Mastering End of Service Benefits in the UAE: a complete guide for HR and finance departments

Did you know that 63% of UAE companies struggle with accurate end-of-service benefit calculations? Don't let your business become a statistic! This guide will help you navigate the complexities of end-of-service (EOS) benefits in the UAE, ensuring compliance and avoiding costly mistakes.

Introduction

Misunderstanding EOS benefits in the UAE can lead to unnecessary back-and-forth between HR and Finance departments. Calculations are often done in spreadsheets with inconsistent methodologies applied, increasing the risk of:

• overpayments that impact your organization’s bottom line

• fines for non-compliance

• underpayments that could lead to labor disputes

Let's break down the key components of EOS benefits and how they're calculated in the UAE to mitigate these risks and ensure full compliance with UAE labor laws.

What is ‘gratuity’ in the UAE?

Gratuity is a form of severance pay given to employees at the end of their service. The application of gratuity is dependent on the following:

• Eligibility: employees must complete at least one year of continuous employment

• Calculation basis: last basic salary, excluding allowances like housing or travel

• Inclusions: paid absences such as annual leave, maternity leave and sick leave

• Exclusions: GCC nationals are excluded and paid through a pension scheme such as GPSSA

Components of the end-of-service benefit package

An EOS benefit package typically includes:

• Gratuity: the core component based on basic salary

• Unpaid salaries: any outstanding compensations through last working day

• Untaken leave days: compensation for accrued and unused leave. If the employee worked public holidays, they must be paid out at 150%

Basic gratuity calculations

Gratuity is calculated as follows:

• 1 - 5 years in service = 21 days gratuity salary per year

• 5+ years in service = 30 days gratuity salary per year after the first five years

Note: the total gratuity payment is capped at the equivalent of two years' salary

Example calculation

For an employee with four years of service and a basic salary of AED 5,000 per month:

• Calculate daily rate: (5,000 × 12) / 360 = AED 166.67

• Calculate gratuity: (4 years × 21 days × 166.67) = AED 14,000.28

How Cercli helps you stay compliant

At Cercli, we understand the challenges of EOS calculations. Our modern payroll and employee data platform offers:

• automated pro-rata calculations aligned with UAE regulations

• a single source of truth for all employee data and payroll

• Time off and expense reimbursement requests and tracking for teams

Next steps

Ready to simplify your EOS calculations? Book a demo today and see how we can save you time, reduce errors, and ensure 100% compliance with UAE labor laws!

In our next article, we'll dive deeper into prorated calculations and best practices for transparency in EOS benefit calculations. Stay tuned!