Employers must understand the end of service benefits in the UAE to meet their legal responsibilities. EOSB is a trust-building tool between employers and employees. The UAE workforce becomes more competitive. Therefore, it requires employers to stay updated. They must be well aware of gratuity rules and payment timelines. A single misstep can lead to penalties. Leading to disputes or reputational damage.
The EOSB has been discussed in this detailed guide. We’ll talk about:
- What EOSB is
- Why is it important?
- Its legal framework
- Eligibility criteria
- EOSB calculation rules
And other essential information.
What are the UAE End of Service Benefits?
The lump-sum amount an employer pays to an employee at the end of their employment is called End-of-Service Benefits. The EOSB mainly includes gratuity. It is calculated based on the employee’s service length and last drawn basic salary.
Why EOSB is Important for Employers in 2026
If you want to stay compliant as an employer, EOSB plays a key role. Meeting the EOSB rules gives your workers satisfaction that they get the rights they deserve. Helping you to offer your employees smooth exits without any dispute or fines.
Further, those employers who do not make the timely payment will face reputational damage. However, timely and accurate EOSB payments help employers avoid legal claims. You can maintain your company’s goodwill among market. This step demonstrates your professionalism in an increasingly transparent labour market.
Legal Framework Governing EOSB
The Federal Decree-Law No. 33 of 2021 governs EOSB. The updates of the UAE labour law are effective through 2025. The law clearly outlines employer eligibility. It aids you in assessing whether you’re eligible to pay EOSB to your employees or not. The law mandates the calculation methods and payment timelines. Knowing about it helps you to stay updated. You can calculate the total end-of-service benefits that your workers deserve with timely payments.
Moreover, employer obligations are also defined as per the law. So that you are aware of your responsibilities that you must meet under the EOSB rules. The law applies to private-sector employees working under mainland and free zone entities. Unless specific free zone rules state otherwise.
What Counts as End-of-Service Benefits?
End-of-Service Benefits mainly include the gratuity. It is the amount that an employee earns after completing qualifying service in the UAE. EOSB also covers any unpaid salary. Plus, accrued leave encashment and pending allowances stated in the employment contract are also a part of it. Generally, EOSB applies when a job ends for any reason. It is either due to resignation, termination, or contract completion. As an employer, it is your duty to calculate it accurately. Calculation should be based on the UAE labour law guidelines. It is not according to your company’s preference.
Gratuity Explained
Gratuity forms the core of end of service gratuity UAE rules. Employers calculate it based on the employee’s basic salary and years of continuous service, provided the employee completes at least one year.
Salary Components Included in EOSB Calculation
Employers calculate gratuity using the last drawn basic salary only. This includes:
- Basic monthly salary
- Contractually fixed basic pay
Payments Excluded from Gratuity
Employers must exclude:
- Housing allowance
- Transport allowance
- Overtime pay
- Bonuses and commissions
- Benefits in kind
EOSB vs Other Employee Benefits
EOSB differs from other employee benefits. These benefits include leave encashment, airfare, or insurance payouts. While those benefits depend on company policy. Still, EOSB remains a statutory right under UAE labour law gratuity rules.
Employer Eligibility Criteria for EOSB
UAE employers must pay EOSB when their employee completes at least one year of continuous service. It is employers obligation to make payment when the worker’s employment ends. The reasons can be whether the employee designs, maybe they’re terminated, or it’s a case of their contract expiry. Plus, the employee can claim their EOSB right away when they do not fall under the excluded categories. This may include temporary contracts without eligibility. Clear employment contracts and accurate records help employers meet EOSB obligations without disputes.
EOSB Calculation Rules for Employers
Employers calculate EOSB as follows:
- First 5 years: 21 days of basic salary per year
- Beyond 5 years: 30 days of basic salary per year
The total gratuity must not exceed two years’ basic salary. Even for long-serving workers. Understanding how to calculate end-of-service benefits in the UAE accurately is mandatory for employers to stay updated. This aids employers in avoiding overpayment or underpayment issues.
EOSB Based on Employment Contracts
Under the UAE labour framework, EOSB applies to both limited and unlimited contracts. The end of service benefits calculation method remains the same. This is regardless of contract type. What matters most is your worker’s service length and last basic salary. As an employer, you make sure that your contracts align with labour law. So that you can prevent EOSB misinterpretation.
EOSB in Case of Resignation vs Termination
The eligibility for EOSB depends on the contract type and service length when an employee resigns. Workers completing one year or more of service under limited or unlimited contracts are entitled to gratuity. However, early resignation may reduce the payout. On the other hand, employers must pay full EOSB as per law in case of termination without misconduct. But those workers who are terminated for serious violations may lose their gratuity entitlement.
Resignation:
Employers must still pay full EOSB if the employee completes at least one year.
Termination:
Employers pay EOSB unless termination occurs due to legally defined misconduct.
Clear documentation protects employers during EOSB settlements.
EOSB Payment Timeline & Employer Obligations
It is the employer’s obligation to pay EOSB within fourteen days from the employee’s last working day. This is defined as per the UAE Labour Law. The EOSB payment should include full gratuity, unused leave salary, and any other final dues.
Employers should make the payment within the timeframe. In case of delays, it can lead to employee complaints and legal penalties. Employers must also provide a clear final settlement statement. This helps maintain transparency and compliance.
Taxation & Accounting Treatment of EOSB
In the UAE, end-of-service benefits are not subject to personal income tax. Because the country does not levy income tax on employees. Employers must record EOSB as a long-term employee liability in their financial statements. They should make provisions for the employee’s service period.
For instance, EOSB expenses are treated as allowable business costs for accounting purposes. Proper accrual and documentation are important in the process. It helps businesses stay compliant with the UAE labour law. This way, they can maintain financial reporting standards.
Common EOSB Mistakes Employers Make
Many mistakes are made by employers regarding end-of-service benefits. They often use total salary instead of basic salary. Sometimes, they miss the 14-day payment deadline. Ignoring updated labour law changes is another mistake that employers usually make. Further, poor documentation of service duration and misclassifying resignations and terminations are other mistakes that lead employers into trouble. As an employer, you should avoid these errors to protect yourself from disputes and fines.
Final Verdict
End-of-service benefits in the UAE reflect fairness. Employers must meet the EOSB rule to maintain compliance. It’s their professional responsibility towards their workers. Employers who understand gratuity rules can gain employee trust. Calculating EOSB accurately and paying on time gives them legal peace of mind. Staying updated isn’t only smart, but it’s essential. Want expert guidance on EOSB calculations or compliance? Hire the RAAD professional team today. We support and simplify the process for you.
FAQs:
What are End of Service Benefits in the UAE?
EOSB is a statutory payment employers make to employees at the end of employment. It mainly includes gratuity.
Which law governs End of Service Benefits in the UAE?
Federal Decree-Law No. 33 of 2021 governs EOSB. However, the updates are effective through 2025.
Who is eligible for EOSB under the UAE Labour Law?
Qualifying for EOSB requires employees to complete at least one year of continuous service.
How is end-of-service gratuity calculated in the UAE?
Employers calculate gratuity based on basic salary and years of service. 21 or 30 days per year.
Is there a maximum cap on gratuity payable by employers?
Definitely. The total gratuity cannot exceed two years’ basic salary.
