Mastering End of Service Benefits in the UAE: Prorated calculations and best practices

Introduction

Welcome back to our deep dive into end-of-service (EOS) benefits in the UAE! In Part 1, we covered the basics. Now, let's tackle the trickier bits: prorated calculations, salary components and best practices.

Ready to become an EOS expert? Let's go!

Prorated calculations: ensuring fairness and compliance

When an employee's last working day falls in the middle of the month, their salary and gratuity need to be prorated. Here's what you need to know:

• UAE labor law basis: 365 days for annual calculations, 30 days for monthly calculations

• The most common method: Monthly calculation using 30 days

Prorated calculation method

Monthly Method (30 Days):

• Daily Rate = Basic Salary ÷ 30

Let's walk through a real-world example:

Employee details:

• basic salary: AED 8,000 per month

• total years in service: 3 years, 4 months, and 18 days

Step-by-step calculation:

1. annual gratuity entitlement: 21 days per year
2. gratuity for full years: 3 × 21 = 63 days
3. prorated gratuity for 4 Months: (21/12) × 4 = 7 days
4. prorated gratuity for 18 Days: (1.75/30)*18 = 1.05 days
5. total gratuity days: 63 + 7 + 1.05 = 71.05 days
6. daily rate: 8,000/30 = 266.67 AED/day
7. total gratuity payable: 71.05 days × 266.67 AED/day = 18,946.90 AED

Importance of defining salary components

Clear salary breakdowns are crucial! Here's why:

• prevents misunderstandings and disputes

• ensures accurate EOS calculations

• helps both employees and payroll departments

Remember: only basic salary counts for gratuity calculations!

Best practices for accurate EOS calculations

Follow these tips to nail your EOS calculations every time:

• Be transparent: explain calculations to build trust

• Stay consistent: use the same method across your organization

• Document everything: clear contracts = clear calculations

• Stay updated: keep up with UAE labor law changes

Looking for accurate EOS calculations?

At Cercli, we ensure your end-of-service benefits are calculated correctly and automatically, fully aligned with UAE regulations. Our platform provides detailed reports showing accrued gratuity for all employees, helping your finance team project unexpected costs and budgets accurately.

Want to see how it works? Book a demo now!