Is Gratuity Part of CTC? Know the Truth Behind
Many people working in the UAE ask this question: “Is gratuity part of CTC?” The answer is simple, NO. The gratuity is not part of the CTC. How? Remember: Cost to company (CTC) is what a company spends in a year to keep you. Gratuity is what you earn for staying at least one year with a company in the UAE. They are never the same.
Now let me explain everything in detail.
What does CTC Mean?
Cost to Company, also known as CTC, is the total amount of expenses an employer bears to have its employees working for the whole year. Many employees in the UAE mix their take-home salary with their CTC, which is a wrong conception. CTC includes a lot of extra amounts such as vehicle allowance, fuel allowance, home allowance, insurance, etc. you never see in salary.
While your take-home pay is what you get in your bank account each month, for example, if your CTC is AED 10,000 per month, your actual salary might only be AED 7,000 after all deductions (varies company to company policies).
One important thing to keep in mind in the UAE is that gratuity amount is never included in CTC. Therefore, be aware that your gratuity will be paid as a long-term end-of-service benefit when you see your CTC.
What does CTC Mean?
There are three primary components of your CTC that indicate how much your company spends on you. Here they are;
Direct Benefits
Direct benefits are the amount of money that employees get in their bank account each month. It includes the basic pay as well as house rent, transportation allowance (TA), dearness allowance (DA), and other living expenses.
For example, you would receive direct benefits if your basic pay was AED 5,000 and your housing allowance was AED 2,000.
Indirect Benefits
Indirect incentives are the perks employees own but don’t get paid directly in the monthly salary. These perks may include company-sponsored lunch at work, loan schemes, company events, training, or life insurance.
Indirect incentives increase the employees’ CTC value, but employees don’t receive it directly, along with the salary that they get in their bank account every month.
End of Service Benefit
End of service benefits are calculated based on the gratuity and provident fund according to the UAE labour law rules. The company pays these benefits to employees at the end of their employment contract.
Gratuity Percentage in CTC
It’s the clear rule in the UAE that gratuity is not part of CTC as per the UAE labour law. However, some countries, including India, include gratuity in CTC.
For example, if any Indian company is deducting 4.81% amount from the basic salary against gratuity or provident fund (PF), this might be included in the CTC value.
On the other hand, companies in the UAE use a simple gratuity calculation method, also integrated in the gratuity calculator UAE. You get 21 days’ basic salary for each year of your first 5 years of service. After 5 years, this increases to 30 days per year.
For example, with an AED 5,000 basic salary and 3 years service, your gratuity would be AED 10,500 (21 days x 3 years).
Remember these key differences:
Online gratuity calculator tool helps employees to calculate their estimated gratuity amount they will get at the end of their employment contact.
CTC Calculation Formula
Here is the simple formula of CTC;
Cost to Company = Gross Salary + Additional Company Benefits (insurance, mobile allowance, vehicle allowance, etc.)
Here’s the complete breakdown;
Component | Type | Monthly Amount (AED) | Year Amount (AED) | Notes |
|---|---|---|---|---|
Basic Salary | Direct Benefit | 8,000 | 96,000 | Fixed amount before allowances |
Housing Allowance | Direct Benefit | 4,000 | 48,000 | Typically 30-50% of basic salary |
Transport Allowance | Direct Benefit | 1,200 | 14,400 | For daily commute |
Health Insurance | Indirect Benefit | 500 | 6,000 | Paid by employer |
Visa Costs | Indirect Benefit | 250 | 3,000 | Work permit/residency fees |
Total CTC | – | 13,950 | 167,400 | What company spends annually |
Actual Take-Home | – | 9,200 | 110,400 | What you receive in bank |
Key Points:
Gratuity Calculation System UAE vs India
Unlike India, UAE based companies do not deduct a single dirham from the gratuity calculations. On the other hand, companies in India deduct up to 4.81% of basic salary against the gratuity or PF.
According to Article 139 of UAE labour law, gratuity is purely calculated on your basic salary and number of service years and is paid in full when an employee leaves the job. The UAE gratuity system is more employee-friendly, with eligibility starting after just 1 year of service (vs 5 years in India).
The primary difference is that Indian employees may recover the deductions from the salary if leaving early, whereas the UAE labour card guarantees full gratuity payment from the first year of eligibility. If an employee leaves before completing one year, he will not be eligible for the UAE gratuity system.
According to the recent MOHRE survey, 83% of foreigners are not aware of this benefit. Always confirm that your final settlement matches your UAE labour card records to ensure accurate payment.
Is gratuity part of CTC in top companies?
In many countries, including UAE and India, most of the companies do not include gratuity amount in CTC value. It doesn’t matter which company you are working for, whether it is TCS, Nike, DP World, or Cognizant, your gratuity amount will be paid separately.
Does Inclusion of Gratuity in CTC Impact Employee’s Monthly Salary?
In Dubai, gratuity is never part of CTC according to the labour law, and it has zero impact on the monthly salary.
Unlike some countries like India, where employers deduct up to 4.81% from the salary against the gratuity, UAE labour law ensures employees get their full gratuity amount when they leave after completing a certain criteria, ensuring your take-home salary remains untouched.
The deduction from the salary depends on the CTC calculation structure of the company, as it varies company to company. There is no standard rule or percentage to calculate CTC. However, CTC directly impacts the overall remuneration.
Final Words
Finally, the answer to “Is gratuity part of CTC?” is a big NO as it’s completely separate by law. CTC shows the actual employment cost to the company while gratuity is a legal benefit and is governed by labour laws. Employees get their tax-free gratuity amount at the time of leaving the organisation.
The labour department of UAE ensures the fair distribution of legal benefits, as compared to other countries that deduct some percentage from the salary of employees against legal benefits. For precise results of gratuity calculation, use our online gratuity calculator Dubai tool for free!
