Planning to quit your job abroad? Understand how basic and gross salary are calculated before making a decision

Legal experts have shared new insights regarding gratuity regulations for employees working in the UAE. Learn how your Basic Salary determines your final settlement amount and what the “two-year salary cap” rule entails. Read on for a detailed breakdown to fully grasp the calculation process.

For individuals working in the UAE, gratuity serves as a form of savings—a lump sum received upon leaving a job that proves useful for future financial needs. Many people assume that gratuity is calculated based on their entire salary; however, in reality, it is awarded solely based on the Basic Salary. It is worth noting that a maximum ceiling has been established for this benefit to ensure transparency and accuracy in calculations. Therefore, employees should thoroughly understand the rules governing their final settlement to ensure they do not forfeit any of their rightful entitlements. If you are currently working in the UAE, familiarizing yourself with these final settlement regulations is crucial to ensure that you receive every single penny you are entitled to.

Understanding the Difference Between Basic and Gross Salary is Essential

According to UAE labor laws, the “Basic Salary” refers to the fixed monetary amount explicitly stipulated in your employment contract. This figure excludes allowances for housing, transportation, or other miscellaneous benefits. Conversely, the “Gross Salary” comprises the Basic Salary combined with all applicable allowances. As per the regulations, gratuity is calculated exclusively based on the Basic Salary, not on the total (Gross) salary.

Key Rules for Gratuity Calculation

Under the law, an employee must complete a minimum of one year of service to be eligible for gratuity:

1 to 5 Years of Service: 21 days’ worth of Basic Salary for each completed year of service.

More than 5 Years of Service: 21 days’ worth of Basic Salary for the first five years, followed by 30 days’ worth of Basic Salary for every subsequent year thereafter.

Employees can verify their Basic Salary details via the MOHRE app or the UAE Pass platform.

The “Two-Year Salary Cap” Rule

A significant point to note is that the total gratuity amount payable cannot exceed a predetermined maximum limit—specifically, it cannot exceed the equivalent of two years’ worth of the employee’s Basic Salary. It is worth noting that even if the calculation based on your basic salary results in a significantly higher amount, the company will pay you a maximum equivalent to only two years’ worth of your full salary. In other words, you will not receive any gratuity exceeding this limit. This rule applies particularly to employees who draw a high salary.