Gratuity is a payment made by employers to their employees as a form of recognition for their contributions and hard work. In the United Arab Emirates (UAE), gratuity is a legal requirement, and all employers are required to pay it to their employees upon the completion of their employment contract.
The amount of gratuity that an employee is entitled to receive is determined by several factors, including the type of contract they are on, the length of their employment, and their salary.
For employees on limited contracts, the calculation of gratuity is straightforward and can be computed using a simple formula. Under UAE law, employees on limited contracts are entitled to receive gratuity at a rate of 21 days` pay for each completed year of service.
To calculate the gratuity amount, the employee`s last drawn basic salary is divided by 30 to determine their daily wage. The daily wage is then multiplied by 21 to obtain the 21 days` worth of gratuity payable for each completed year of service.
For example, if an employee`s last drawn basic salary was AED 10,000 and they had completed three years of service, the gratuity amount payable would be:
Daily wage = AED 10,000/30 = AED 333.33
Gratuity amount payable = AED 333.33 x 21 x 3 = AED 21,000
It is important to note that the calculation of gratuity is based on the last drawn basic salary and does not include other allowances or benefits such as housing allowance, transportation allowance, or bonus payments.
Furthermore, if an employee resigns before completing one year of service, they are not entitled to receive gratuity. However, if an employee is terminate before the end of their contract, they are entitled to receive a pro-rata gratuity amount based on the length of their service.
In conclusion, the calculation of gratuity for employees on limited contracts in the UAE is a straightforward process that involves a simple formula. By understanding the basic principles of gratuity computation, employees can ensure that they receive their entitlements upon the termination of their employment.