The rule
Under Federal Decree-Law No. 33 of 2021, a full-time private-sector employee who completes at least one year of continuous service is owed end of service gratuity. It is based on the last basic wage, not the gross salary with allowances.
- 21 days of basic wage for each of the first five years
- 30 days of basic wage for each year after that
- Part years count pro rata
- The total cannot exceed two years’ wage
- Payable within 14 days of the contract ending
A worked example
An employee with a basic wage of AED 6,000 and seven years’ service: the daily basic wage is AED 6,000 ÷ 30 = AED 200. The first five years give 5 × 21 = 105 days, and the next two give 2 × 30 = 60 days. That is 165 days × AED 200 = AED 33,000.
What finance teams should do
- Accrue gratuity every month, not only when someone leaves
- Keep each employee’s joining date and basic wage history accurate
- Show the total as a liability in the balance sheet
- Include unused leave, air tickets and loans in the final settlement
The payroll systems we build work this out for every employee each month, show the total liability to the owners, and produce the final settlement statement when someone leaves. Saudi Arabia uses a different formula, which our systems also handle.