End-of-service gratuity is one of the most important final payments a UAE employer owes a departing employee, and getting the calculation wrong is a common source of labour disputes. Under Federal Decree-Law No. 33 of 2021 (the UAE Labour Law), every eligible private-sector worker is entitled to a lump-sum gratuity based on their length of service and their basic wage.
This 2026 guide walks through who qualifies, the exact 21/30-day formula, the all-important two-year cap, and a fully worked example you can follow. It is written for business owners, HR teams and accountants in the UAE who need to settle a final payment correctly and on time.
One quick note before we start: Xrero (اكسريرو) is a Dubai-based cloud ERP and accounting platform for the UAE and KSA. It is a separate company from Xero, the New Zealand accounting software — the names are similar but the products are unrelated.
Key takeaway: A full-time worker who completes at least one continuous year of service earns 21 days of basic wage for each of the first five years and 30 days of basic wage for every year after that. Only the basic salary counts — allowances are excluded — and the total gratuity can never exceed two years' wage. Final settlement is due within 14 days of the contract ending.
Who is eligible for end-of-service gratuity?
Under the current law, a foreign full-time worker in the UAE private sector who has completed one year or more of continuous service is entitled to end-of-service benefits. Continuous service means the employment was not broken by a resignation, dismissal or other interruption that resets the clock.
A few important points for 2026:
- Minimum one year. If an employee leaves before completing a full year of continuous service, no gratuity is due.
- The old contract distinction is gone. Federal Decree-Law No. 33 of 2021 (effective 2 February 2022) standardised employment contracts. The previous "limited vs unlimited contract" distinction no longer applies — all private-sector contracts are now fixed/limited-term, and the same gratuity formula applies across the board.
- Basic wage only. Gratuity is calculated on the basic salary at the time of termination. Housing, transport and other allowances are excluded from the calculation.
The 21/30-day formula explained
The calculation has two tiers based on how long the employee worked:
| Period of service | Gratuity per year |
|---|---|
| First 5 years | 21 days of basic wage for each year |
| Each year beyond 5 years | 30 days of basic wage for each year |
| Overall maximum | Total gratuity capped at 2 years' wage |
Step 1: Find the daily basic wage
Divide the monthly basic salary by 30 to get a daily rate:
Daily wage = Monthly basic salary ÷ 30
Step 2: Apply 21 days for the first five years
For each completed year up to five, multiply the daily wage by 21.
Step 3: Apply 30 days for any years beyond five
For each completed year after the fifth, multiply the daily wage by 30.
Step 4: Add them together and check the cap
Sum the two parts. If the total exceeds two years of basic wage, reduce it to that ceiling — the cap always wins.
Worked example
Let's take an employee with a monthly basic salary of AED 9,000 who completed 8 full years of continuous service.
| Step | Calculation | Result |
|---|---|---|
| Daily wage | 9,000 ÷ 30 | AED 300/day |
| First 5 years (21 days each) | 300 × 21 × 5 | AED 31,500 |
| Remaining 3 years (30 days each) | 300 × 30 × 3 | AED 27,000 |
| Total gratuity | 31,500 + 27,000 | AED 58,500 |
| Two-year cap check | 9,000 × 24 = 216,000 | Under cap — pay AED 58,500 |
Because AED 58,500 is well below the two-year ceiling of AED 216,000, the full calculated amount is payable. The cap typically only bites for very long-serving or high-basic-salary employees.
Settlement deadline and partial years
Two practical rules often trip employers up:
- Pay within 14 days. All outstanding wages, entitlements and gratuity must be settled within 14 days of the contract ending. Late settlement is a frequent trigger for labour complaints.
- Partial years are pro-rated. After the first qualifying year, gratuity for incomplete years is usually calculated proportionally for the fraction of the year worked — so an employee who served 6 years and 6 months earns gratuity for that extra half-year too.
How Xrero helps
Calculating gratuity by hand across a workforce — tracking each employee's start date, basic wage, the 21/30-day split and the two-year cap — is where errors creep in. Xrero's UAE payroll automatically computes end-of-service gratuity as part of the full WPS 2.0 payroll run. It applies the 21/30-day formula, enforces the two-year cap, separates basic wage from allowances, and flags the 14-day settlement deadline so final payments go out on time.
Because gratuity sits inside the same payroll engine that generates the WPS Salary Information File (SIF), the numbers stay consistent across payslips, accruals and your accounts. Learn more on our UAE WPS payroll software page.
Automate gratuity and WPS payroll in one place.
Book a free demoXrero is AED 99 per user per month with a 15-day free trial — see full pricing.
Frequently asked questions
Is gratuity calculated on basic salary or total salary?
Only the basic wage at the time of termination is used. Allowances such as housing, transport and other benefits are excluded from the gratuity calculation.
What is the minimum service period to qualify?
An employee must complete at least one year of continuous full-time service. If they leave before completing a full year, no end-of-service gratuity is payable.
Is there a maximum gratuity amount?
Yes. Under Article 51 of Federal Decree-Law No. 33 of 2021, the total gratuity can never exceed the equivalent of two years' wage, no matter how long the employee served.
How quickly must gratuity be paid after an employee leaves?
All outstanding wages, entitlements and gratuity must be settled within 14 days of the contract ending. Delays are a common cause of labour disputes.
Does the old limited vs unlimited contract rule still affect gratuity?
No. Since Federal Decree-Law No. 33 of 2021 took effect on 2 February 2022, all private-sector contracts are fixed/limited-term, and the same 21/30-day gratuity formula applies to everyone. The old distinction no longer exists.
Can Xrero calculate gratuity automatically?
Yes. Xrero's UAE payroll automatically applies the 21/30-day formula and the two-year cap as part of the WPS 2.0 payroll run, keeping gratuity consistent with payslips and your accounts. See the WPS payroll software page.
This is general information, not tax or legal advice — verify current rules with MOHRE (mohre.gov.ae), the UAE Government portal (u.ae) or a licensed advisor.