What is Gratuity in Salary? A Comprehensive Guide 2026
As an employee, it’s hard to say goodbye to your workplace due to some emotional attachments. But you have to move on as it’s a part of professional life. No matter what the reason is, UAE labour law instructs companies to pay a lump sum amount to their employees as an end-of-service benefit, also known as gratuity, upon leaving the job.
Now the question is, what is gratuity in salary, and how is gratuity calculated? Gratuity calculations can be tricky and technical, but no worries. In this article, I will guide you thoroughly on how you can calculate your gratuity using the gratuity calculator UAE tool.
What is Gratuity in Salary and Why is it Important in the UAE?
In simple words, gratuity in salary means a lump sum amount of your end-of-service benefits that a company pays you as an appreciation of your service years. Employees get the gratuity amount upon their resignation, termination, death, or the end of an employment contract.
The core purpose of the gratuity is to secure the future of the employees as a reward of appreciation for the prime years they have spent while working in a company. Gratuity calculation methods and criteria vary by country, location, job nature, and contract type, and it is governed by the labour law of the home country. For example, gratuity calculation in the UAE is governed by the Ministry of Human Resources and Emiratisation (MOHRE) and UAE labour laws.
For example, as per India’s Payment of Gratuity Act 1972, an employee must complete at least five years of service in a company to be eligible for gratuity. However, in the UAE, there’s no requirement to complete five years. An employee is considered eligible for gratuity after completing just one year of service.
Factors to Consider for Gratuity Pay Calculation
Gratuity calculation UAE depends on the following factors;
Is Gratuity Deducted from Salary?
As per UAE labour law, there is no deduction from gratuity in the salary. Even though it is tax-free in the UAE. However, some employers consider the gratuity a cost to the company (CTC) and that’s why some employees often ask is gratuity part of CTC? So, I would like to recommend that you review your employment contract carefully and align it with the UAE labour law rules.
If employees withdraw their gratuity amount during service, the already paid amount will be deducted at the time of their final settlement.
How to Calculate Gratuity in Salary?
Gratuity is calculated based on your last drawn UAE basic salary with the number of years you have served in a company. However, the gratuity amount varies by organization, type of contract, number of service years, termination of employment in UAE, and reason for leaving.
The general formula of the Jafza gratuity calculator for UAE employees is as under;
Service Years: 1 to 5 years
Gratuity = (Basic salary x 21 days x service years)/30
Service Years: More than 5 years
Gratuity = (Basic salary x 30 days x service years)/30
Gratuity Calculation in Salary in Case of Employee’s Death
In case of the death of the employees during the services, employers will pay the gratuity amount of the employees to their legal heirs as per the following formulas.
Service Tenure | Service Tenure of more than 20 years |
|---|---|
Service duration less than 1 year | 2* Basic Salary |
Service equal to or more than 1 year but below 5 years | 6* Basic Salary |
5 or more years of Service but below 11 years | 12* Basic Salary |
11 or above service years but below 20 years | 20* Basic Salary |
Service Tenure more than 20 years | Half of the Basic Salary for every 6 months, subject to a maximum of 33 times the basic salary. |
Is gratuity in the UAE Tax Free?
Yes, it is. It is a huge relief for the employees working in the UAE who were paying tax in their home country. However, it is a smart way to consult with experts for cross-border tax information. Gratuity calculator Dubai provides you tax free calculations as well. You can also visit the MOHRE website for tax implications.
Common Misconceptions of Gratuity in Salary
Many employees consider total salary or net salary, including all the allowances such as transport allowance, home allowance, etc., as part of their gratuity calculation, which is a wrong concept. The reality is different. Personally, I used to think the same at the start, but the gratuity is calculated purely based on basic salary.
Final Words
Gratuity plays a vital role in shaping the future of employees and building confidence in their professional lives. To avoid any inconvenience, employees should keep a complete track record of their official documents, such as employment contracts, appointment letters, etc., to calculate the gratuity as per the UAE labour law.
Employees should also review the company policies, gratuity calculation methods, and UAE resignation rules to get accurate end-of-service benefits without conflict. In this way, the gratuity amount helps employees to grow more in their professional life, keeping their full focus on their work without worrying about their financial problems.
