End of Service Gratuity Calculation in UAE
Planning and preparing for your End of Service Gratuity requirements for your employees in the UAE is highly recommended.
Why?
Companies in the UAE are required to pay their employees End of end-of-service gratuity (EOSG) at the end of their employment, typically in a lump sum payment. The gratuity calculation in UAE is based on the individual’s salary and length of employment with the company. It is thus essential to plan ahead for End of Service Gratuity requirements, as per UAE Gratuity Law mentioned in Article 51 in the UAE Labour Law.
End of service gratuity in UAE is calculated based on the employee's monthly basic salary as classified in the employment contract (basic salary is typically 60% of total salary) X 12 /365 (to find the rate per day) X 21 days for years 1-5 of employment and then for every year after that, it is multiplied by 30 days.
The gratuity calculation in UAE is based on the employees final date of employment. Therefore, a full year of employment would be based on 365 days but the final year calculation will be based on the number of days employed in that final year. For example, instead of 365 days, it may be only 157 days.
Case Study – End of Service Gratuity calculation:
Years of employment: 3 years and 157 days
Total basic salary: AED10,000
Gratuity requirement: AED 24,013
How can you plan for your End of Service Gratuity in UAE?
PPG works with the client to build a custom solution that enables companies to build funds against their End of Service Gratuity liabilities within an employee benefit trust plan.
Placing End of Service Gratuity amounts into a trust provides improved risk management and eases EOSG costs through early investment. It is also possible to incorporate a savings component within the same plan to help you attract and retain staff.
A trust can help you to ringfence EOSG requirements by taking the money and liability off the company's balance sheet. It gives you peace of mind that you have protected your cash flow and can meet your liabilities. This money can then be invested and allowed to accumulate, while EOSG payments can be withdrawn as and when required.
End of Service Benefits UAE - Employee Savings Plans
It is becoming increasingly important in the UAE and GCC to offer employees End of Service Benefits. A great way to attract and attain employees in the region and stand out from other employers is to offer employees a savings plan for their retirement. A savings component within the same plan helps you as the employer to deliver a duty of care and assist your employees to save for life goals such as special occasions such as weddings or holidays or a house purchase.
Learn more on EOSG Savings Plans >
How can Sovereign PPG assist?
Our occupational pensions and savings team at Sovereign PPG and Sovereign are experienced in designing and operating corporate pension schemes and trust plans to plan for your End of Service Gratuity liabilities in the UAE.
We can assist with gratuity calculations in UAE, End of Service benefits in UAE, Employee Savings plans, and opening a rust to build funds against your EOSG requirements as per UAE Labour Law gratuity mentioned in Article 51.
