End-of-service gratuity: What you owe when
an employee leaves.

What is end-of-service gratuity, and who earns it?

End-of-service gratuity is a lump sum an employer owes an employee when employment ends, accrued across their period of service. It is not a bonus and it is not discretionary. It is a statutory entitlement, and in most Gulf countries it begins once an employee has completed one continuous year.

Two things vary between countries and both change the number materially: which salary figure the calculation uses, and how many days are earned per year of service.

How is gratuity calculated in the UAE?

Under Federal Decree-Law No. 33 of 2021, gratuity is calculated on basic salary alone. An employee earns 21 calendar days of basic pay for each of the first five years of service, and 30 calendar days for each year beyond that. The total is capped at two years' wage.

The change most employers have not fully absorbed is that resignation no longer reduces the award. Under the previous law, an employee who resigned before completing five years received a reduced fraction. That reduction no longer applies, and calculators or spreadsheets built before the current law will quietly underpay.

Worked example

An employee on a basic salary of AED 10,000 leaves after exactly eight years. The daily rate is 10,000 divided by 30, which is AED 333.33. The first five years earn 5 × 21 × 333.33, which is AED 35,000. The remaining three years earn 3 × 30 × 333.33, which is AED 30,000. The total owed is AED 65,000.

Days owed by years of service

How is end-of-service benefit calculated in Saudi Arabia?

Saudi end-of-service benefit is calculated on the last wage, which includes allowances rather than basic alone. An employee earns half a month's wage for each of the first five years and a full month's wage for each year beyond five.

Saudi Arabia does still reduce the award on resignation, and this is where employers most often miscalculate. The reduction depends entirely on length of service.

How is gratuity calculated in Qatar?

Qatar sets a statutory minimum of three weeks of basic wage for each year of service, with entitlement beginning after one completed year. An employment contract may provide more than the minimum but never less, so where a contract is more generous the contract governs.

How do the three countries compare?

Which gratuity errors show up most often?

• Using the total package instead of basic salary in the UAE, which roughly doubles the figure
• Applying the old UAE resignation reductions, which no longer exist under the 2021 law
• Forgetting the UAE two-year cap on very long service
• Using basic salary in Saudi Arabia, where the calculation takes the last wage including allowances
• Counting unpaid leave as service, which inflates the period
• Treating an exact anniversary as short of it, so a five-year employee is paid at the under-five rate

How should an employer provision for gratuity?

Gratuity accrues from an employee's first year, but many employers only calculate it when somebody resigns. That turns a predictable, gradually accruing liability into an unbudgeted cash event, and it is worse in businesses with large workforces and steady turnover.

The practical answer is to treat accrued gratuity as a running liability visible at any point, rather than a number produced at exit. A system holding service periods and salary history already has everything needed to calculate it continuously.