UAE Gratuity Guide: End-of-Service Under the New Labour Law (2026)

For Indian professionals working in the UAE, end-of-service gratuity is often the largest single payout they will receive from an employer — and the amount is regularly shorted by calculation errors, misapplied contract types, and unclaimed accrued leave. Since Federal Decree Law No. 33 of 2021 (the new UAE Labour Law) came into force, limited and unlimited contract distinctions are gone, and everyone is on a uniform private-sector regime. This guide walks through the exact formula, the resignation vs termination nuances, the new DEWS scheme, and a practical example.

Who is eligible?

Under Article 51 of the new UAE Labour Law (applies to mainland; DIFC/ADGM have their own regimes), any employee who completes one continuous year of service with the same employer is entitled to end-of-service benefits — usually referred to locally as "gratuity" or "EOS." There is no longer a distinction between limited and unlimited contracts; all private-sector contracts are fixed-term but renewable.

Days of unpaid leave do not count towards the service period, but normal annual leave does. Resignation and termination both entitle you to gratuity — the calculation applies equally.

The UAE gratuity formula

Gratuity is based on your last drawn basic salary — not the total package. Housing allowance, transport allowance, education allowance, and bonuses are excluded. The formula has two tiers:

1. For the first 5 years of service: 21 days' basic salary per year.
2. For each year beyond 5: 30 days' basic salary per year.

Total gratuity is capped at 2 years' basic salary. Partial years are pro-rated on a monthly basis (1 month of service = 1/12th of the annual entitlement).

Daily basic = Monthly basic × 12 / 365. This is a commonly forgotten detail — some employers mistakenly divide by 30, which understates the daily rate.

Resignation vs termination under the new law

Under the pre-2022 unlimited contract regime, resignation before 5 years led to proportional gratuity reductions (2/3 or 1/3). That is no longer the case. Under the new law:

• Resignation or termination — full gratuity per the formula above, once one year of service is completed.
• Summary dismissal for cause (Article 44 grounds — gross misconduct, theft, forgery, etc.) — gratuity can be denied by the employer, subject to labour court challenge.
• Death or permanent disability — full gratuity is payable even if under 1 year of service.

What counts as "basic salary"?

This is the most-disputed part of EOS in practice. UAE labour contracts split salary into basic + allowances (housing, transport, school fee, etc.). Gratuity uses only basic. Many employees discover at exit that their offer letter had an aggressively low basic (say AED 5,000 out of a AED 15,000 package), dramatically shrinking the gratuity payable.

Before signing any UAE offer letter, confirm:

• The basic salary is at least 50-60% of total salary — anything lower is a red flag.
• What exactly is the allowance split and what counts as basic for gratuity.
• Any promised "discretionary bonus" is truly gratuity-relevant only if it is part of basic in the contract.

DEWS and the private pension transition

In DIFC, the DIFC Employee Workplace Savings (DEWS) Plan replaced the EOS accrual from February 2020 onwards. Employers contribute 5.83% of basic for the first 5 years and 8.33% thereafter into a funded plan, and the employee gets a portable investment account rather than a lump-sum at exit. ADGM launched a similar scheme in 2023.

For non-free-zone employers, the UAE Cabinet has announced a mainland savings scheme but as of early 2026 this remains voluntary for most employers. The traditional EOS formula still applies in most cases.

Worked example

Priya worked in Dubai for 7 years and 4 months. Her last drawn basic is AED 12,000/month.

• First 5 years: 5 × 21 × (12,000 × 12 / 365) = 5 × 21 × 394.52 = AED 41,425
• Next 2 years 4 months (2.33 yrs): 2.33 × 30 × 394.52 = AED 27,577
• Total gratuity: AED 69,002 (approximately INR 15.6 lakh at 22.5)

Priya should also claim accrued leave encashment (her balance × daily basic), and reimbursement of any pending expenses. The full settlement should land within 14 days of her last working day per the new law.

Tax on UAE gratuity back in India

If you are a resident in India for tax purposes in the year you receive the gratuity, the entire amount is taxable under Section 10(10)(iii) with the Rs. 20 lakh exemption limit applicable. If you are an NRI in the year of receipt, UAE-sourced gratuity is not taxable in India regardless of amount, because UAE has no personal income tax and India-UAE DTAA treats employment income as taxable only in the country of employment.

Many returning expats time their final return to preserve NRI status for the financial year of settlement — this single planning decision can save Rs. 5-15 lakh in Indian tax.