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We’ve all heard people around us discuss big words like gratuity and it has left us wondering as well as curious to know more. While some of us are vaguely familiar with terms like this, others simply have no clue and then there are those who are simply overwhelmed with hearing a complex term like Gratuity. Well, you have come to the right place as this thorough guide will help you traverse through the ins and outs of what gratuity means and how you can calculate it with ease.
Before we dwell into the eligibility criteria for gratuity in UAE along with its formula and ways to calculate it, it is important to first dissect the term itself to understand it fully. Having this information will enable you to acknowledge the significance of this term as well as understand the amount of gratuity one can expect as a payout if they fulfill the eligibility criteria. This will also be helpful in using the gratuity amount in making an investment in UAE. So, let’s begin:
Gratuity is defined as the amount of money paid by an employer to their employee in lieu of the services offered by them to the company. It is a one-time monetary payment only. It is simply a token of gratitude of the employer that they express by paying the employees for their exceptional and long standing services to their organization. This amount of gratuity can be used in making an investment in UAE after retirement. However, not each and every employee of the company is eligible for receiving this gratuity payment. There are certain eligibility requirements in order to avail of this benefit. We will discuss these in grave detail in the sections to follow.
However, the employee can avail of the gratuity payout before the stipulated time period if they are disabled because of a medical ailment or due to an accident. The amount of the gratuity mainly depends on the employee’s last drawn salary as well on the number of years of service rendered by them to the company. They can use this gratuity amount further in making an investment in UAE.
Customarily, the gratuity is given at the time of the employee’s retirement. However, one can get the End of Service gratuity after the completion of a minimum term of one year of employment and make an investment in UAE. These parameters are however not applicable in case the employee is disabled because of an illness or an accident or if he/ she dies when they are still in service.
Mentioned below are the requirements for availing and calculating the End of Service Gratuity in UAE that can help one in calculating the investment in UAE one makes from this amount:
1. Employees are eligible for EOS Gratuity after completing 1 year of service minimum. They are entitled to EOS gratuity comprising of 21 days for the first five years of employment each. If the duration of employment is more than 5 years, the employee gets 30 days’ salary for each of the additional years, given that the aggregate amount is not more than 2 years’ remuneration of the employee. This amount will be significant enough to make an investment in UAE from this amount. The EOS Gratuity is calculated also for the fraction of a year on a pro rata basis. Another important thing to note is that in the event that the employee decides to terminate their employment in the first five years of the service, there are certain deductions that will be applied.
2. Unpaid days of absence from work are not included in the calculation of the End of Service Gratuity.
3. The basic wage, as mentioned in the employment contract becomes the basis for calculating the End of Service Gratuity. This EOS Gratuity does not comprise of housing, overtime, travel, transportation, representation as well as cashiers allowance among other things given to the employee.
4. The employer has the right to deduct any amount outstanding to them (owed by the employee) from the End of Service Gratuity.
1. The type of contract
2. The basic salary
3. Number of years of service in the company
4. The reason behind contract termination
These factors influence the gratuity amount that the employee can then use to make an investment in UAE.
There are essentially two types of contracts in the United Arab Emirates, specifically, Dubai, Sharjah, and Abu Dhabi- a limited and an unlimited contract.
Limited contract- Also known as the fixed term contract means that the employee has agreed to stay with the company for a specific number of years that end on a certain set date. If the employee resigns before this term, they run the risk of getting a labor ban imposed upon them. They might also lose their labor rights or might include a compensation to their employer.
Unlimited contract- The unlimited contract has no specific end date or a defined period of years where the employee has to work for the employer. It might however include a period of one to three months of the notice period before the termination of the contract by any party involved.
