UAE LABOUR LAW: GRATUITY / SEVERANCE PAY

Labour Law in the UAE  - Federal Law No. 8 of 1980 regulating labour relations as amended by Federal Laws Nos. 24 of 1981, 15 of 1985 and 12 of 1986 (the "Law").


According to Article 3 of the Law, the Law applies to all staff and employees working in the United Arab Emirates, whether UAE national or expatriate. However certain categories are exempted from its applicability:

1. Staff and workers employed by the federal government, government departments of the member-emirates, the municipalities, public bodies, federal and local public institutions and those staff and workers employed in federal and local governmental projects are exempt.
2. Members of the armed forces, police and security units.
3. Domestic servants and their like.
4. Agricultural workers and persons engaged in grazing (this exemption does not include persons who are employed in corporations which process agricultural products and or those who are permanently engaged in the operation of/or repair of machines required for agriculture.

GRATUITY / SEVERANCE PAY
 Section II, Article 132-141

Employee entitlement at the termination of the employment contract
The employee at the termination of the employment contract will be entitled for to the following:

1. A notice period, or any amount due in lieu of the notice period, in the case of an unlimited contract.
2. Compensation for the unreasonable dismissal if the contract was terminated by the employer for unreasonable cause, in the case of an unlimited contract.
3. In the case of a limited contract, compensation equivalent to the period until the end of the contract, or three month's salary whichever is greater.
4. Payments equivalent to the balance of unutilized leave or any part thereof.
5. Payments for overtime or any balance of wages due and not yet paid.
6. End of service gratuity calculated on the duration of the employment.
7. Repatriation expense as per the law or the contact.

End of service gratuity in terms of compensation
An employee who completes one year or more in continuous service shall be entitled to gratuity at the end of the service. The gratuity shall be calculated as follows:

1. 21 day's wages for each year of the first five years.
2. 30 day's wages for each additional year on condition that the total of the gratuity shall not exceed the wages of two years.

Gratuity Calculation
Gratuity is calculated on an annual basis if the employee has actually completed one year of employment with the employer or more. The day of absence from work without pay shall not be included in calculating the length of service. However, if the employee completed a year in service he will be entitled to a gratuity for the fraction of the year proportional for the part of the year he spent in work provided that he has completed one year in continuous service.








Without prejudice to what is stipulated by some laws in the granting of pensions or retirement benefits to employees, in some establishments gratuity for those who are paid monthly, weekly or daily wages shall be calculated as follows:


Basic wage which is taken as a basis for the calculation of gratuity is that which is last received by the employee before the termination of the employment contract. This wage will be the basis for calculating the gratuity for all the years during which the employee works for the employer calculated at the rate advised here above.

Basic wage
A basic wage means anything received by the employee as a wage excluding housing, transport, travelling allowances and overtime, family allowances, entertaining allowances and any other allowances or a bonus.




Commission or payment by percentage as a basic wage
According to recent judgment delivered by the UAE court, any amount payable to employee as wage other than allowances or bonus including wages paid by percent, commission or by performance will be considered a wage and will be taken into consideration in calculating gratuity.




Gratuity calculation if the employee resigned from employment
An employee employed under a contract for unlimited period who resigned after a continuous service of not less than a year and not more than three years is entitled to one third of the end of service gratuity provided above. If the period of continuous service was more than three years and less than five years he is entitled to two thirds of the gratuity.


If his continuous service was more than five years, he shall be entitled to the full gratuity.


If an employee who is employed under a contract of limited period, resigned with his free will before the end of the contract, he shall not be entitled to the end of service gratuity unless his continuous service exceeds five years.



End of service gratuity forfeiture
An employee may also be deprived of his gratuity in either of the following two cases.


He has been dismissed for one of the reasons stated in Article 120 of this law, or if he left work to avoid dismissal.


If he left his job voluntarily without notice in cases other than the two provided for in Article 121 of this law. This applies to unlimited period contract and in cases where the employee did not complete five years of continuous employment in a contract of limited term.


If the establishment or company has a pension scheme which is beneficial to the employee, would it be a substitution for payment of gratuity?


If the employer has pension scheme applicable to all employees at the company or the establishment, such a scheme must be published and known to all employees, and at the same time, specify that this scheme will be a substitution for the gratuity rules governed by the UAE Federal Labour Law. It must be more beneficial to the employees than the gratuity provision of the law. Otherwise the employee may benefit from both.




Employee-Employer gratuity pay agreement determination
The employer and the employer may agree to pay at a certain time the gratuity to the employee for the years during which the employee served the employer, and to start with a new contract for the future period. Provided always however, that this agreement is clearly stated, acknowledged, and agreed between the employee and employer whereby gratuity will be paid for the proceeding period, and a new contract will be entered into for the future relationship. This, bearing in mind that the employee's employment with the employer will still be considered as a continuous period for the purpose of the calculation of the interest, or at the time when he resigns, calculating the years during which he was employed with the employer.




Gratuity due date
Gratuity will only become due and payable at the end of or at the termination of the contract.

Related article:
GRATUITY / SEVERANCE PAY CALCULATION AS PER UAE LABOUR LAW

Reference:
UAE Ministry of Labour
S Sali (Angelfire)
UAE Federal Labour Law 1980