End-of-Service Benefits (EOSB) and Employment Termination in the UAE

End-of-Service Benefits (EOSB), commonly known as gratuity, are lump-sum payments due to employees when their employment ends. In the UAE, EOSB serves as a financial safety net to reward employees for their service and support them during career transitions. For employees, EOSB can fund future plans or cushion periods of unemployment, making it a critical part of their overall compensation. Employers benefit from EOSB schemes, which contribute to job satisfaction and retention.

Legal Framework and Eligibility

The UAE’s labor law mandates EOSB under Federal Decree Law No. 33 of 2021 (the “UAE Labour Law”), which came into effect February 2022. This decree law and its Executive Regulations set out who is eligible for gratuity and how it is calculated. Notably, Article 51 of the UAE Labour Law provides that a foreign worker who completes at least one year of continuous service is entitled to EOSB upon termination. Employers are legally required to pay EOSB within fourteen (14) days of a contract’s end date, ensuring timely fulfillment of this obligation.

In general, all full-time employees in the UAE private sector are eligible for EOSB if they complete at least one (1) continuous year of service with the employer. Part-time and other non-full-time employees also qualify, but their gratuity is prorated based on their working hours relative to a full-time schedule. The minimum service period to be eligible for any gratuity is one (1) year of continuous employment. Continuous service means unbroken employment with the same employer; note that any days of unpaid absence (leave without pay) do not count towards the service period for EOSB calculation.

Calculation of Gratuity Payments

The EOSB (gratuity) calculation in the UAE is based on the employee’s basic salary (excluding allowances like housing, transportation, bonuses, etc.) at the time of termination. As per Article 51 of the UAE Labour Law, the standard formula is as follows:

• First five years of service: 21 days of basic pay for each year.
• Service beyond five years: 30 days of basic pay for each additional year.
• Maximum Cap: If the total gratuity exceeds the equivalent of two (2) years’ pay, the excess is not payable (the law caps EOSB at two years of wages maximum).

The law ensures even fractions of a year are recognized in the gratuity calculation, so long as the employee has completed at least one full year. For example, if someone works 1.5 years, they get 21 days for the full first year, and half of 21 days for the additional half-year.

Termination of Employment Rules

Under Article 43 of the UAE Labour Law, both parties can terminate the contract for any legitimate reason with proper notice. Either party must give written notification, and the notice period must be between 30 to 90 days (as agreed in the contract). During the notice period, the employee must continue working as normal and the worker is entitled to full salary during this time. If the employer ends the contract, the worker gets one unpaid leave day per week to search for a new job.

Termination Without Notice

In certain serious cases, termination without notice is legal and justified under Article 44. Employers can dismiss employees immediately in the following cases:

• If the worker used a false identity or fake documents to get the job.
• If the employee commits a mistake causing significant material loss or intentionally damages company property.
• If the employee fails to follow workplace safety rules after being warned.
• If the employee repeatedly fails to perform their job responsibilities despite receiving two written warnings.

Rules for the Probation Period

According to the UAE Labour Law, the probationary period cannot exceed six months from employment. During the probationary period, an employer may terminate the employment contract by giving the employee written notice at least 14 days before the termination date. In the event of termination during the probation period, the employer must cover all visa costs for the employee and is not allowed to claim these costs from the employee.

If the employee decides to leave during the probationary period, he must also give written notice at least 14 days before the termination date. However, if the employee is leaving to work for another company in the UAE, they must give the employer written notice at least 30 days before the termination date.