End-of-service gratuity and final settlement for UAE contractors

Why settlements are a monthly job for contractors

A contractor with a few hundred workers sees people leave every month: projects finish, visas end, workers resign or move to another employer. Each exit needs a final settlement worked out from the worker's whole service history, paid inside a fixed deadline and posted to the accounts. A wrong figure repeated across a workforce becomes a real liability, and a late one becomes a labour complaint.

This guide sets out what the settlement contains, the article of Federal Decree-Law No. 33 of 2021 behind each part, and how the gratuity figure is reached. It complements the wider UAE labour law guide for contractors and the construction payroll and WPS guide.

What a final settlement contains

Article 53 requires the employer to pay the worker's wages and all other entitlements within 14 days of the end of the contract, whether the worker resigned or was dismissed. In practice the settlement is built from five parts, and every part is priced on a record the employer should already hold.

Working out gratuity

Gratuity belongs to a full-time foreign worker who completes at least one year of continuous service. It is calculated on the last basic salary, not the full package, so housing, transport and other allowances are left out. The daily wage is usually taken as the monthly basic divided by 30, which is what the gratuity calculator on this site uses.

Take an electrician on AED 4,500 basic who leaves after six years and three months. The daily wage is AED 150. The first five years earn 5 x 21 = 105 days and the remaining 1.25 years earn 1.25 x 30 = 37.5 days, 142.5 days in all, or AED 21,375. The two-year cap is 24 x 4,500 = AED 108,000, so it does not bite. The cap is reached only after long service.

Since the 2021 law took effect, resigning no longer reduces gratuity: the same formula applies whichever party ends the contract. A worker with less than one year of service receives none. Emirati workers receive end-of-service benefits under the pensions and social security legislation instead, and part-time workers are paid in proportion to the hours they work.

Unpaid leave shortens the service

Article 33 says approved unpaid leave is not part of the service term, and Article 51 says unpaid days of absence are not counted when gratuity is calculated. The deduction is in days, so it can move a worker below the five-year point, where the rate changes, or below the one-year minimum.

A worker who served exactly five years but took 60 approved unpaid days has just under five years of service, so every year is counted at 21 days. Proving this needs a dated record of every unpaid day across the whole employment. A leave balance that was overwritten each year cannot show when unpaid leave was taken.

Notice, unused leave and the last salary

The contract sets the notice period between 30 and 90 days under Article 43, and the worker is paid in full while serving it. A party that gives no notice owes the other the wage for the period, or for the days of it not worked. Unused annual leave is paid out on the basic wage under Article 29, and the annual leave calculator shows the balance and its value. The last salary covers the days worked in the final month.

What can be taken off

Article 29 of Cabinet Resolution No. 1 of 2022 lists what may be deducted from gratuity: loan repayments and overpayments, pension and insurance contributions, fines under an approved penalty regulation, debts ordered by a court, and damage caused by the worker's fault. Fines and damage need the legal procedure to have been followed and, unless agreed otherwise, no more than three months to have passed since the amount fell due. Recruitment costs can never be charged to the worker.

Paying inside 14 days and keeping the provision honest

The 14-day clock in Article 53 starts when the contract ends, not when the paperwork is finished. Contractors that wait for a site to confirm last attendance, or for finance to rebuild a service history, are the ones that pay late. The answer on when a final settlement must be paid covers the deadline in more detail.

Gratuity is a liability that builds every month, so the accounts should carry an end-of-service provision that tracks it. A provision accrued at the 21-day rate falls short for workers past five years, and one that was never accrued for some months falls short for everyone. Comparing the statutory liability with the provision, worker by worker, shows the gap before a resignation exposes it.

How SupaJack Construct settles an exit

SupaJack Construct calculates gratuity on the last basic salary under Article 51, subtracting approved leave of any type marked unpaid from the service period and counting a half day as 0.5. It adds unused annual leave at basic divided by 30 per day, the notice pay and unpaid salary entered for the exit, and recovers outstanding salary advances. It records the payable date as 14 days after the termination date.

The settlement compares gratuity with the end-of-service provision already accrued, posts the shortfall as an expense or releases the excess, and splits the cost across the worker's projects and cost centres in one journal entry. A settlement can be reversed, which restores the employee and the advances. The monthly provision is accrued at the 21-day rate, and a reconciliation report compares it with the statutory liability per employee. It does not pay the settlement to the bank; finance makes the transfer.

See payroll and WPS, how SupaJack calculates gratuity or book a demo.