Gratuity pay Calculations in the Middle East

Calculating your end-of-service (gratuity) pay is important. Knowing how the total sum is reached will help you identify any errors made by your company.Gratuity is the sum of money paid by an employer to an employee for the services rendered within the company or firm.

Contract types

A limited or fixed term contract is where the employee agrees to stay with the company for a certain number of years with a set end date. Resigning before the end of this period could mean one or all of these; a labour ban, loss of labour rights or even payment of compensation to the employer.
An unlimited contract has no such period clause or number of years, and therefore, has no end date. However, a notice period of one to three months is applicable for termination of contract from either side.
Gratuity pay is calculated based on the your basic wage/salary paid into your account without additional allowances or bonuses.

The pay for unlimited contract is based on the number of years served in the organization. For unlimited contract pay, an employee has to complete at least one year of service in the company.
Employees who leave the company within the period of 1 year and 5 years of service get a pay on 21 days salary for each year.
Employees who leave the company after completing 5 years or more in service get a pay on 30 days salary for each year.

Here are some examples in case of unlimited contract:

(a)Gratuity pay on 21 days salary for each year

  • Basic salary: Dh15,000
  • Daily wage = 15,000 ÷ 30 = Dh500
  • Gratuity = 500 x 21 = Dh10,500

(b)Gratuity pay on 14 days salary for each year

Basic salary: Dh15,000

  • Daily wage = 15,000 ÷ 30 = Dh500
  • Gratuity = 500 x 14 = Dh7,000

(c)Gratuity pay on 7 days salary for each year

  • Basic salary: Dh15,000
  • Daily wage = 15,000 ÷ 30 = Dh500
  • Gratuity = 500 x 7 = Dh3,500

Formula (Unlimited Contract):
1 to 3 years of service
Gratuity = (Basic salary x 7 days x service years)/30
3 to 5 years of service
Gratuity = (Basic salary x 14 days x service years)/30
5 or more years of service
Gratuity = (Basic salary x 21 days x service years)/30

 

Limited Contract Gratuity Pay
For limited contract pay, an employee has to complete at least one of service in the company.

Employees who leave the company within the period of 1 year and 5 years of service get a pay on 21 days salary for each year.
Employees who leave the company after completing 5 years or more in service get a pay on 30 days salary for each year.

Here are some examples in case of limited contract:

(a)Gratuity pay on 21 days salary for each year

Basic salary: Dh15,000

Daily wage = 15,000 ÷ 30 = Dh500

Gratuity = 500 x 21 = Dh10,500

Dh10500 is the gratuity entitlement of the employee for each year

(b)Gratuity pay on 30 days salary for each year

Basic salary: Dh15,000

Daily wage = 15,000 ÷ 30 = Dh500

Gratuity = 500 x 30 = Dh15,000

Dh15000 is the gratuity entitlement of the employee for each year

 

Formula (Limited Contract):
1 to 5 years of service
Gratuity = (Basic salary x 21 days x service years)/30
5 or more years of service
Gratuity = (Basic salary x 30 days x service years)/30

 

We hope this helps solve your queries.

 

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