Understanding UAE Gratuity: How End-of-Service Pay Works & Recent Changes

SPEAKER_1 (0:00)

This is The Morning Drive, it is gratuities now, because if you work in the private sector in the UAE, one of your biggest assets may not be in your bank account, it will be, most likely, your gratuity, which is the lump sum that you get when you leave your job, assuming you are employed. Most people have no idea how much it's worth, how it's worked out, or that the rules in recent years have changed, there have been updates more recently. Employers can now swap the traditional payout for an invested savings fund. So is your gratuity better off invested?

And what should you ask before your company signs you up? James Thomas is here. He is an independent financial consultant based here in Dubai. Nice to see you.

James Thomas (0:44)

Good morning.

SPEAKER_1 (0:44)

Everything okay?

James Thomas (0:45)

Very well, thanks.

SPEAKER_1 (0:46)

Lots to talk about today, James, because there's a huge number of questions, so I'm going to jump straight in. So reality check to start with, when you meet clients, honest answer, how many actually know what their gratuity is?

James Thomas (0:58)

Very, very few. I mean, I think it's single digits.

SPEAKER_1 (1:00)

Really?

James Thomas (1:01)

Yeah, I mean, again, the introduction there, it's one of those things that, I won't say it's a black hole, but it's just one of those things. People don't really know what it is. It's something, it could be worth a lot, but they don't really know, and therefore, they don't, yeah. I know.

It's just, oh, I've got gratuity, and it's question mark, or dot, dot, dot. It's just something.

SPEAKER_1 (1:26)

See, I made a prediction in my head before you came in, I'm like, it'll be like one in ten. Yeah, at most. At most, really. So people aren't really aware. Okay, so let's go back to basics then. What is gratuity? Who gets it? Because it's a legal, it's been statuted, it's law. Well, it has.

James Thomas (1:43)

Well, who gets it? It should be, effectively, everyone.

SPEAKER_1 (1:47)

Anyone who is employed in theory.

James Thomas (1:49)

Anyone who is employed in theory, absolutely. Yes, your legal entitlement, and if you're not getting it, then, I mean, that's a whole different discussion, but there's certainly cases that can be raised to make sure you do get your entitlement. But effectively, it's a form of additional remuneration for your time working for a company.

SPEAKER_1 (2:10)

You have to have done a year of continuous service, I think. If that's private sector, right?

James Thomas (2:13)

So there are many caveats and rules and regulations which we're going to come on to. But effectively, it's a way to remunerate you to provide an additional benefit to you for your time served with that particular company.

SPEAKER_1 (2:29)

Okay. So how do you work it out? What's the formula? Plain English, please, because I need the simple stuff.

James Thomas (2:35)

Plain English. I mean, it's accumulation of time spent with a company. So it's 21 days for the first five years, and then 30 days every year thereafter, capped a maximum of two years of your salary. But the key word there is basic salary, not your total package.

SPEAKER_1 (2:56)

Yeah.

James Thomas (2:57)

And we'll come back to that, because that's a very key component to this.

SPEAKER_1 (3:01)

Yeah. We need to explore that, I think. Let's, it used to be, did it not, I've heard this a number of times, people used to lose part of their gratuity if they resigned rather than being let go. But I believe that has now changed.

James Thomas (3:18)

That's also my understanding. Yes, as you're quite right to say. Previously, there would be a reduction if you resigned, but that has now changed, that there's no penalty for resigning.

SPEAKER_1 (3:31)

Right. Okay. So let's go back to the basic salary. Then you mentioned that for a lot of people, that's not the same as what they're paid every month. In fact, for, I guess, most.

James Thomas (3:39)

For most. And indeed, most companies will, even if you're not aware of it, there will be a breakdown for housing allowance, for car, for flights. All of these things will be separated out, typically to bring your basic salary to around 60% of your total package.

SPEAKER_1 (4:02)

Okay. And gratuity is based on basic?

James Thomas (4:04)

And gratuity is based on your basic salary.

SPEAKER_1 (4:07)

Okay. And I mean, 60%, I guess, would be generous in some ways, because, you know, it generally tends to be between 40% to 60% from what I gather.

So what does that mean in real money, in real terms?