UAE Labour Law 2021 Sets End-of-Service Gratuity for LLCs

The updated UAE Labour Law (Federal Decree-Law No. 33 of 2021) directly determines how limited-liability companies calculate end-of-service gratuity, establishing specific formulas, accrual periods, and payment timelines that employers must apply to comply with statutory obligations and prevent disputes.

Related Services: Explore our Labour & Employment Law Advisory and Certified True Copy Services services for practical legal support in this area.

HOW DOES THE UPDATED GRATUITY CALCULATION WORK FOR LLC EMPLOYEES?

The law bases gratuity on the employee's last basic wage, granting 21 days' wage for each of the first five years of service and 30 days' wage for each subsequent year, with a maximum entitlement of two years' total wage【Federal Decree-Law No. 33 of 2021】. To compute the amount, first determine the basic salary (excluding allowances, housing, transport, etc.). Divide that figure by 30 to obtain the daily wage, then multiply:

• For years 1-5: 21 x daily wage x number of years (capped at five).
• For years 6 onward: 30 x daily wage x number of years beyond five.

Example: an employee with a basic wage of AED 12,000 and eight years of service earns (5 x 21 x 400) + (3 x 30 x 400) = AED 42,000 + AED 36,000 = AED 78,000. Unpaid leave periods are excluded from service unless wages were paid during that leave. Employers should update payroll software to apply the tiered formula automatically and retain individual wage and service-duration records for at least five years after termination to substantiate calculations if challenged.

WHAT NOTICE PERIOD OBLIGATIONS ARISE UNDER THE NEW LAW FOR TERMINATING LLC STAFF?

Notice periods are now tiered by length of continuous employment:

• Less than five years: 30 days.
• Five to ten years: 60 days.
• More than ten years: 90 days【Federal Decree-Law No. 33 of 2021】.

The notice must be in writing, state the exact termination date, and be delivered via a method that provides proof of receipt (registered courier, email with read receipt, or hand-delivery with signed acknowledgment). During the notice period the employee retains all contractual entitlements-salary, allowances, bonuses, and any accrued leave-unless both parties agree otherwise in writing. Failure to observe the statutory period obliges the employer to pay wages in lieu of notice for the full duration. Companies should amend employment contracts, issue updated HR manuals, and train line managers on proper notice delivery to mitigate wrongful-termination claims.

HOW DOES THE LAW TREAT GRATUITY FOR EMPLOYEES WHO RESIGN BEFORE COMPLETING ONE YEAR OF SERVICE?

If an employee resigns before completing twelve months of continuous service, no gratuity is payable【Federal Decree-Law No. 33 of 2021, Article 51(2)】. The rationale is that gratuity is a reward for sustained service, and the legislature set a minimum qualifying period. Employers must still settle any outstanding salary, accrued leave, and reimbursable expenses, but they may withhold gratuity entirely. Documentation of the resignation date and service length is essential to demonstrate compliance if the employee later contests the decision.

ARE PROBATIONARY EMPLOYEES SUBJECT TO DIFFERENT NOTICE REQUIREMENTS?

During the probation period-typically limited to six months-either party may terminate the contract with fourteen days' notice【Federal Decree-Law No. 33 of 2021, Article 12(1)】. This shorter notice reflects the mutual assessment phase. However, if the probation period is extended by mutual written agreement, the standard notice tiers apply once the probation ends. Employers should clearly define probation terms in the offer letter, monitor performance, and provide the fourteen-day notice in writing to avoid disputes over premature termination.

CAN GRATUITY BE OFFSET AGAINST AMOUNTS OWED BY THE EMPLOYEE?

Offsetting is permissible only for legally due sums, such as unpaid salary advances, loans, or reimbursable expenses, and must be substantiated with written agreements or loan documents【Federal Decree-Law No. 33 of 2021, Article 51(4)】. Arbitrary deductions-e.g., for alleged damages without a court order or mutual consent-are prohibited. Employers should maintain a separate ledger for any offsettable amounts, obtain the employee's written consent where required, and reflect the net gratuity amount on the final settlement statement.

WHAT DOCUMENTATION SUPPORTS A GRATUITY PAYMENT CLAIM?

To substantiate gratuity, employers must provide:

1. A service certificate confirming start and end dates and total continuous service.
2. Basic wage records (payroll slips, salary certificates) for the entire service period.
3. A calculation sheet showing the applied formula, daily wage derivation, and any applicable caps.

Employees should retain copies of their employment contract, monthly payslips, and any correspondence regarding leave or salary advances. In the event of a dispute, the Labour Court will examine these documents to verify compliance with Federal Decree-Law No. 33 of 2021.

HOW ARE GRATUITY OR NOTICE-PERIOD DISPUTES RESOLVED?

