Dubai free zone gratuity calculation follows UAE Labour Law, with specific provisions varying in certain jurisdictions such as the Dubai International Financial Centre (DIFC).
This article provides a detailed overview of gratuity calculation in Dubai free zones as per the latest 2025 regulations.
It covers eligibility criteria, standard gratuity formulas, and special gratuity structures, such as DIFC’s Employee
Workplace Savings (DEWS) scheme and the newly introduced optional federal end-of-service savings plan.
Additionally, we outline how legal services can assist employers and employees in ensuring compliance and avoiding disputes.
Contact our expert labor law firm in UAE. Click the WhatsApp icon below.
Table of Contents
Dubai Free Zone Gratuity Calculation Overview
Employees must complete at least one year of continuous service to qualify for gratuity.
Gratuity is calculated based on the last basic salary drawn, excluding allowances such as housing, transportation, and bonuses.
If an employee owes any outstanding financial obligations, the employer can deduct these amounts from the gratuity payment.
Employers must legally pay all gratuity and end-of-service benefits within 14 days of the employee’s final working day to avoid penalties.
Gratuity calculations in Dubai free zones are primarily governed by UAE Labour Law, ensuring that employees receive end-of-service benefits based on their tenure and last drawn basic salary.
However, certain jurisdictions, such as DIFC, have their own contribution-based systems that differ from the standard gratuity structure.
Below is a breakdown of how gratuity is typically calculated in most Dubai free zones except DIFC:
- For employees with 1 to 5 years of service: Gratuity is calculated as 21 days’ basic salary per completed year.
- For employees with more than 5 years of service: Each additional year earns 30 days’ basic salary per year.
- Maximum Limit: The total gratuity amount cannot exceed two years’ worth of basic salary.
- Pro-Rata for Partial Years: If an employee has completed more than a full year, gratuity for the additional months is calculated proportionally.
- Exclusion of Unpaid Leave: Periods of unpaid leave are not counted in the length of service for gratuity calculations.
Example of Gratuity Calculation in Dubai Free zones
Let’s consider an employee working in a Dubai free zone (excluding DIFC) with a basic salary of AED 12,500 who has served for 6 years and 8 months.
- For the first 5 years:
5 × 21 days = 105 days’ salary. - For the additional 1 year and 8 months:
1 × 30 days = 30 days’ salary for the 6th year.
8 months prorated = (8/12) × 30 days = 20 days’ salary. - Total gratuity entitlement:
105 + 30 + 20 = 155 days of salary. - Daily rate calculation:
AED 12,500 ÷ 30 = AED 416.67 per day. - Total gratuity payout:
155 × 416.67 = AED 64,583.33.
Since the gratuity payout must not exceed two years’ worth of basic salary, if the calculation exceeds that limit, the gratuity will be capped accordingly.
This example illustrates the importance of accurate service period calculations and salary components to ensure correct gratuity payments.
Employers should carefully perform these computations or seek legal assistance to ensure compliance with UAE labor laws.
DIFC’s Gratuity System
Unlike most Dubai free zones, the DIFC follows a contribution-based system instead of traditional gratuity calculations.
Since January 2020, DIFC introduced the DIFC Employee Workplace Savings (DEWS) scheme, where employers contribute to a regulated savings fund.
Mandatory Monthly Contributions: 5.83% of basic salary for the first five years of service and 8.33% of basic salary for service beyond five years.
This replaces the standard gratuity system for all employees working in DIFC.
Any gratuity accrued before January 31, 2020, remains payable or can be transferred to the DEWS plan.
UAE’s Optional Federal End-of-Service Savings Scheme
In 2023, the UAE government introduced an optional savings-based gratuity alternative for private sector and free zone employees.
- Employer Participation is Voluntary: Employers may contribute monthly to a managed fund rather than paying a lump sum at the end of employment.
- Funds are Professionally Managed: Contributions are invested and regulated by the UAE Securities and Commodities Authority and MoHRE.
- Flexible Payouts: If an employer enrolls, the employee receives their savings plus investment returns instead of a traditional gratuity payout.
This initiative aims to safeguard gratuity funds and encourage financial growth for employees.
Learn more about the calculation of gratuity in UAE free zones.
Legal Support for Dubai Free Zone Gratuity Compliance
Our labor lawyer in Dubai specializes in legal services for Dubai free zone gratuity calculation and dispute resolution for employees and employers.
We provide expert guidance to ensure compliance with the UAE Labour Law, particularly end-of-service benefits.
Dispute Resolution for Gratuity
If an employee believes their gratuity has been miscalculated or withheld, our legal team is equipped to handle such disputes.
We represent employees seeking to recover their rightful gratuity payments through negotiations or legal action. We aim to ensure that employees are compensated fairly and according to the law.
Assistance with Gratuity Calculation
Our law firm offers detailed assistance in Dubai free zone gratuity calculation, particularly for complex cases such as employees working under part-time contracts, non-standard employment arrangements, or those participating in the Savings Scheme.
We ensure that the correct method is applied to each unique situation, preventing any discrepancies in the calculation.
Legal Representation for Gratuity Disputes
Our firm offers full legal representation in cases where an employee’s gratuity is disputed. We handle negotiations, settlements, and litigation to resolve unpaid or wrongly calculated gratuity issues.
Whether an employee faces wrongful deductions or non-payment of gratuity, we are ready to take legal action to enforce their rights.
Employer Compliance with Gratuity Laws
Our law firm provides guidance on ensuring full compliance with gratuity-related regulations for employers in Dubai’s free zones. We also assist businesses in establishing clear and legally sound policies for calculating and paying gratuities.
We also offer legal advice on properly implementing the Savings Scheme and managing employee entitlements in line with the law.
Contract Review and Gratuity Advice
We assist employers and employees by reviewing employment contracts to ensure they accurately reflect gratuity entitlements and comply with UAE Labour Law.
Our legal team helps clarify contract gratuity provisions and advises on any necessary changes to ensure compliance. We also assist businesses in drafting contracts that protect both parties and prevent gratuity-related disputes.
Savings Scheme Guidance
We provide expert guidance to employees and employers involved in the Savings Scheme to ensure that gratuity contributions are handled correctly.
Our law firm explains the scheme’s details, how contributions are calculated, and how to withdraw or transfer gratuity benefits when employment ends.
If you need legal assistance regarding gratuity calculation in Dubai’s free zones, our law firm is here to help. We offer consultations and legal support to ensure that employees and employers comply with the current regulations and that gratuity payments are well managed.
FAQs about Calculating Gratuity in Dubai Free Zones
Conclusion.
Dubai free zone gratuity calculation primarily follows UAE Labour Law, except for specialized jurisdictions like DIFC, which operate under a contribution-based model.
Employers must accurately calculate gratuity, considering factors such as length of service, salary components, and payment deadlines.
The optional federal end-of-service savings plan offers an alternative approach to managing gratuity benefits.
Employers and employees should stay informed about these evolving regulations and seek legal guidance to ensure full compliance and financial security.
Consulting experienced labor law professionals is strongly recommended for tailored legal assistance with gratuity calculations, disputes, and compliance in Dubai free zones.
Contact our labor law firm in UAE for expert help. Click the Whatsapp icon below.
A legal consultant specializing in UAE labor law. He regularly publishes articles on the website and writes on various areas of UAE law, with a specific focus on labor law.
