When it comes to employment contracts, there are two types that most often come up: limited and unlimited contracts. Limited contracts are typically for a set period of time, while unlimited contracts are ongoing until either party chooses to terminate the employment relationship. One of the areas where these contracts differ is in the calculation of gratuity.
Gratuity is a benefit that is often provided to employees at the end of their employment in recognition of their service. In the United Arab Emirates, where limited and unlimited contracts are both common, gratuity is mandatory for all employees regardless of the type of contract. The amount of gratuity that an employee is entitled to receive is based on a calculation that takes into account their length of service and their final basic salary.
For employees on limited contracts, the calculation for gratuity is straightforward. If they have completed at least one year of service, they are entitled to receive a gratuity payment equal to 21 days’ basic salary for each year of service. If they have worked for less than a year, they are entitled to receive a prorated amount. For example, if an employee worked for six months, they would be entitled to receive half of the 21 days’ basic salary for a full year of service.
Employees on unlimited contracts, however, are entitled to a slightly different calculation. If they have worked with their employer for less than five years, they are entitled to receive 21 days’ basic salary for each year of service. However, if they have worked for five years or more, they are entitled to receive 30 days’ basic salary for each year of service beyond the first five years. This means that an employee who has worked for ten years on an unlimited contract would be entitled to receive a gratuity payment equal to 21 days’ basic salary for the first five years and 30 days’ basic salary for the remaining five years.
It is important for both employers and employees to be aware of these calculations when negotiating employment contracts and when planning for the end of an employment relationship. For employers, understanding the requirements for gratuity payments can help them to budget appropriately and avoid any legal issues. For employees, knowing their entitlements can help them to plan for their financial future and ensure that they receive what they are owed upon leaving their jobs.
In conclusion, while limited and unlimited contracts differ in a number of ways, both types of employees are entitled to receive gratuity payments upon the end of their employment. Understanding the calculation of gratuity can help employers and employees to navigate the complexities of UAE labor law and ensure that everyone is treated fairly.