How End Of Service Gratuity Differs Across GCC Countries?

End of an employment contract in the Gulf Cooperation Council (GCC) involves understanding a crucial financial component: the End of Service Gratuity (ESG). Whether you’re an employer ensuring compliance or an employee planning your next steps, grasping the nuances of this benefit is essential. This guide provides a clear, comprehensive overview of End of Service Gratuity across the GCC, breaking down the rules, calculations, and legal frameworks for each member state.

Staying compliant with local labor laws is not just a legal obligation; it’s a cornerstone of fair and ethical employment practices. This article is designed to be your trusted resource for managing this process correctly and confidently.

What is Gratuity?

End of Service Gratuity is a statutory monetary award that an employer is legally required to pay an employee upon the conclusion of their service. It is a lump-sum payment calculated based on the employee’s length of service and their last-drawn salary. Think of it as a mandatory “thank you” for the employee’s contributions over the years.

A Country-by-Country Breakdown of Gratuity Rules in the GCC

Each GCC country has its own labor laws that govern the calculation and payment of gratuity. While the principles are similar, the details are critically different. Here’s a breakdown for Saudi Arabia, the UAE, Oman, Qatar, Bahrain, and Kuwait.

Saudi Arabia

Legal Framework: The calculation of end-of service is governed by the Saudi Labor Law.
Calculation Formula: The gratuity is based on the employee’s final wage.
First 5 Years of Service: Half a month’s wage for each year.
Subsequent Years (Year 6+): One full month’s wage for each year.
Rules for Resignation vs. Termination: The amount an employee receives upon resignation depends on their tenure:
Less than 2 years: No gratuity.
2 to 5 years: One-third (1/3) of the calculated gratuity.
5 to 10 years: Two-thirds (2/3) of the calculated gratuity.
Over 10 years: The full gratuity amount.
If the contract is terminated by the employer (and not for cause under Article 80), the employee is entitled to the full gratuity.

United Arab Emirates (UAE)

Legal Framework: Gratuity is mandated by the UAE Labour Law.
Calculation Formula: The calculation is based on the employee’s last-drawn basic salary.
1 to 5 Years of Service: 21 days’ basic salary for each year.
Over 5 Years of Service: 30 days’ basic salary for each year beyond the fifth year.
The total gratuity amount cannot exceed two years’ total wages.
Rules for Resignation vs. Termination: Under the new labor law, the distinction between limited and unlimited contracts regarding gratuity upon resignation has been removed. An employee who resigns after completing one year of service is entitled to the full gratuity, calculated as described above. If terminated by the employer, the same calculation applies.

Oman

Legal Framework: The Omani Labour Law dictates the terms of ESG. Oman is also transitioning towards a new savings system for expatriates, which will eventually replace the traditional gratuity model.
Calculation Formula: Based on the last basic wage.
First 3 Years of Service: 15 days’ basic wage for each year.
Subsequent Years (Year 4+): One month’s basic wage for each year.
Rules for Resignation vs. Termination: The full gratuity is payable upon completion of service, regardless of whether the employee resigns or is terminated (unless terminated for cause under Article 40).

Qatar

Legal Framework: Governed by the Qatari Labour Law.
Calculation Formula: The employer and employee can agree on the amount, but it must not be less than a minimum statutory requirement.
Minimum Gratuity: Three weeks’ basic wage for every year of service.
Rules for Resignation vs. Termination: The full gratuity is payable to employees who complete at least one year of service, irrespective of the reason for contract termination (resignation or dismissal), provided it’s not for gross misconduct.

Bahrain

Legal Framework: The Bahraini Labour Law for the private sector outlines the rules. As of March 1, 2024, Bahrain has implemented a new system where employers contribute monthly to the Social Insurance Organization (SIO) for their non-Bahraini employees’ benefits.
Calculation Formula: The calculation is based on the last basic salary plus any social allowance.
First 3 Years of Service: Half a month’s wage for each year.
Subsequent Years (Year 4+): One full month’s wage for each year.
Rules for Resignation vs. Termination: The full gratuity is due at the end of the service period. Employees now apply directly to the SIO to receive their entitlement.

Kuwait

Legal Framework: Outlined in the Kuwaiti Labor Law.
Calculation Formula: The basis for calculation depends on how the employee is paid.
For employees paid daily, weekly, or piece-rate: 10 days’ remuneration for the first five years and 15 days’ remuneration for subsequent years.
For employees paid monthly: 15 days’ remuneration for the first five years and one month’s remuneration for subsequent years.
The total gratuity is capped at one and a half years’ total remuneration.
Rules for Resignation vs. Termination: If the employee resigns, they are entitled to a portion of the gratuity based on service length. If terminated by the employer, the full amount is due.

Key Factors in Gratuity Calculation

The formulas above provide a strong foundation, but several factors can influence the final payout.

What Constitutes ‘Salary’ for Calculation?

This is a critical distinction. In countries like the UAE, the calculation is strictly based on the basic salary, excluding allowances for housing, transport, etc. In Saudi Arabia, it’s based on the final wage, which typically includes the basic salary plus other standard, recurring allowances. Always verify the legal definition of “wage” or “salary” in the specific country’s labor law.

Proration for Partial Years of Service

Employees are entitled to a prorated gratuity for any fraction of a year they have worked, provided they have completed the minimum service period of one year. This means if someone works for 3 years and 6 months, they will be paid gratuity for 3.5 years.

While the formulas appear straightforward, applying them correctly with proration for partial years, different salary components, and specific country rules can become complex. A small miscalculation can lead to compliance issues or financial loss. To ensure accuracy and save time, many professionals rely on specialized tools.

A free gratuity calculator can help you generate a reliable estimate in seconds, giving you peace of mind that your figures are correct.

Unpaid Leave and Its Impact on Gratuity

Periods of unpaid leave are generally not included when calculating the total length of service. For example, if an employee worked for five years but took two months of unpaid leave during that time, their service period for gratuity calculation would be considered four years and ten months.

Frequently Asked Questions (FAQ)

An employer can only withhold gratuity under specific circumstances, typically involving gross misconduct as defined by the country’s labor law (e.g., causing significant financial loss to the company).

End of Service Gratuity is generally not subject to income tax in any of the GCC countries.

Most laws stipulate that all final dues, including gratuity, must be paid promptly upon the end of the employment contract, often within 7 to 14 days.

Gratuity laws are primarily designed for expatriate workers who are not part of the state pension schemes available to GCC nationals. Nationals are typically covered by separate social security and pension laws.

Conclusion

The End of Service Gratuity is more than just a final payment; it is a legal right and a critical component of the employment lifecycle in the GCC.

For employers, understanding and correctly applying these rules is fundamental to legal compliance, maintaining a positive reputation, and treating departing employees with fairness and respect. Automating this process is the most effective way to mitigate risk and ensure accuracy.

For employees, knowing your rights empowers you to plan your future and ensure you receive the full compensation you have earned. Always refer to your employment contract and the local labor law to understand your specific entitlements.

How End of Service Gratuity Differs Across GCC Countries?

What is Gratuity?