Nothing sours a good exit like a gratuity dispute. I have seen otherwise-excellent parting conversations fall apart over Dh 20,000 that the payroll team calculated off the wrong salary component. This brief walks through the 2025 gratuity rules, the formula, and the six most common pitfalls.
The baseline formula
Since Federal Decree-Law No. 33, all private-sector contracts are fixed-term. End-of-service gratuity now accrues on a single, uniform formula:
- 21 calendar days of basic salary for each of the first five years of continuous service.
- 30 calendar days of basic salary for each year beyond five.
- Partial years are calculated pro-rata to the day.
- Total gratuity cannot exceed two years' basic salary.
The minimum qualifying service is 12 complete months. Employees who leave before that — whether through resignation or lawful termination — are not entitled to gratuity. Employees dismissed for gross misconduct under Article 44 may lose their gratuity entitlement entirely.
Basic salary versus total salary
Gratuity is calculated only on basic salary, never on total package. The definition of "basic" is what the contract and the MOHRE portal record call basic. A common error is to calculate gratuity on an after-the-fact salary split that HR has done internally without re-registering the contract. MOHRE doesn't accept that.
“Your contract defines basic. Your handbook defines allowances. Your payroll system should trust both.”
Resignation versus termination — still matters
Under the old unlimited-contract regime, resigning mid-term meant losing part of your gratuity on a sliding scale. Under Federal Decree-Law No. 33, that sliding scale is gone: resignation no longer triggers a gratuity haircut, provided the minimum 12-month service threshold has been met and proper notice has been served. Terminations for cause under Article 44 remain the one exception.
The six pitfalls
- Basic-salary mismatch — portal says Dh 6,000, paper contract says Dh 8,000. MOHRE will use Dh 6,000. Fix this at onboarding.
- Forgotten leave-pay adjustment — accrued annual leave paid out at basic, not gross, is a common underpayment.
- Service break miscounting — unpaid leave, secondments and intra-group transfers need careful tracking. Silent resets erase years of accrual.
- Probation exit confusion — probationary exits under 12 months pay no gratuity; some employers wrongly pay one to avoid disputes, then can't reclaim.
- Limited-contract early exit penalty myths — the old three-months-salary penalty is gone; the new model is simpler but widely misunderstood.
- Gratuity cap overlooked — the two-year cap saves a lot of payroll money for long-service employees but most calculators ignore it.
The new DIFC-style savings scheme — and why the mainland may follow
DIFC's workplace savings scheme has replaced gratuity with a funded pension-like vehicle. The mainland has not adopted this yet, but discussion of a voluntary private-sector alternative to gratuity is active. Employers planning three to five years ahead should watch this space and, in the meantime, make sure their gratuity accrual is actually funded on the balance sheet — not a surprise when it comes due.
- Calculate gratuity on basic salary only; align paper with the MOHRE portal.
- 12-month minimum service; 2-year cap; pro-rata to the day.
- Resignation no longer triggers a sliding-scale haircut.
- Article 44 terminations may still forfeit gratuity.
- Fund the accrual on the balance sheet — it is not an optional provision.
Done properly, gratuity is a rounding error in your P&L. Done sloppily, it is the single largest source of HR litigation in the UAE. A half-day audit at year-end usually pays for itself many times over.