UK: End Of Service Gratuity: A Recap

Last Updated: 20 June 2013
Article by Sara Khoja

End of service gratuity (Gratuity) is a key benefit for non-national employees working in each of the GCC countries. Both Federal Law No 8 of 1980 on the Regulation of Labour Relations (as amended) (UAE Labour Law) and DIFC Law No 4 of 2005 (as amended by DIFC Law No. 3 of 2012) (DIFC Employment Law) set out a formula for calculating Gratuity and contain specific provisions providing for reduction of the entitlement in certain circumstances. However, how to calculate Gratuity and what rate of accrual should be adopted is often not clear cut. Here, we examine some of the more intricate factors.

Duty to Accrue

Strictly speaking, there is no legal obligation to accrue for Gratuity during an employee's employment. However, it is best practice to do so and the entitlement (calculated on final salary and subject to 12 months' continuous employment) becomes payable on termination of employment.  Under the DIFC Employment Law final entitlements should be paid within 14 days of the employment terminating.  Under Ministerial Resolutions issued by the Ministry of Labour, the 51% shareholder of a limited liability entity whose name is registered with the Ministry of Labour and in whose name the company establishment card is registered can be personally liable for Gratuity payments. When determining the rate of accrual, an employer may wish to take into account that under the UAE Labour Law, Gratuity is reduced if the employee resigns in the first 5 years of employment on a staggered basis. However, under the DIFC Employment Law there is no reduction attributable to employee resignation.

Working days or calendar day? Remuneration or basic salary?

Under Article 8 of the UAE Labour Law, all entitlements under the law are calculated by reference to calendar days, a year being taken to be 365 days and a month 30 days.  Until the amendments to the DIFC Employment Law in December 2012, it was arguably unclear whether Gratuity should be calculated according to calendar days or working days. Following the amendments, it is now clear that Gratuity is calculated under DIFC Employment Law according to calendar days and is also calculated on basic salary only, excluding all allowances, benefits in kind, bonus and commission.

Further clarifications in the Gratuity section of the amended DIFC Employment Law state that the daily figure for an employee's basic salary should be calculated according to the number of days in the year. In other words, the daily salary figure should be arrived at by dividing the annual basic salary as at termination by 365, rather than dividing the monthly basic salary by 30.

Bonus and commission?

The position regarding whether bonus and commission should be taken into account when calculating the Gratuity entitlement is less clear cut under the UAE Labour Law. Article 132 of the UAE Labour Law sets out the formula for calculating Gratuity and refers to 'remuneration'.   Article 134 specifically excludes all allowances and benefits in kind which means that potentially all other payments falling within article 1's definition of 'remuneration' must be taken into account for Gratuity purposes.  Article 1 defines remuneration as 'all payment made to the worker on a yearly, monthly, weekly, daily, hourly, piece of work, or production or commission basis, in return for the work he performs under the contract of employment, whether such payments are made in cash or in kind. Remuneration shall include the cost of living allowance. It shall also include any grant given to the worker as a reward for his honesty or efficiency if such amounts are provided for in the contract of employment or in the internal regulations of the establishment or have been granted by custom or common practice to such an extent that the workers of the establishment regard them as part of their remuneration and not as donations.'

This position means that a bonus may need to be taken into account for Gratuity if it is guaranteed or operates in a similar way to commission, that is it is payable where the employee achieves specific targets. If the employee has a track record of achieving target and being paid bonus he may also be able to establish the integral nature of the bonus payments to his remuneration.

As regards commission, the UAE courts have in the past 3 years issued a number of decisions awarding Gratuity on the basis of basic salary and commission. These decisions have by and large involved claims from employees in sales roles.  The approach adopted has been to work out an average of commission earned per day by taking the total commission and dividing it over a certain number of years. The number of years the courts have taken into account vary according to what it regards as being reasonable (this has ranged to being 6 months, 1 year or even up to 2 to 3 years). 

Pension or Gratuity

Under the DIFC Employment Law, an employer may replace the Gratuity entitlement with a company pension scheme into which pension contributions by an employer are made.  An employee must be given the choice of opting in writing for the pension scheme in lieu of Gratuity.  Under the UAE Labour Law, the position is more complex.  Where an employer offers a pension scheme in lieu of Gratuity, it must not be less beneficial than the Gratuity entitlement and the employee remains entitled to opt for whichever is the more favourable benefit of the two. 

GCC nationals

Finally, a note on the position of GCC nationals; GCC nationals are entitled to membership of state pension schemes and for contributions to be made at the applicable rate (including employer, employee and state contributions).  This pension entitlement is often stated to be in lieu of any Gratuity entitlement and this position is largely true. However, each GCC country's social security legislation sets out an upper earnings limit for pension contributions to be applicable and due.  For any earnings over the specified earnings level, the employee will be entitled to Gratuity.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Sara Khoja
In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.