Parties are first encouraged to seek mediation through the Ministry of Human Resources and Emiratisation (MOHRE). If mediation fails, the claim proceeds to the Labour Court, where the judge applies the provisions of the UAE Labour Law 2021【Federal Decree-Law No. 33 of 2021】. The court may order payment of gratuity, wages in lieu of notice, compensation for unfair dismissal, and applicable legal fees. Employers who maintain accurate records and follow statutory procedures significantly reduce the risk of adverse judgments.

DO FREE-ZONE EMPLOYEES FALL UNDER THE SAME GRATUITY RULES?

Free-zone authorities may issue their own employment regulations. If a free zone has adopted the UAE Labour Law, the same gratuity and notice-period provisions apply【Federal Decree-Law No. 33 of 2021】. Otherwise, the free-zone's specific regime governs. Employers operating in multiple jurisdictions should verify which law applies to each employee's contract and adjust HR policies accordingly to avoid inadvertent non-compliance.

IS SEVERANCE PAY DISTINCT FROM GRATUITY UNDER THE UPDATED LAW?

Severance pay addresses redundancy or termination without cause and is negotiated separately, often based on company policy or collective agreements. Gratuity remains a statutory, service-based entitlement payable irrespective of the termination reason【Federal Decree-Law No. 33 of 2021】. Employers should not conflate the two; severance may be offered in addition to gratuity, but it does not replace the legal gratuity obligation.

WHAT PENALTIES ARISE FOR NON-COMPLIANCE WITH NOTICE-PERIOD RULES?

Employers who fail to provide the statutory notice period must pay the employee's full wages for the notice duration, as stipulated in Article 12(3) of Federal Decree-Law No. 33 of 2021【Federal Decree-Law No. 33 of 2021】. In addition, the Labour Court may award compensation for unfair dismissal and order the employer to cover the employee's legal costs. Timely adherence to notice requirements thus serves both as a legal safeguard and a cost-control measure.

FREQUENTLY ASKED QUESTIONS

How is end-of-service gratuity calculated for LLC employees under UAE Labour Law 2021?

Gratuity is based on the employee's last basic wage: 21 days' wage for each of the first five years of service and 30 days' wage for each year thereafter, capped at two years' total wage. Compute daily wage by dividing the basic salary by 30, then apply the tiered formula (21 x daily wage x years 1-5 plus 30 x daily wage x years beyond 5). Unpaid leave without pay does not count toward service.

What notice period must an LLC employer give when terminating an employee?

Notice periods are tiered by continuous employment: less than five years requires 30 days, five to ten years requires 60 days, and more than ten years requires 90 days. The notice must be in writing, state the exact termination date, and be delivered with proof of receipt (registered courier, email with read receipt, or hand-delivery with signed acknowledgment). During the notice period the employee retains all contractual entitlements unless otherwise agreed in writing.

Is gratuity payable if an employee resigns before completing one year of service?

No gratuity is payable when an employee resigns before completing twelve months of continuous service. The law treats gratuity as a reward for sustained service, setting a minimum qualifying period of one year. Employers must still settle outstanding salary, accrued leave, and reimbursable expenses, but may withhold gratuity entirely. Documentation of the resignation date and service length is essential to demonstrate compliance.

Can an employer offset gratuity against amounts owed by the employee?

Offsetting is allowed only for legally due sums such as unpaid salary advances, loans, or reimbursable expenses, and must be backed by written agreements or loan documents. Arbitrary deductions (e.g., for alleged damages without a court order or mutual consent) are prohibited. Employers should keep a separate ledger for offsettable amounts, obtain written consent where required, and show the net gratuity on the final settlement statement.

How are disputes over gratuity or notice periods resolved under the new law?

Parties are first encouraged to seek mediation through the Ministry of Human Resources and Emiratisation (MOHRE). If mediation fails, the claim proceeds to the Labour Court, where the judge applies the provisions of UAE Labour Law 2021. The court may order payment of gratuity, wages in lieu of notice, compensation for unfair dismissal, and applicable legal fees. Maintaining accurate records and following statutory procedures reduces the risk of adverse judgments.

If your matter involves labour law 2021 in the United Arab Emirates, you are welcome to request a consultation with Nour Attorneys. Our team can assess your position under the law currently in force and outline the options available to you. Request a consultation

This article is provided for general informational purposes only and does not constitute legal advice. Reading this article or contacting Nour Attorneys through this website does not create an attorney-client relationship; such a relationship arises only after a conflicts-of-interest check and a signed engagement agreement. Do not send confidential information through this website; information submitted before engagement is not protected by legal privilege. Past results do not guarantee future outcomes. The firm's lawyers practice in the jurisdictions stated in their individual profiles; this article addresses the law of the United Arab Emirates only.