Gratuity in 2026: the 21-day and 30-day formula with five worked resignations

Key Takeaways

• The formula is: (Basic Salary ÷ 30) × 21 days for each of the first five years of service, and (Basic Salary ÷ 30) × 30 days for each year beyond that, summed together.
• Gratuity is calculated on basic salary only, excluding housing, transport, and any other allowances, and requires a minimum of one full year of continuous service to qualify at all.
• Total gratuity is capped at two years' basic salary, regardless of how long the employee has worked beyond that point.
• The employer must pay gratuity within 14 days of contract termination, which makes an accurate, ready-to-run calculation, not a scramble at exit, the operational requirement, not just a compliance one.

Gratuity in the UAE runs on a single formula with two rates, but the actual payout for any given employee depends entirely on how those two rates interact with their specific tenure, and that interaction isn't always intuitive from the formula alone. Five worked examples below, spanning a resignation just past the one-year minimum through a fifteen-year tenure, show what the formula actually produces at different points.

The formula itself

Gratuity = (Basic Salary ÷ 30) × 21 days × years of service, for each of the first five years, plus (Basic Salary ÷ 30) × 30 days × years of service for every year beyond five, with the two totals added together (UAE Labour Law, gratuity calculation guide 2026, retrieved 2026-09-08). Only basic salary counts, housing, transport, and other allowances are excluded from the base entirely, and a minimum of one full year of continuous service is required before any gratuity is payable at all.

The total is capped at two years' basic salary regardless of tenure length, so an employee with a very long tenure eventually stops accruing additional gratuity once the cap is reached, even though the 30-day rate keeps applying to the underlying formula in principle.

Five worked resignations

All five examples use a basic salary of AED 15,000/month to isolate the effect of tenure alone. Run your own team's actual basic salaries and tenures through the UAE gratuity calculator rather than scaling these examples, since gratuity doesn't scale linearly once an employee crosses the five-year threshold.

1. Two years of service. Below the five-year threshold, only the 21-day rate applies: (15,000 ÷ 30) × 21 × 2 = AED 21,000.

2. Exactly five years of service. Still entirely at the 21-day rate, since the 30-day rate only applies to years beyond five: (15,000 ÷ 30) × 21 × 5 = AED 52,500.

3. Seven years of service. The first five years accrue at 21 days, the remaining two at 30 days: [(15,000 ÷ 30) × 21 × 5] + [(15,000 ÷ 30) × 30 × 2] = 52,500 + 30,000 = AED 82,500. Note the jump: two additional years past the five-year mark add more gratuity (AED 30,000) than two years accrued entirely within the 21-day band would have (which would have been AED 21,000), because the higher rate applies to those specific years.

4. Ten years of service. [(15,000 ÷ 30) × 21 × 5] + [(15,000 ÷ 30) × 30 × 5] = 52,500 + 75,000 = AED 127,500.

5. Fifteen years of service, capped. Uncapped, the formula would produce [(15,000 ÷ 30) × 21 × 5] + [(15,000 ÷ 30) × 30 × 10] = 52,500 + 150,000 = AED 202,500. But the two-year basic salary cap is 15,000 × 24 = AED 360,000, which is higher than the uncapped result here, so at this specific salary level the cap doesn't actually bind at fifteen years, the full AED 202,500 is payable. The cap only becomes the binding constraint at either a much longer tenure or a combination of tenure and salary that pushes the uncapped formula past 24 months' basic pay.

Why the jump past year five surprises employers who haven't modelled it

The rate change at year five isn't a one-time bonus, it's a permanent shift in the marginal accrual rate for every subsequent year. An employer projecting gratuity liability for a workforce approaching the five-year mark who models it on a flat 21-day rate throughout will understate the liability the moment those employees cross into year six, sometimes significantly, depending on salary level and how many employees are clustered near that threshold. Modelling that liability across your whole team, not just one resignation at a time, is what WiserMonks' payroll feature is built to track automatically as tenures cross the five-year threshold.

Frequently asked questions

Does gratuity apply to an employee who resigns before completing one year?

No. A minimum of one full year of continuous service is required before any gratuity becomes payable, regardless of the reason for leaving.

Is gratuity calculated on gross salary or basic salary?

Basic salary only. Housing allowance, transport allowance, and any other benefits are excluded from the calculation entirely, so using gross salary will overstate the correct payout.

How quickly must an employer pay gratuity after termination?

Within 14 days of contract termination. This makes having an accurate, current gratuity calculation ready before an exit happens, not something worked out after the fact, an operational necessity rather than a nice-to-have.

The bottom line

The 21-day and 30-day rates aren't two separate calculations to choose between, they're two bands within a single formula, and the transition between them at year five is where most estimation errors happen. Five years and seven years look similar on a tenure chart; they aren't similar on a gratuity liability chart, and modelling that difference correctly matters for anyone projecting payroll liability across a growing team.

Figures and formula were verified on 8 September 2026 against published UAE gratuity calculation guidance, consistent with Federal Decree-Law No. 33 of 2021 and MOHRE guidance. Worked examples use an illustrative basic salary; confirm your own employees' exact basic salary and continuous service dates before calculating an actual payout.