Overview of EOSB
End-of-Service Benefits (EOSB), commonly known as gratuity, are lump-sum payments due to employees when their employment ends. In the UAE, EOSB serves as a financial safety net to reward employees for their service and support them during career transitions.
For employees, EOSB can fund future plans or cushion periods of unemployment, making it a critical part of their overall compensation. Employers benefit from EOSB schemes, which contribute to job satisfaction and retention. A clear understanding of EOSB entitlements helps employers comply with legal obligations and avoid disputes over final settlements.
Legal Framework
The UAE’s labor law mandates EOSB under Federal Decree Law No. 33 of 2021 (the “UAE Labour Law”), which came into effect February 2022. This decree law and its Executive Regulations set out who is eligible for gratuity and how it is calculated. Notably, Article 51 of the UAE Labour Law provides that a foreign worker who completes at least one year of continuous service is entitled to EOSB upon termination.
The law applies across the UAE’s private sector, although UAE free zones have distinct employment regulations that broadly align with the UAE Labor Law. Employers are legally required to pay EOSB within fourteen (14) days of a contract’s end date, ensuring timely fulfillment of this obligation.
Eligibility for End-of-Service Benefits
Who Qualifies?
In general, all full-time employees in the UAE private sector are eligible for EOSB if they complete at least one (1) continuous year of service with the employer. Part-time and other non-full-time employees also qualify, but their gratuity is prorated based on their working hours relative to a full-time schedule. This means part-time workers accrue EOSB in proportion to the percentage of full-time hours they work, as stipulated by the law’s executive regulations. Freelancers or temporary employees on contracts shorter than one (1) year typically do not qualify for EOSB, as one year of service is the minimum threshold for eligibility.
Additionally, UAE nationals in the private sector generally do not receive EOSB in the same way as expatriate workers; instead, they are covered under the pensions and social security legislation.
Minimum Service Period
The minimum service period to be eligible for any gratuity is one (1) year of continuous employment. Employees who have served less than one year are not entitled to any EOSB. Continuous service means unbroken employment with the same employer; note that any days of unpaid absence (leave without pay) do not count towards the service period for EOSB calculation. For example, if someone worked 11 months and took an extra month of unpaid leave, they would still be under one year of countable service and thus not entitled to gratuity.
How to Calculate Your End-of-Service Benefit
Basic Formula: The EOSB (gratuity) calculation in the UAE is based on the employee’s basic salary (excluding allowances like housing, transportation, bonuses, etc.) at the time of termination. As per Article 51 of the UAE Labour Law, the standard formula is:
- 21 days of basic pay for each year of service for the first five years, and
- 30 days of basic pay for each additional year beyond five years.
If the total gratuity exceeds the equivalent of two (2) years’ pay, the excess is not payable (the law caps EOSB at two years of wages maximum).
Calculation by Years of Service
To illustrate, here are a few scenarios (assuming the employee’s last drawn basic monthly salary is AED 10,000 for simplicity):
Here we convert days to a monetary amount by (basic salary/30) * days. Note that any partial year of service beyond the first full year is also counted pro-rata. For example, if someone works 1.5 years, they get 21 days for the full first year, and half of 21 days for the additional half-year. The law ensures even fractions of a year are recognized in the gratuity calculation, so long as the employee has completed at least one full year.
Deductions and Exclusions
Less than One (1) Year: If an employee leaves before completing one year of service, they are not entitled to any EOSB. There is no partial gratuity for those who haven’t met the one-year threshold.
Resignation vs Termination: Under the UAE Labour Law, there is no deduction in gratuity for resignations. Whether the employee quits or is terminated (even for cause), full accrued EOSB must be paid.
Dismissal: if an employee is terminated for gross misconduct, as defined in Article 44 of the UAE Labour Law—such as theft, assault, or other serious offenses—they may forfeit their entitlement to End of Service Benefits (EOSB), depending on the severity of the case and provided the employer takes legal action and the court rules against EOSB payment.
Unpaid Leave Impact: Periods of unpaid leave or absence without pay do not count toward service length when calculating EOSB. However, legitimate maternity leave, annual paid leave, and other paid leave are counted as continuous service (since salary is paid during those leaves).
EOSB on Contract Breach: If an employee resigns without serving the notice period or otherwise breaches the contract, the employer might deduct monetary compensation as per the law or contract (for instance, salary in lieu of notice). Such deductions can be taken from the final settlement, including EOSB. Similarly, if the employee owes money to the employer (like a loan), the employer can deduct that from the gratuity. But outside of such lawful deductions, EOSB cannot be withheld beyond the conditions explicitly allowed.
Alternative End-of-Service Benefits System
The UAE introduced the Alternative End-of-Service Benefits Savings Scheme in 2023 under Cabinet Resolution No. 96 of 2023, offering a more secure and growth-oriented approach to gratuity. This optional scheme allows employers to make monthly EOSB contributions to a regulated investment fund instead of accruing lump-sum payments until termination.
Under the Alternative End-of-Service Benefits Savings Scheme, employers make monthly contributions to a regulated investment fund, ensuring gratuity is set aside in advance rather than relying on company cash flow at the end of service. These contributions are securely held and may generate investment returns, potentially increasing the final gratuity amount. Employees can also make voluntary contributions of up to 25% of their salary, with the option to access these savings during employment, offering greater financial flexibility. Employers must register with approved fund providers and ensure timely monthly payments, with the scheme subject to oversight by MOHRE and the Securities and Commodities Authority to protect employee rights and ensure compliance.
Frequently Asked Questions
Can EOSB be paid during employment?
Generally, EOSB’s are payable only at the end of employment. Under the traditional system, employers are not required to make any gratuity payments before termination. However, employers may offer partial or advance payments as a goodwill gesture. Employees should exercise caution when signing any documents accompanying early payouts, as signing a release could unintentionally waive future entitlements. UAE courts have ruled that EOSB waivers without actual payment can be invalid.
Under the Alternative End-of-Service Benefits Savings Scheme, employees can withdraw their voluntary contributions during employment, while the core employer contributions remain locked until termination. If periodic EOSB payments are agreed upon (such as annual payouts), these should be documented in writing to avoid disputes or duplication of entitlements.
How does a drop in basic salary impact EOSB?
EOSB is calculated based on an employee’s last drawn basic salary, not an average over the employment period. A reduction in basic salary can directly lower future gratuity payouts. Employers must obtain employee consent for any salary restructuring, especially if it involves shifting amounts from basic salary to allowances.
If such changes are imposed without agreement, employees have the right to refuse, negotiate, or file a complaint. The law also provides protections against punitive salary reductions through anti-discrimination and labour complaint mechanisms. Long-serving employees should pay close attention to contract amendments that affect basic salary, especially in the later stages of employment.
Conclusion
Employees are entitled to EOSB as per UAE law. If unpaid, they can file a complaint with the Ministry of Human Resources and Emiratisation (MOHRE) through online platforms, call centers, or service centers. MOHRE facilitates mediation between the employee and employer, and unresolved cases are referred to labour courts. Fast-track channels, including video call services, handle urgent cases like unpaid gratuity.
In cases of uncertainty or disputes – for example, if EOSB is withheld or calculated incorrectly – it’s advisable to seek clarification from MOHRE or consult with a legal professional. The MOHRE provides channels for complaints and has been active in resolving gratuity-related disputes, ensuring that employers fulfill their obligations.
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