New Gratuity Law in UAE: A Comprehensive Guide for Employees and Employers
The new gratuity law in UAE has introduced critical changes to how employees receive their end-of-service benefits. These changes impact all workers in the country, including expatriates, part-time employees, and temporary workers. Understanding the updated regulations is crucial for both employers and employees to ensure compliance and maximize financial security.
This in-depth guide explains the new gratuity law in UAE in full detail, covering eligibility, calculation methods, payment timelines, deductions, legal penalties, investment options, and much more.
Key Updates in the New Gratuity Law in UAE
The table below outlines the most significant changes:
| Aspect | Previous Law | New Gratuity Law in UAE |
|---|---|---|
| Eligibility | Minimum one year of service | Minimum one year of service (unchanged) |
| Calculation Method | 21 days’ basic salary per year for the first 5 years, 30 days for additional years | Same structure, but clearer rules on deductions |
| Payment Timeframe | No fixed deadline | Must be paid within 14 days of termination |
| Deductions & Reductions | Gratuity reduced if the employee resigns before 5 years | Full gratuity applies even if an employee resigns |
| Part-time & Temporary Employees | Not eligible | Eligible for a pro-rated gratuity |
| Investment & Pension Options | Limited options | Employers can invest gratuity funds in savings schemes |
| Legal Penalties | No strict penalties | Employers face fines for delays in gratuity payment |
Eligibility Criteria for Gratuity Under the New UAE Law
- Employees who complete one full year of service are entitled to gratuity.
- Resigned employees now receive full gratuity benefits, unlike the previous law where they received only partial amounts.
- Part-time and temporary workers are now included in the gratuity system under a pro-rated calculation method.
- Termination due to misconduct may still disqualify an employee from gratuity benefits.
How is Gratuity Calculated Under the New UAE Law?
The new gratuity law in UAE follows this standard calculation:
- First five years of service → 21 days of basic salary per year
- Beyond five years → 30 days of basic salary per year
Example Calculation of Gratuity
| Years of Service | Basic Salary (AED) | Gratuity Per Year (AED) | Total Gratuity (AED) |
|---|---|---|---|
| 3 Years | 10,000 | (21 × 10,000) ÷ 30 = 7,000 | 21,000 |
| 7 Years | 12,000 | (5 × 8,400) + (2 × 12,000) | 54,000 |
Gratuity for Resigned Employees
Previously, employees who resigned before completing five years of service received reduced gratuity. The new law eliminates this reduction, ensuring full benefits.
| Service Duration | Old Law (Reduction in Gratuity) | New Law (Full Gratuity) |
|---|---|---|
| 1-3 years | 2/3rd reduction | Full entitlement |
| 3-5 years | 1/3rd reduction | Full entitlement |
| 5+ years | No reduction | No reduction |
Gratuity for Part-Time and Temporary Employees
A major change in the new gratuity law in UAE is that part-time and temporary employees now qualify for gratuity benefits.
- Gratuity is calculated based on actual working hours rather than full-time employment duration.
- Formula for part-time gratuity: Gratuity=(Total Working HoursFull−TimeEquivalentHours)×Full-Time Gratuity\text{Gratuity} = \left( \frac{\text{Total Working Hours}}{Full-Time Equivalent Hours} \right) \times \text{Full-Time Gratuity}
This reform ensures that part-time workers are not unfairly excluded from end-of-service benefits.
Deadline for Gratuity Payment
- Employers must pay gratuity within 14 days of an employee’s last working day.
- Failure to comply may result in legal penalties and fines.
- Employees have the right to file complaints with the UAE’s Ministry of Human Resources and Emiratisation (MOHRE) if gratuity is delayed.
Legal Penalties for Employers Who Delay Gratuity Payments
The new gratuity law in UAE introduces strict penalties for non-compliance:
| Violation | Penalty |
|---|---|
| Delay in gratuity payment beyond 14 days | Fine of AED 5,000 – AED 50,000 |
| Repeated offenses | Higher fines and potential business restrictions |
| Employer failure to maintain gratuity funds | Additional penalties based on labor court rulings |
Investment and Pension Options for Gratuity Funds
A new feature of the gratuity law allows employers to invest gratuity funds in savings and pension plans.
- Employees may opt-in for pension investments to secure long-term financial stability.
- Benefits of investing gratuity funds:
- Ensures higher returns than traditional lump sum payments.
- Provides financial security for retiring expatriates.
- Reduces the financial burden on employers by maintaining pre-funded gratuity accounts.
Comparing UAE’s Gratuity System with Other Countries
| Country | Gratuity Eligibility | Calculation Method | Maximum Cap |
|---|---|---|---|
| UAE | 1 year of service | 21 days/year for 5 years, 30 days thereafter | No cap |
| Saudi Arabia | 2 years of service | 15 days/year for first 5 years, 30 days thereafter | No cap |
| India | 5 years of service | 15 days’ salary per year | Maximum INR 20 lakhs |
| UK | No gratuity system | Pension schemes | Based on pension rules |
This comparison shows that the new gratuity law in UAE is more favorable than many international regulations.
How Employees Can Maximize Their Gratuity Benefits
- Negotiate a higher basic salary, as gratuity is calculated on basic pay.
- Stay with a company for at least five years to receive the higher 30-day-per-year rate.
- Ensure accurate documentation of salary payments and contract terms.
- Understand gratuity investment options for long-term financial stability.
Conclusion
The new gratuity law in UAE introduces major improvements in transparency, fairness, and accessibility. Employees, including resigned workers, part-time employees, and temporary staff, now receive better financial security. Employers must comply with stricter deadlines and have the option to invest gratuity funds for future stability.
This guide ensures that employees and businesses understand their rights and obligations under the updated UAE gratuity law.
FAQs
Who is eligible for gratuity under the new UAE law?
Any employee who has completed one year of continuous service.
How is gratuity calculated?
21 days’ basic salary per year for the first 5 years, 30 days per year after that.
What happens if an employer delays gratuity payments?
Employers must pay within 14 days or face legal penalties.
Do part-time employees receive gratuity?
Yes, part-time workers receive pro-rated gratuity based on total hours worked.
Can employers invest gratuity funds?
Yes, gratuity can now be invested in pension and savings plans.
This extensive guide ensures that all aspects of the new gratuity law in UAE are fully covered, providing maximum clarity and value to employees and employers. 🚀
The new gratuity law in UAE has introduced significant changes that benefit employees, including those working part-time and on temporary contracts. Under the updated regulations, employees are entitled to full gratuity benefits even if they resign before completing five years of service. Additionally, gratuity payments must now be settled within 14 days of employment termination, ensuring timely financial security. Employers also have the option to invest gratuity funds in pension and savings plans, offering long-term benefits. Understanding these updates is crucial for both employees and businesses to ensure compliance and maximize benefits.
For those looking for banking services in the UAE, RAK Bank BurJuman Branch provides convenient banking solutions with flexible timings. Visit the link below for more details on RAK Bank BurJuman branch timings:
🔗 RAK Bank BurJuman Branch Timings
Stay informed about financial regulations and make the most of your benefits! 🚀
