UK: End Of Service Gratuity In The UAE

End of Service Gratuity (Gratuity) is a statutory severance pay across most Middle Eastern jurisdictions and one which is conceptually analysed as akin to a retirement savings scheme or pension scheme.

This article explores some of the common pitfalls and tricky issues which arise in relation to statutory Gratuity in the United Arab Emirates (UAE) under Federal Law No.8 of 1980 Regarding the Organisation of Labour Relations, as amended (UAE Labour Law). This is, however, a regional issue and many of the points flagged below will apply equally across the Middle East.

Potential Pitfalls when Calculating Gratuity

The UAE Labour Law sets out a prescriptive formula for calculating Gratuity and whilst it does not expressly state that this benefit is payable in relation only to service in the UAE this is certainly the accepted position. However, many employers often inadvertently recognise non-UAE employment service through contractual agreement, for example where an employee is an international transfer from another jurisdiction within the business. It may be possible to recognise seniority but contractual provisions should be carefully worded so that the Gratuity benefit is not thereby enhanced.

Another area for consideration is where an employee receives commission or bonus payments during the employment. The UAE Labour Law provides that Gratuity should be calculated on the basis of remuneration excluding all benefits in kind and any type of allowance. This wording leaves the position of commission or bonus payments potentially ambiguous and whether or not such payments should be taken into consideration when calculating Gratuity will very much depend on the particular details of any commission or bonus scheme.

Gratuity as an Inherent Employee Entitlement

Employers new to the Middle East can sometimes be surprised at the inherent nature of the entitlement to Gratuity and that it is, generally speaking, payable regardless of whether the employee resigns (albeit sometimes subject to reductions, explained below) or is dismissed (other than for gross misconduct).

Gratuity may be subject to reductions where an employee resigns from his/her employment depending on the type of contract and the employee's length of service. However, once an employee's service reaches 5 years, they will be entitled to their full Gratuity payment, notwithstanding that they have resigned from their employment.

No Gratuity is payable where an employee's employment is terminated for one of the exhaustive list of gross misconduct reasons set out under Article 120 of the UAE Labour Law. However, this Article is generally reserved for the most serious acts of gross misconduct, often involving a criminal element, and in practice it is extremely difficult to validly terminate on this basis.

More commonly, in cases of poor performance or misconduct, employers will terminate on notice for, what is referred to under the UAE Labour Law as, a "valid" reason. In such circumstances, the employee is entitled to their full Gratuity, notwithstanding that the reason for the termination of their employment is their poor performance or misconduct, for example.

Interaction with Pensions – GCC Nationals

The UAE has in place reciprocal pension arrangements with other GCC countries The aim of this legislation is to ensure that a GCC national receives the same treatment or benefit with regard to state pension as he would have had if he worked in his home country, in accordance with the laws of his home country.

There are minimum and maximum earning levels for such pension contributions to be made and a GCC national is potentially entitled to Gratuity on any basic salary earned in excess of the maximum earnings level for pension contributions. On a contractual basis, employers should take care not to inadvertently grant such GCC employees Gratuity in addition to contributions into the state pension scheme.

Interaction with Pensions - Non GCC Nationals

Under the UAE Labour Law, it is possible for an employer to contribute into a pension scheme for the employee in lieu of the obligation to pay Gratuity. On termination of employment, the employee can choose to receive either pension or Gratuity, whichever is more favourable to him/her.

In our experience, it is often difficult for employers to establish that contributions made into a pension scheme on the employee's behalf validly replace the right to Gratuity, particularly where such contributions are made into an international pension scheme.

The UAE Courts appear to be reluctant to accept that contributions into an international pension scheme are more beneficial to an employee than Gratuity as an employee will generally only receive the pension benefit once he/she reaches the relevant retirement age, whereas Gratuity is payable immediately.

Nonetheless, employers may wish to offer pension benefits as a means of retention or, increasingly, because it is market practice to do so (particularly for senior or C-suite level employees and internationally mobile employees). Where such a benefit is provided, the risk of having to provide both Gratuity and the pension benefit may be mitigated through contractual provisions to ensure a double benefit is not provided; essentially through securing clear employee consent to the pension being in lieu of Gratuity and also agreed claw back of contributions if Gratuity is later claimed by the employee. The rules of any pension scheme or savings scheme should also be reviewed and the administrator or provider of the scheme consulted to ensure that the schedule rules themselves can protect the employer as much as possible.

End of Service Gratuity in the UAE

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 Mondaq.com.

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

Authors
Sara Khoja
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
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
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (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 www.mondaq.com

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 Mondaq.com’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.

Disclaimer

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.

Registration

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 unsubscribe@mondaq.com 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.

Cookies

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.

Links

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.

Mail-A-Friend

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.

Security

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 webmaster@mondaq.com.

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 EditorialAdvisor@mondaq.com.

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 enquiries@mondaq.com.

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