End of service benefit in UAE:

As per the labor law in UAE, End of service benefit is provided to expat employees working in UAE upon resignation, retirement and termination. It depends upon the completed years of services and basic salary at the time of exit.

There are two type of contract between employer and employee Limited and Unlimited.

1. Unlimited contract is where duration of employment is not known in advance. They are fulltime employment contract.
2. Limited contract is where duration of employment is known in advance. They are project specific contracts, once project completed, employment also terminated.

End of Service Benefit under Unlimited Contract:

Past Service: 1 to 5 years

21 days basic salary is provided for each completed year of service.

Example: An employee who have completed 4 years and his monthly salary is AED 1,000. He will be entitled to EOSB amount of AED 2,880 (21*1,000*4/30).

Past Service: More than 5 years

21 days basic salary is provided for each completed year of service for the first five years and 30 days basic salary for each completed year thereon.

Example: An employee who have completed 8 years and his monthly salary is AED 1,000. He will be entitled to EOSB amount of AED 6,500 {(21*1,000*5+30*3*1000)/30}.

End of Service Benefit under Limited Contract:

Past Service: 1 to 5 years

21 days basic salary is provided for each completed year of service. (Condition Apply)

Past Service: More than 5 years

21 days basic salary is provided for each completed year of service for the first five years and 30 days basic salary for each completed year thereon. (Similar to Unlimited contract)

Maximum EOSB limit:

EOSB amount cannot exceed 24 months’ basic salary.

Why EOSB valuation is required?

EOSB is a future liability that companies are obligated to pay employees upon their resignation, retirement, or termination. It can be substantial, especially for long-serving employees.

Companies in the UAE that follow IFRS (International Financial Reporting Standards) must account for EOSB under IAS 19 R accounting standard. This standard requires companies to recognize and measure their EOSB liabilities accurately in their financial statements.

Regularly provisioning for EOSB ensures that companies avoid cash flow issues when multiple employees leave at once, ensures financial stability of the company and demonstrates financial responsibility and commitment to its workforce which gives confidence to its employees, regulators and shareholders.