Know The End of Service Benefits in The UAE – EOSB

End-of-service benefits (EOSB) refer to a specific set of benefits related to employment termination in the UAE. Also known as gratuities, ESBs, or termination indemnities to employees, it is given to an employee in the UAE after the termination of employment. A company or employer extends this benefit as a token of appreciation to an employee for his dedication and hard work.  

Let us know more about the end-of-service benefits in UAE.  

What Are End-of-Service Benefits in the UAE?

The end-of-service benefits are monetary benefits that an employee is entitled to receive from the employer after the employment contract is terminated. As per the Labour Law in the UAE, once an employment contract terminates, an employer must pay EOSB if the employee is eligible for it.

A private-sector employee working in any part of the UAE is eligible for certain gratuity benefits based on a set of provisions. The major conditions include payments due for overtime work, any unpaid wages, encashment of leaves that were not utilised, and gratuity. Another major requirement is related to any repatriation expense that has been specified in the employment contract or the UAE Labour Law.

Recent Changes Introduced to End of Service Benefits (EOSB) in Dubai

Dubai introduced certain changes to end-of-service benefits. These changes have been introduced to safeguard the interests of both the employees and the employers. At the same time, they aim to reinforce retirement planning for expatriate employees so that they are at par with the practices followed internationally. 

End-of-service gratuity (ESG) is extended to those expatriate employees who have provided at least one year of constant service before the termination of their employment contract. It is a lump sum payment calculated based on the final basic salary of the employee. The calculation also takes into account the length of service of the employee. Employees are entitled to ESG benefits that do not exceed two years of total salary. 

Under the previous labour law in the UAE, employers had the choice of extending pension benefits to foreign employees instead of ESG, given that they meet certain conditions. The recent changes implemented through the new law have done away with this practice. There is no scope to avoid ESG by replacing it with other benefits or schemes. However, if a pension arrangement was made before the introduction of this new rule, it will continue to hold. 

EOSB for Employees Under Full-Time Contracts

An employee under a contract in UAE works full-time for a particular employer. The normal working hours for such an employee in the private sector is 8 hours per day. The EOSB for employees under full-time contracts can vary based on whether the employee is a UAE national or a foreigner.

• EOSB for UAE Nationals

For UAE nationals employed in the private sector under full-time contracts, the end-of-service benefits will be extended per the regulations of the pensions and social securities in the Emirates.    

• EOSB for Foreign Nationals

For foreign nationals employed in the private sector, the end-of-service benefits in UAE will be discussed here. An employee will be entitled to a gratuity for the period served in a year, provided he has completed one year of service. The ESG will be calculated per the employee’s last basic salary. This means allowances such as conveyance, housing, utilities, etc., won’t be considered. If the employee owes any amount to the employer, the amount may be deducted from the gratuity amount. The labour law in UAE says that all ESG entitlements are to be cleared within 2 weeks from the termination of the contract’s date.

EOSB for Employees Under Other Types of Employment

The end-of-service benefits will be calculated as discussed here for workers employed under part-time contracts or any other work arrangement. The number of working hours per year as specified in the work contract is divided by the number of working hours per year in the full-time work contract multiplied by 100, equal to the per cent related to which the EOSB must be calculated. Next, this per cent will be multiplied by the EOSB value due for the full-time work contract. The EOSB will not be applicable for temporary employment if the period is below one year.

Additional Benefits Extended to Employees for Unfair Dismissals

Under labour law in UAE, an employee can claim additional end-of-service benefits if dismissed unfairly. This rule protects the employees against unfair dismissals. If any employee is dismissed on unfair grounds, he can follow the legal route for redressal.

The additional benefits extended to employees for unfair dismissals are as follows:

• • Eligible employees facing unfair dismissals can be offered compensation of up to 3 months’ salary. But they have to meet the required criteria.
  • If it is a case of limited contracts, the amount to be compensated must not be more than the total salary of three months or the amount to be paid for the remaining contract period, whichever is shorter. This is the standard norm unless stated otherwise in the work contract.

Calculation of Gratuity in The UAE

The most important aspect to consider when calculating end-of-service benefits in UAE is the gratuity payment. It is a monetary compensation that an employer extends to an employee after the termination of the work contract.

Earlier, the gratuity calculation was done depending on the type of contract. But after the recent changes introduced in the UAE labour law, all work contracts are now changed into limited contracts. The validity is for up to three years.

Once a limited contract is terminated, workers are entitled to gratuity payment. The calculation for this is carried out as such:

• • If the service period of an employee is less than one year, he won’t be able to claim any gratuity pay.
  • If the service period of an employee is between one and five years, his full gratuity calculation will be based on the salary of 21 days for every year of service.
  • If the service period of an employee is beyond five years, his full gratuity calculation will be based on the salary of 30 days for every year of service after the initial five years.

Points To Note

• • For an employee to become eligible in UAE for gratuity payment, he has to complete a service period of 12 consecutive months for the employer.
  • When the service period is calculated, absence from work without pay is not considered.
  • The final gratuity payment won’t exceed the amount equal to two years of the employee’s salary.
  • If any employee has his unlimited contract ended before changing to a limited one, his gratuity payment will be calculated per the old law.

When an Ex-employer Doesn’t Agree to Pay End of Service Benefits in the UAE

The UAE gratuity law states that an employee should receive an immediate payment of their EOSB when terminated. This rule holds even for those employees whose work contracts are ended for gross misconduct.

The changes introduced to the gratuity rules as per the new labour laws further strengthen this right.

As per the new law:

• • An employee is to receive all EOSB within 14 days of the termination of employment.
  • An employee can’t be terminated without paying EOSB.
  • If employment is ended due to an employee’s death, the end-of-service benefits should be paid to the family of the deceased. This is done after deducting the costs for body repatriation (if any).
  • An employer should not reduce the gratuity payment based on the date of resignation or type of employment contract unless permitted by law.

Disputes arise when an ex-employer doesn’t agree to pay the due EOSB. In such a case, the employee must immediately register a complaint at the Labour Office. The next step is to approach the Labour Court. If faced with such a situation, an employee must consult an advocate and seek legal advice.

To Wrap

UAE labour laws state that no employee can be terminated without paying end-of-service benefits. Also, an employer has no right to delay the payment of EOSB dues. The regulations governing the end-of-service benefits in UAE have been designed to help employees get their due immediately once the employment contract is terminated. If an employer doesn’t follow such regulations, an employee has the right to take legal action against the employer. They can seek redressal by pursuing legal proceedings in the Labour Court.

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