Is UAE Gratuity Calculated on Basic Salary or Gross Salary?
- Only your basic salary counts toward gratuity — allowances are excluded entirely.
- A big total package with a small basic can produce a surprisingly small gratuity.
- When negotiating a job offer, a higher basic salary directly increases your end-of-service payout.
Why this confuses everyone
Your offer letter probably shows one big number — say AED 12,000/month. But your MOHRE-registered contract splits it: perhaps AED 6,000 basic + AED 4,000 housing + AED 2,000 transport. Gratuity is built on the AED 6,000, not the 12,000. Two colleagues with identical AED 12,000 packages can have very different gratuities if their basic/allowance splits differ:
| Person A | Person B | |
|---|---|---|
| Total package | AED 12,000 | AED 12,000 |
| Basic salary | AED 6,000 | AED 9,000 |
| Gratuity, 5 years | AED 21,000 | AED 31,500 |
Where to find your basic salary
- Your MOHRE labour contract (not the offer letter) — the "basic salary" line
- Your payslip — usually the first line, before allowances
- Ask HR for the contract copy if you don't have one — you're entitled to it
What counts and what doesn't
Counts: the fixed basic wage in your contract. Excluded: housing allowance, transport allowance, telephone, cost-of-living allowance, bonuses, overtime, commissions, and benefits in kind.
One nuance: the two-year cap is expressed against total wages — but the calculation itself always starts from basic.
Negotiating your salary split: worked examples
Suppose you're offered AED 15,000 a month and the employer proposes one of three basic/allowance splits. Your monthly take-home is identical in all three — but your gratuity is not:
| Split | Basic | Allowances | Gratuity after 5 years | Gratuity after 8 years |
|---|---|---|---|---|
| A — low basic | AED 7,500 | AED 7,500 | AED 26,250 | AED 48,750 |
| B — mid basic | AED 10,500 | AED 4,500 | AED 36,750 | AED 68,250 |
| C — high basic | AED 13,000 | AED 2,000 | AED 45,500 | AED 84,500 |
The math behind the table: gratuity accrues at 21 days of basic per year for the first five years (30 days per year after), with each day worth basic ÷ 30. So every AED 1,000 shifted from allowances into basic adds roughly AED 700 of gratuity per year at the 21-day rate — about AED 10,500 over a five-year stay for a AED 3,000 shift, as the jump from split A to split B shows.
Practical takeaway: negotiate the basic, not just the package. Ask the employer to state the basic separately in the offer letter, and confirm it matches the figure on your registered MOHRE contract before you sign — the contract figure is the one that counts.
What happens to gratuity when your basic changes mid-employment
Gratuity is calculated on the basic salary in effect when your employment ends, not on an average of what you earned along the way. A raise late in your tenure therefore lifts your entire payout:
Two consequences worth knowing. First, salary negotiations before a contract renewal carry extra weight, because the new basic reprices your whole accrued gratuity. Second, when comparing offers, a slightly lower package with a higher basic can beat a higher package with a low basic over a multi-year stay. And since resigning no longer reduces gratuity, the exit route doesn't change any of this math.
Five-minute contract audit
Don't wait until your last week to discover your basic is lower than you thought. Run this check once a year:
- Pull your MOHRE contract — the basic-salary line is what counts, not the headline figure on your offer letter
- Compare it with your payslip — the basic line should match; if the basic quietly shrank while allowances grew, your gratuity is shrinking with it
- Compute basic as a percentage of the package — anything under 50% is worth raising at your next appraisal
- Keep copies of every renewal — renewals refresh the fixed-term paperwork, and you want a paper trail of your basic at each stage
- Run the numbers in our final settlement calculator using basic only — if the result surprises you, the split is the reason