Calculating the end of service compensation for an employee accurately is fundamental. When an employee resigns or is terminated, the legal formalities need to be carried out properly. An employee who has completed one year or more of continuous service is legally entitled to severance pay at the end of the employment.

As part of our goal to provide a world-class employee experience for all SMEs in the UAE, we have put together a quick and useful online tool which automatically calculates the gratuity for your employees approaching the end of their service. Check it out here: ‘Bayzat Gratuity Calculator’

Simple enter your employee’s contract details and hit the “calculate” button! You will then instantly be able to view a breakdown of their salary entitlement whether it is gratuity, reimbursements or commissions.

Click here to starting using the Bayzat gratuity calculator for free!

It’s always handy to have a reference of the definitions of some of the key terms whilst calculating gratuity. Let’s go through the important ones you need to know:

Basic Salary

Basic salary is the amount paid to an employee excluding any additions or allowances such as housing, transport, commissions, bonuses, etc. Gratuity is always calculated based upon on the basic salary of an employee.

Limited Contract

A limited employment contract outlines the start and end dates of the employment period. Limited contracts have a minimum and maximum period of 2 years and can be renewed upon the agreement of both the employer and the employee. Under a limited contract, an employee is entitled to 21 days salary for every year of employment for less than 5 years, and 30 days salary for each year of employment over 5 years, up to a maximum of 2 years salary.

For an employee signed under a limited contract, here is how gratuity is calculated:

Resignation under a limited contract

  • Resigning before the expiry of the contract: No gratuity pay
  • Resigning after completing the contract: Gratuity pay equivalent to the full 21-day basic salary for each year.

Termination under a limited contract

  • Below 1 year of service: No Gratuity Pay
  • 1 year – 2 years of service: Gratuity pay equivalent to the full 21-day basic salary for each year.

Renewed Limited Contract

If a limited contract is extended beyond 2 years, it is known as a renewed limited contract. If your limited contract is beyond 2 years, click on ‘Renewed Limited Contract’ on our gratuity calculator and add in the relevant fields.

Free Payroll Processing Software

For an employee signed under a renewed limited contract, here is how gratuity is calculated:

Resignation under a renewed limited contract

If you complete a 2 years limited contract and then renew it:

  • Resignation after completing an additional year’s service without a notice period:  No Gratuity Pay
  • Resignation after completing an additional year’s service with a notice period:  Gratuity pay equivalent to the full 21-day basic salary for each year.

If you complete a 4 years contract and then renew it:

  • Resignation after completing an additional year’s service without a notice period:  No Gratuity Pay
  • Resignation after completing an additional year’s service with a notice period:  Gratuity pay equivalent to the full 21-day basic salary for each year.

Beyond 5 years of service:

  • Gratuity pay equivalent to 30 days salary for each year of employment over 5 years, up to a maximum of 2 years salary.

Termination under a renewed limited contract

  • If terminated by an employer at any point during an extended limited contract: Gratuity pay equivalent to the full 21-day basic salary for the first five years and 30 days basic salary for the number of years of service beyond 5 years up to a maximum of 2 years.

Unlimited Contract

Unlimited employment contracts or standard employee contracts specify the start date but there is no defined end date. It offers a degree of flexibility and is usually offered when an employee is hired on a permanent basis.

For an employee signed under an unlimited contract, here is how gratuity is calculated:

Resignation under an unlimited contract

  • 1 year – 3 years of service: Gratuity pay equivalent to 1/3rd of the 21-day basic salary for each year.
  • 3 years – 5 years of service: Gratuity pay equivalent to 2/3rd of the 21-day basic salary for each year.
  • 5 years: Gratuity pay equivalent to the full 21-day basic salary for each year.
  • 5+ years of service: Gratuity pay equivalent to the full 21-day basic salary for the first five years and 30 days basic salary for the number of years of service after that.

Termination under an unlimited contract

  • 1 year – 3 years of service: Gratuity pay equivalent to the full 21-day basic salary for each year.
  • 3 years – 5 years of service: Gratuity pay equivalent to the full 21-day basic salary for each year.
  • 5 years: Gratuity pay equivalent to the full 21-day basic salary for each year.
  • 5+ years of service: Gratuity pay equivalent to the full 21-day basic salary for the first five years and 30 days basic salary for the number of years of service after that.

With the Bayzat gratuity calculator, you can now accurately calculate the end of service remuneration for employees at the click of a button. Want to ditch excel sheets all together? You can take advantage of Bayzat Benefits at no cost – an HR platform that automates your HR administrative tasks, payroll processing, and time-off management.