How the New Gratuity Law in the UAE Affects Employers and Employees

The new gratuity rule in UAE, introduced through Federal Decree Law No. 33 of 2021 (New Law), came into force in February 2022 and repealed Federal Law No. 8/1980 (Old Law). The New Law introduced significant changes regarding end-of-service benefits for employees.

This article will explore how these new changes can impact employers and employees. 

What is the New Gratuity Law in UAE 2022?

The new gratuity rule seeks to strengthen financial security for employees and create a fair and progressive UAE labour market. The changes indicate a move towards more equitable labour practices, in line with international standards and in response to the changing labour market.

Key Changes in the Gratuity Law as Compared to the Old One Regulations

Under the Old Law

(i) If an employee under an unlimited contract resigned after a continuous service of not less than one year and not more than three years, he was entitled to only one-third of the gratuity amount.

(ii) If the period of the employee’s continued service were more than 3 years and less than 5 years, the employee would become entitled to two-thirds of the gratuity amount. 

(iii) In the case of a limited contract, if the employee resigned before the expiry of the term, he would receive no gratuity. Furthermore, there was no gratuity payable in case of summary termination (termination without notice) under the Old Law.

Under the New Law

Under the New Law, gratuity is not forfeited or reduced. An employee who has completed a year or more of continuous service is entitled to the full amount of gratuity regardless of whether the employee leaves the job of his own volition or is terminated by the employer (irrespective of the reason).

Understanding Gratuity in UAE

Gratuity is a financial safety net for employees upon their departure from an organization. It is a one-time payment that can assist employees during transitional periods and contribute to a more stable financial situation after they leave their jobs.

Gratuity Calculation Method

End-of-service benefits for Emiratis working in the private sector are determined in accordance with the legislation regulating pensions and social securities in the UAE. 

Under the New Law, a foreign worker who has spent one year or more in continuous service is entitled to an end-of-service gratuity upon termination of his service. A worker is also entitled to a gratuity for the fraction of a year served, provided that he/she completes one year of continuous service.

Gratuity is calculated on the basis of basic salary as follows:

– If a worker has served for less than 1 year, he is not entitled to any gratuity pay.

– If a worker has served for more than 1 year but less than 5 years, he is entitled to full gratuity pay based on 21 days’ basic salary for each year of work.

– If a worker has served more than 5 years, he is entitled to a full gratuity of 30 days’ salary for each year of work following the first five years.

Key Provisions of the New Gratuity Law in UAE 2022

Under the New Law, all employment contracts are now categorized as fixed-term contracts, streamlining the calculation process compared to the previous system, which included both limited and unlimited contract types.

Impact on Employers: Adapting to the New Gratuity Law in UAE 2022

Employee Rights and Benefits

The New Law is intended to achieve the following:

1. Ensuring the efficiency of the UAE labour market by supporting the attraction and retention of future skills and talents and providing an attractive business environment for employers, with the aim of enabling both parties to contribute to the achievement of the UAE’s national development goals;
2. Regulating employment relationships and defining the rights and obligations of the parties to this legal relationship in a balanced manner;
3. Enhancing the flexibility and sustainability of the UAE labour market through ensuring the protection of the parties to the employment relationship, its developments, and the exceptional circumstances that they may face and would thereby affect such relationship;
4. Improving and developing the capabilities and skills of workers in the private sector in a manner that enhances the efficiency and productivity of the workforce in the UAE labour market;
5. Providing protection to both parties to the employment relationship and enabling them to obtain their rights within the framework hereof.

Protection Against Unjust Dismissal

If an employee believes that he has been dismissed illegally, he can complain to MoHRE of Human Resources and Emiratisation. The ministry will try to solve the issue amicably. If an amicable settlement is not reached, the case will be referred to the respective court.

If arbitrary dismissal is proven, the court will order the employer to pay compensation to the employee. The court will assess the value of compensation, considering the type of work, the extent of damage caused to the employee, and the duration of his employment. 

In all cases, the amount of compensation must not exceed the wage of the employee for a period of three months, calculated based on the last wage he was entitled to. In addition to compensation, the employee can claim his gratuity, notice period dues, or any other unpaid dues he is entitled to from his employer.

Documentation and Record-Keeping

Maintaining records is crucial for both employers and employees. It helps adhere to legal requirements and prevent potential disputes. Comprehensive documentation can serve as evidence in the event of a dispute. 

Dispute Resolution Mechanisms

In case of any dispute (including gratuity), the parties can file a labour complaint with MoHRE. After receiving the complaint, MoHRE reviews it and takes the necessary steps to facilitate an amicable resolution. 

MoHRE is empowered to render a final decision in case of employment disputes valued at less than AED 50,000 and also in case of non-compliance with the terms of an amicable settlement approved by MOHRE (regardless of the value of the claim). The decision issued by MoHRE is considered a writ of execution, enabling the winning party to directly file a civil execution case against the losing party.

Conclusion

The new gratuity rule has significantly enhanced the financial security of employees. By understanding their rights and the calculation methods, employees can ensure they receive the full benefits they are entitled to upon termination of their employment.