Many employees in the UAE have the same question: is gratuity based on basic pay or the full salary package? The answer matters, because allowances can make a big difference to your take-home pay, but not to your end-of-service payout.
This blog explains the difference, how the UAE Labour Law defines gratuity, and what rules apply when calculating it.
Basic vs gross salary in the UAE
Your salary is divided into two parts:
- Basic salary: The fixed amount written into your contract.
- Allowances: Extras like housing, transport, food, or commissions.
When combined, these make up your gross salary. Many workers focus on the total, but the law is very clear that not every part counts toward gratuity.
What the law says about gratuity
UAE Federal Decree-Law No. 33 of 2021 governs end-of-service benefits. Article 51 uses the term basic wage for gratuity calculations. This means the fixed salary listed in your contract, without any extras.
Allowances and benefits are not included in the formula. Even if your housing or travel allowance makes up a large share of your pay, they do not increase your gratuity.
In short, gratuity is calculated on basic salary, not gross salary.
Rules for calculating gratuity
The Labour Law sets clear rules for full-time workers who complete at least one year of service:
- Less than one year: No gratuity is paid.
- One to five years: 21 days of basic salary for each year worked.
- More than five years: 21 days of basic salary for each of the first five years, then 30 days of basic salary for each year after that.
The maximum payout is capped at two years’ total wage. This prevents very large sums after decades of service.
Example calculation
Imagine an employee with a gross salary of AED 12,000. Their contract states a basic salary of AED 9,000. They worked for seven years.
- First 5 years: (9,000 ÷ 30) × 21 × 5 = AED 31,500
- Next 2 years: (9,000 ÷ 30) × 30 × 2 = AED 18,000
Total gratuity = AED 49,500
Even though their gross salary is higher, only the basic salary is used.
How to check your basic salary
You can find the basic salary in your employment contract. Access it in two ways:
- MOHRE App
- Log in with UAE Pass.
- Tap Dashboard → View contract.
- Download the PDF to see your salary breakdown.
- Log in with UAE Pass.
- UAE Pass App
- Go to Documents.
- Select Request a document → Professional.
- Choose Labour contract.
- Go to Documents.
Always keep a copy so you know what amount is used for gratuity.
Why knowing this matters
Understanding how gratuity is calculated helps you manage expectations. Many employees assume allowances count, which leads to surprise at the final payout. This knowledge also helps when negotiating contracts. A higher basic salary means a stronger foundation for long-term benefits.
If you’re planning a career in the UAE, or nearing the end of service, clarity on this rule ensures there are no shocks when it comes time to receive your dues.
Key takeaway: UAE gratuity is based on basic salary, not gross salary. Knowing this distinction allows employees to plan ahead, compare offers wisely, and secure fair value for their service.
Need professional guidance?
At AR Associates, we help employees and businesses understand UAE labour law consultancy and end of service benefits in UAE. Our experts ensure your contracts and payouts comply with current laws.
Contact AR Associates today for trusted advice on gratuity and labour law compliance.
