Understanding End of Service Benefits in the UAE

End of Service Benefits (EoSB) in the UAE ensure financial security for employees after leaving their jobs. These benefits compensate workers for their service and help them transition smoothly. The UAE Labor Law mandates that companies provide gratuity payments based on the employee’s tenure and final salary. Employees working in private sectors, free zones, and government entities qualify for these benefits. 

However, the calculation and eligibility criteria differ based on contract type and termination conditions. Understanding the structure of EoSB is crucial for employees and employers alike. Let us explain EoSB regulations, calculations, and key considerations for workers in the UAE.

What are End of Service Benefits?

End of Service Benefits (EoSB) are financial compensations paid to employees when they resign or are terminated. These benefits are regulated by the UAE Labour Law (Federal Decree-Law No. 33 of 2021). The primary purpose of EoSB is to recognize an employee’s dedication and offer financial stability post-employment. Employers must comply with these legal provisions to avoid disputes or penalties. The calculation method depends on several factors, including contract type and duration of service.

Key Components of End of Service Benefits

• Gratuity Payment: A lump sum amount paid based on an employee’s tenure and last drawn salary. Typically mandated under labor laws in many countries, including the UAE and Saudi Arabia.
• Severance Pay: Compensation provided when an employee is terminated without fault. Varies based on company policies and employment contracts.
• Unpaid Salaries & Allowances: Employees are entitled to receive their pending wages, bonuses, or commissions before leaving.
• Leave Encashment: Any unused annual leave is often compensated in monetary form.
• Pension or Provident Fund Contributions: Some organizations contribute to pension schemes that employees can withdraw after service completion.
• Other Compensations: Benefits like repatriation allowances, stock options, or medical benefits may be provided as per contract agreements.

Eligibility Criteria for End of Service Benefits

Employees must meet specific conditions to qualify for EoSB. These include:

• Completion of one full year of continuous service.
• Being employed under a limited or unlimited contract.
• Termination conditions—voluntary resignation, employer dismissal, or end of contract.
• Unpaid leaves do not contribute to service duration.

However, employees dismissed for gross misconduct under Article 44 of the UAE Labour Law do not qualify for EoSB. Workers with short-term contracts must verify their eligibility before claiming gratuity.

Calculation of End of Service Benefits

EoSB is calculated based on the employee’s last basic salary (excluding allowances and bonuses). The calculation method differs for limited and unlimited contracts.

Limited Contracts

For employees with a fixed-term contract:

• Less than one year: No gratuity entitlement.
• 1-5 years of service: 21 days’ basic salary per year.
• More than 5 years: 30 days’ basic salary per year for additional years, capped at two years’ salary.

Unlimited Contracts

For employees with an open-ended contract:

• Resigned before 1 year: No gratuity entitlement.
• Resigned after 1 year but before 5 years: Two-thirds (2/3) of full gratuity.
• Resigned after 5 years: Full gratuity entitlement.
• Employer-terminated contract: Full gratuity entitlement.

Additional Considerations

• Gratuity is calculated on the last basic salary received.
• Unpaid leaves do not count towards service years.
• Workers terminated for gross misconduct do not qualify for gratuity.

Key Factors Influencing EoSB

Several factors impact the final gratuity payout, including:

• Basic Salary Structure: A higher basic salary leads to a larger gratuity amount.
• Employment Duration: Longer service periods yield higher payouts.
• Termination Reason: Resignations may reduce gratuity entitlement.
• Deductions & Adjustments: Companies may deduct outstanding loans or dues before gratuity payment.

How Employees Can Ensure Their Gratuity Rights

To secure fair gratuity payouts, employees must:

• Review Employment Contracts: Understand contract terms and gratuity eligibility.
• Maintain Salary Records: Keep copies of pay slips and agreements.
• Check UAE Labour Laws: Stay updated on legal changes affecting EoSB.
• Negotiate Before Signing: Discuss gratuity terms before joining an employer.
• Consult Legal Experts: Seek guidance from labor law specialists in case of disputes.

Conclusion

End of Service Benefits UAE  provide financial stability to employees upon leaving their jobs. The UAE Labour Law ensures fair gratuity calculations based on service tenure and termination type. Employees must understand their contract types, salary components, and legal rights to secure their benefits. Employers must also adhere to legal frameworks to avoid disputes.

Mithras Consultants is an independent actuarial and insurance consultancy firm providing qualitative financial and insurance solutions to its clients. Our goal is to provide business solutions customized to clients’ needs, helping them make the best possible decisions on their financial, insurance, and risk management programs.