With the new labour law coming into effect on February 2, the old gratuity calculation scheme shall apply to private sector employees under unlimited contracts until their contracts are renewed to limited within the coming year, legal experts have said.

Article 68 of the new labour law stipulates that the law enforcement grants employers one year to change employment contracts from unlimited to limited.

Until then, employees under unlimited contracts will have their end of service gratuity calculated per the scheme mentioned in the old Labour Law No. 8 of 1980. The provisions of the new labour law shall apply to their renewed limited contracts moving forward.

Mohamed Gamal Tawfik, legal adviser at Kaden Boriss Legal Consulting, said the end of service gratuity for full-time employees in the private sector has not changed under the new labour law, except for those under unlimited contracts.

Similar to the old law, Article 51 of the new labour law stipulates that an employee who has completed one year or more of continuous service is entitled to end of service gratuity of 21 calendar days’ basic pay for each year of the first five years of service; and 30 calendar days’ basic pay for each subsequent year of service, provided that the entire total remuneration does not exceed two years pay.

For employees under unlimited contracts, Article 137 of the old labour law says that those who choose to resign before the end of the contract will be entitled to a 2/3 reduction of gratuity if the period of their service is between one to three years; 1/3 reduction if the period of service is between three to five years; and no reduction if the period of service exceeds five years.

“The new labour law shall apply to all existing labour contracts entered into under the existing law. Therefore, the employer can calculate the gratuity in accordance with the old law, and subsequently following the new provisions,” said Tawfik.

Abdulla Ziad Galadari, senior partner at Galadari Advocates and Legal Consultants, noted that employees whose contracts are due for renewal after February 2 will have their contracts renewed to limited in accordance with the new law.

The removal of unlimited contracts from the UAE's workplace is aimed at simplifying and unifying end of service benefits and other entitlements irrespective of the type of employment contract and whether employees left an employer upon resignation or termination.

Under the new labour law, contracts are to be renewed for a maximum of three years.

Gratuity for foreign employees in federal government

The new unified work regulations published under Federal Decree-Law No. 47 of 2021 aligned the end of service benefits of full-time foreign employees working in the federal government to that of the private sector starting from February 2.

Tawfik stressed that old provisions of the Human Resources Law in Federal Government will apply to contracts issued before February 2, 2022.

"Employers have been given a year to amend contracts as per the new unified regulations. Until the contacts are amended, employers can follow the old scheme for calculating end of service benefits for foreign employees in the federal government."

Tawfik added: "Contracts renewed or issued after February 2 will automatically follow the new work regulations moving forward."

This means that foreign employees in the federal government resigning before their contracts are renewed or amended will be entitled to end of service benefits stated as per the old law in which they are entitled to a one-month basic salary per year for the first five years of service; one-and-a-half-month basic salary per year for the second five years of service; and two-month basic salary per year for any year afterwards, calculated on the basis of the last five-year average.

Galadari stressed that these provisions are applicable only to foreign workers, as national workers are regulated through legislation regulating pensions and social security in the UAE.


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