A gratuity calculator calculates the amount of gratuity received by an employee on the basis of a formula. A gratuity calculator is a financial tool that gives an approximate amount of gratuity that an employee receives when he/ she quits their job after they have rendered their services to a company for 5 continuous years. It is an effective instrument for calculating gratuity after retirement from service. This estimate will help people ascertain the amount they get after retirement which can be further used to make an investment in UAE. One only has to enter their last drawn salary along with the years of continuous service in a company. The amount of last drawn salary includes the basic salary of the employee added to the commission received from sales and the dearness allowance. Once you input this data into the gratuity calculator, it will only take a few seconds to display the gratuity amount. It is an extremely simple tool that can be utilized as many times as you like. The formula used by such as calculator is as follows:
(15 * The last drawn salary * The working tenure of the employee) / 26
Let us now see the different ways to calculate gratuity-
The calculation, in this case, will differ on the basis of the duration of the employee’s service.
If less than 1 year of service- If an employee leaves their job before completing one year, they will not be entitled to any amount of gratuity or a final settlement.
If the duration is 1 to 5 years of service- The employee, in this case, will be eligible for full gratuity payment on the basis of their 21 days worth of salary.
If the duration is 5 or more years of service- Such an employee is entitled to the full gratuity amount on the basis of 30 days salary for each year of their service.
Let us look at an example to understand this a little better:
If an employee’s basic salary is AED 10,000.
So, their daily wage will be= 10,000 / 30 = AED 333.33
Multiplying this daily wage by either 21 or 30 (on the basis of the duration of their service in the company), 333.33 * 21 = 6,999.30. This means that their 21 days’ salary is AED 6,999.30. This amount will be received by them for each year of their service.
For employees who have more than 5 years in the company, the gratuity entitlement is entertained as long as the total amount does not exceed the total salary amount of two years.
The calculation, in this case too, shall differ on the basis of the duration of the employee’s service.
If less than 1 year of service- The employee, in this case, will not be entitled to any gratuity pay.
If the duration is 1 to 3 years of service- The employee will be eligible for one-third of the 21 days gratuity payout.
If the duration is 3 to 5 years of service- The employee will be eligible for two-third of the 21 days gratuity payment.
If the duration is 5 or more years of service- Such an employee gets the full 21 days’ worth of gratuity pay.
Here is an example to understand this a little better:
If the employee’s basic salary is AED 10,000.
Their daily wages can be calculated: 10,000 / 30 = AED 333.33.
Multiplying this figure by 21 will give the 21 days salary: 333.33 * 21 = 6,999.30.
One-third or two-third of this number can be calculated on the basis of the period of service in order to calculate the total gratuity pay that can be later used for making an investment in UAE. For the others who have worked for more than 5 years the amount of AED 6,999.30 is payable for every year completed in the company.
Mentioned underneath are the steps to calculate gratuity using a gratuity calculator easily available online:
1. Enter the basic salary as well as the dearness allowance if applicable.
2. Enter the number of years served in the company.
3. The gratuity calculator uses the formula to calculate your gratuity amount in mere seconds.
4. One can easily recalculate their gratuity as many times as they like by simply changing the input data.
The gratuity calculator is a generic, easy to operate calculator where all you have to do is enter your basic salary and the years of service to get instant results. This calculator gives you an estimated value gratuity you will receive, helping you plan for your future investment in UAE. It helps people plan their investments smartly in order to get maximum returns for their money. Additionally, the fact that these calculators are a mere click away makes them convenient to use from the comfort of your house, practically anytime to get the amount of gratuity one can expect after their retirement.
If the employee is terminated from the job but there is no breach of the laws stated in Article 139 of the labor laws, they are still entitled to their gratuity payout. The rules of Article 139 suggest that the employee will be deprived of their End of Service gratuity in the two cases mentioned below-:
1. If the employee is dismissed from service due to the reasons mentioned in Article 120 or in the event that the employee quits the service in order to avoid dismissal under the aforementioned article. The article elucidates dismissal during or towards the end of probation or due to charges of loss of material, or due to failure to perform their basic duties despite the warning, crime, etc.
2. If the employee resigns without giving a notice in an unlimited contract or before the completion of five years of continuous service in case of a limited contract but in cases apart from the ones defined in Article 121, that is, in case of an assault or if the employer breaches the contract.
Use this simple and effective tool to better plan your future investment in UAE and secure your future beyond your years of service. This tool makes your life simple as it enables you with the power of overseeing the future and thus helps you in planning your finances in a way that is smart and efficient!