."
So the package most people quote when asked what they earn is the Wage. Housing, transport and a cost-of-living allowance sit inside it. So does commission, which the definition places with the allowances as "a percentage of sales". None of them is inside the Basic Wage.
Article 51 then picks one of the two. Clause 2 says the end of service benefit is "calculated according to the basic wage". Clause 5 narrows it further: "according to the last basic wage the worker was entitled to". The government's summary on u.ae puts it in plainer words: the gratuity is calculated on "the basic salary. Hence, it will not include allowances such as housing, transportation, utilities, furniture etc."
Neither definition sets a ratio between basic and allowances. The split is whatever the contract says it is. Article 51 applies the same rule to every full-time foreign worker, whatever the passport, which is why an Indian employee on a UAE contract is paid under this formula rather than India's.
How much does the split change the gratuity on the same AED 10,000?
Article 51 gives "A wage of (21) twenty-one days for each year of the first five years of service" and "A wage of (30) thirty days for each year exceeding such period", after at least one year of continuous service. Clause 4 leaves unpaid days of absence out of the service count, and clause 6 caps the whole benefit at "two years' wage". The steps from days to dirhams are worked through in how UAE gratuity is calculated on 21 and 30 days. For eight years that is 5 × 21 = 105 days, plus 3 × 30 = 90 days: 195 days of basic wage. On the 30-day month that calculators use to turn a monthly figure into a daily one, 195 days is six and a half months of basic.
Here is the same AED 10,000 package written four ways.
| How the contract splits AED 10,000 | Basic | Daily basic | First 5 years | Next 3 years | Gratuity |
|---|---|---|---|---|---|
| All basic (the usual assumption) | 10,000 | 333.33 | 35,000 | 30,000 | 65,000 |
| 60/40: 6,000 basic, 4,000 allowances | 6,000 | 200.00 | 21,000 | 18,000 | 39,000 |
| 50/50: 5,000 basic, 5,000 allowances | 5,000 | 166.67 | 17,500 | 15,000 | 32,500 |
| 4,000 basic, 2,000 allowances, 4,000 average commission | 4,000 | 133.33 | 14,000 | 12,000 | 26,000 |
At eight years, every AED 1,000 of basic is worth AED 6,500 of gratuity, and every AED 1,000 of allowance or commission is worth nothing. Moving from a 60/40 contract to a 50/50 one shifts AED 1,000 a month from one label to the other, changes the monthly pay by zero, and takes AED 6,500 off the end.
The commission row is the one that catches salespeople. In a good year the monthly income may be well above 10,000, and the gratuity is still built on the 4,000.
The formula never sees the package. It sees one line of the contract, and it uses the last version of that line for every year served.
What happens when a raise goes into an allowance instead of the basic?
The word doing the work in clause 5 is last. The formula does not average the basic over the years or look at what it was in year one. It takes the final basic wage and applies it to the whole service.
Take the 60/40 contract in its eighth year and add a raise of AED 1,000. If the raise is written into the basic, the basic becomes 7,000 and the gratuity becomes 6.5 × 7,000 = AED 45,500. The extra AED 6,500 covers all eight years, including the seven worked before the raise existed. If the same AED 1,000 is written as a housing or transport allowance, the monthly pay is identical and the gratuity stays at AED 39,000.
Which other lines of a final settlement use the basic wage?
The gratuity is not the only figure tied to one definition or the other, and the law is not consistent in one direction.
- Unused annual leave on leaving. Article 29, clause 9: the leave wage for days not taken "shall be calculated according to the basic wage".
- Overtime. Article 19, clause 2: the wage for the normal working hours is "calculated according to the basic wage plus an increase of not less than (25 %) twenty five percent of that wage".
- Notice period allowance. Article 43, clause 4: "calculated according to the last wage received by the worker". That is the defined Wage, the one that includes allowances.
So a final settlement mixes the two. Pay in lieu of notice is counted on the full figure; gratuity and the leave balance are counted on the basic. Checking a settlement line by line starts with knowing which salary each line is using.
None of this says what a contract ought to look like. It is only the mechanics. The studio's UAE gratuity sheet asks for basic salary in its first input for the same reason: it is the only salary figure the formula can use.
What stays with me is how early the number is decided. People treat gratuity as something calculated at the end, and the arithmetic is. But the input was chosen years before, in a table on the second page of an offer letter, at a moment when the only figure anyone was looking at was the total.
Sources
- Federal Decree-Law No. (33) of 2021 Regarding the Regulation of Employment Relationships and its amendments · Ministry of Human Resources and Emiratisation (MOHRE)
- End of service benefits for workers in the private sector · u.ae, The Official Platform of the UAE Government (updated 15 Oct 2026)
