Gratuity on partial years and unpaid leave: the pro-rata rules

Key Takeaways

• Once an employee has completed at least one year of continuous service, gratuity for any additional partial year is pro-rated, applying the same 21-day or 30-day rate to the actual fraction of the year worked, not rounded down to the last full year.
• Unpaid leave is excluded from the continuous service period entirely: if an employee takes 60 days of unpaid leave during a three-year tenure, those 60 days are subtracted from the service period the gratuity calculation runs against.
• Paid leave, annual leave, sick leave, maternity leave, and public holidays, all count toward the service period normally; only unpaid leave creates the exclusion.
• The distinction matters most for employees who've taken extended unpaid leave close to a rate-threshold year (year five, where the 21-day rate becomes 30-day), since losing days there can push a resignation date to just before the threshold instead of just after it.

An employee who resigns four years and seven months into their tenure doesn't get gratuity for four completed years and nothing for the remainder. Once the one-year minimum is cleared, every additional partial year is pro-rated to the day. The part of this calculation that actually catches employers out isn't the pro-ration itself, it's what counts as "service" in the first place once unpaid leave has been taken.

Partial years: pro-rated, not rounded

Once a worker has completed at least one year of continuous service, gratuity is calculated proportionately for any partial year beyond that, applying the same 21-day (within the first five years) or 30-day (beyond five years) rate to the relevant fraction of the year (Yomly, calculating gratuity in the UAE, retrieved 2026-09-08). A resignation at 4 years and 7 months is treated as 4.583 years of service, not rounded down to 4 or up to 5, and the applicable rate for the partial-year fraction depends on which side of the five-year threshold it falls on.

Run the exact tenure, including the partial-year fraction, through the UAE gratuity calculator rather than approximating to the nearest full year, since rounding in either direction produces a materially wrong number once the partial-year period spans several months.

Unpaid leave: excluded from the service period itself

This is the mechanism that actually complicates the calculation. Periods of unpaid leave are excluded from the continuous service period used to compute gratuity (Middle East Briefing, UAE end-of-service gratuity, retrieved 2026-09-08). If an employee takes 60 days of unpaid leave at some point during a three-year tenure, those 60 days are subtracted from the total service period used in the gratuity calculation, both reducing the effective tenure and shifting the exact fraction used for any partial-year proration at the end.

Paid leave works differently, and the distinction is the one employers most often get wrong: annual leave, sick leave, maternity leave, and public holidays all count toward the service period normally, exactly as if the employee had been actively working (Middle East Briefing, retrieved 2026-09-08). Only unpaid leave creates the exclusion. A payroll process that treats all leave categories identically, or that only tracks total leave days without distinguishing paid from unpaid, will produce a gratuity figure that's systematically wrong for any employee who has taken unpaid leave at any point.

Where this actually bites: near a rate threshold

The unpaid-leave exclusion matters most, in practical terms, for an employee whose tenure sits close to the five-year threshold where the accrual rate jumps from 21 days to 30 days per year. An employee who has nominally worked five years and one month, but took 45 days of unpaid leave somewhere in that period, may have their effective service period fall back under five years once those days are excluded, meaning the entire final year accrues at the lower 21-day rate rather than the higher 30-day rate. The difference isn't trivial: at a basic salary of AED 15,000, that's the gap between (15,000÷30)×21 = AED 10,500 for that year versus (15,000÷30)×30 = AED 15,000, a difference of AED 4,500 driven entirely by whether unpaid leave pushed the effective service date to the wrong side of the threshold.

What this means for payroll record-keeping

Getting the pro-rata calculation right depends entirely on having an accurate record of unpaid leave days taken across the full tenure, not just the current year. A payroll system that resets or archives leave records annually, without maintaining a running total of unpaid leave days across an employee's entire service, will struggle to produce a defensible final gratuity figure at resignation, particularly for longer-tenured employees where the cumulative unpaid-leave total across several years can be substantial. Keeping that running unpaid-leave total accurate year over year, rather than reconstructing it at resignation, is exactly what WiserMonks' payroll feature is designed to maintain automatically.

Frequently asked questions

Is a resignation at 3 years and 4 months paid gratuity for 3 or 4 years?

Neither, exactly. It's pro-rated to 3.33 years (assuming no unpaid leave adjustments), applying the applicable rate to that precise fraction, not rounded to either full year.

Does sick leave reduce the gratuity calculation the way unpaid leave does?

No. Sick leave, annual leave, maternity leave, and public holidays all count toward continuous service normally. Only unpaid leave is excluded from the service period used in the calculation.

Can unpaid leave push an employee's gratuity into a lower accrual rate band?

Yes, indirectly. If unpaid leave reduces the effective service period below a rate threshold (most significantly the five-year mark where the rate rises from 21 to 30 days), the portion of tenure that would otherwise have qualified for the higher rate may not, depending on exactly how the exclusion shifts the effective dates.

The bottom line

Partial-year pro-ration is the straightforward half of this calculation; tracking unpaid leave accurately enough to know the true effective service period is the half that actually requires disciplined record-keeping. Get the leave categorisation wrong, treating unpaid leave as service time, or vice versa, and the gratuity figure at exit will be wrong regardless of how carefully the pro-rata formula itself is applied.

Figures were verified on 8 September 2026 against published UAE gratuity and labour law guidance, consistent with Federal Decree-Law No. 33 of 2021. Confirm the exact treatment of leave categories and pro-rata calculation against current MOHRE guidance for any specific resignation before finalising a payout.