Rajiv Suri’s recent contribution to the Gulf News focuses on how UAE gratuity calculated.
AS PUBLISHED IN GULF NEWS
Dubai: Many workers in the UAE are unsure how their gratuity is worked out – does the calculation include only the basic salary, or the full wage with allowances? A Gulf News reader raised this question, and a UAE-based lawyer explained exactly how the law defines it.
What is the difference between basic salary and gross salary in the UAE?
The basic salary is just part of your overall salary. Many employment contracts also include allowances such as housing, transport, or other incentives.
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Basic salary: Fixed amount stipulated in your employment contract.
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Allowances: Additional payments such as housing, transport, sales percentage or cost-of-living support.
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Gross salary (total wage): Your basic salary plus allowances.
Knowing your basic salary is important because it is used to calculate end of service gratuity, job loss (Involuntary Loss of Employment – ILOE) insurance payout, compensation for working on a public holiday and overtime pay.
Is UAE gratuity based on basic salary or gross salary?
According to Rajiv Suri, senior associate at UAE-based law firm Alsuwaidi & Company, gratuity in the UAE for full-time workers is calculated on basic salary only, not on gross salary.
“Effectively, ‘wage’ means your total salary, including both basic pay and allowances. If the law had meant to include only the basic salary, it would have used the term ‘basic wage,’ which is clearly defined in the law.”
What does the law say?
Article 51 of the UAE Labour Law – End of Service Benefits for Full-Time Workers – specifically uses the term ‘basic wage’ for severance payout calculation.
“As per the law, it specifically defines basic wage as the wage stipulated in the employment contract, which is paid to the worker in consideration of his work under the employment contract, on a monthly, weekly, daily, hourly or piecework basis, and which does not include any other allowances or benefits in-kind,” he explained.
At the same time, under UAE Federal Decree-Law No. (33) of 2021, ‘wage’ is defined more broadly:
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Wage = Basic salary + cash allowances + benefits in kind allocated under the employment contract, according to Suri.
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This may include cost of living allowances, percentage of sales, or profit-linked payments.
“However, if the gratuity calculation/end of service benefit which is calculated on ‘basic wage’ exceeds the two years ‘wages’, then the maximum which a person can get as a severance package would only be limited to the two years wages,” he said.
To speak with the author, please contact Rajiv Suri on r.suri@alsuwaidi.ae
