As per the UAE labor law, gratuity calculation is done based on the type of contract under which the employee was employed.
The worker is entitled to a gratuity for the served fraction of a year, provided that he completes one year of continuous service.
The end of service gratuity is calculated on basis of last wage which the employee was entitled to, namely the basic salary. Hence, it will not include allowances such as housing, conveyance, utilities, furniture etc.
If the employee owes any money to the employer, the employer may deduct the amount from the employee's gratuity.
This article explains how to calculate gratuity for an unlimited contract i.e. a contract with an end date.
Less than 1 year of service
If the employee resigns of his or her own free will before completing one year, then they will not be entitled to any gratuity pay.
Between 1 year and 3 years of service
Employee is entitled to one-third of gratuity pay based on 21 days gratuity pay.
E.g. Employee with a basic salary AED 10,000 who has completed one year of work
10,000/30 = AED 333.33
AED 333.33*21 = AED 7,000
1/3*7,000 = AED 2,333.33
Between 3 years and 5 years of service
Employee is entitled to two-thirds of gratuity pay based on 21 days gratuity pay.
E.g. Employee with a basic salary AED 10,000 who has completed two years of work
10,000/30 = AED 333.33
AED 333.33*21 = AED 7,000
2/3*7,000 = AED 4,666.67
5 or more years of service
Employee is entitled to full gratuity pay based on 21 days gratuity pay for each year of service above five years.
E.g. Employee with a basic salary AED 10,000 who has completed five years of work.
10,000/30 = AED 333.33
AED 333.33*21 = AED 7,000
Note: These calculations are not to be treated as law, they are for your reference only. For any disputes or further clarification, contact the UAE Ministry of Human Resources and Emiratization.