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How Unpaid Leave and Absences Can Reduce Your Gratuity Payment in UAE

Your final end-of-service gratuity in the UAE can be lower than you anticipate for one primary reason: any days of absence from work without pay are legally excluded from your total service period calculation.

Many employees are surprised to learn that their gratuity isn’t based on their hire date and end date alone. It’s calculated based on the actual time you spent in active, paid service. This guide provides a comprehensive and accurate breakdown of how this works under UAE law, what it means for your final settlement, and how you can protect your earnings.

Understanding the Gratuity Calculation

First, let’s establish the foundation. Your end-of-service gratuity is a mandatory payment you are entitled to after completing at least one full year of service. According to the current UAE Labour Law, the calculation is based on your last-drawn basic salary.

Here’s the formula:

  • 21 days’ basic salary for each of the first five years of service.
  • 30 days’ basic salary for each year of service after that.

The total gratuity cannot exceed two years’ wages. The key to this entire process is the definition of “years of service.”

The Legal Rule: Why Unpaid Days Are Excluded

The reason unpaid leave reduces your gratuity isn’t a company policy; it’s the law. This is explicitly stated in Article 51 of the UAE’s Federal Decree-Law No. 33 of 2021.

This law clarifies that the “service period” used for the gratuity calculation does not include any days of absence from work without pay. The principle behind this is that gratuity is a benefit earned for active, paid service. When you are on unpaid leave, your employment contract is still active, but your service, in the eyes of the law, is paused.

Which Types of Leave Impact Your Gratuity?

To understand the real-world impact, let’s look at common scenarios where your service period can be reduced:

  • Authorized Unpaid Leave: If you take an extended, approved leave for personal reasons, travel, or a sabbatical, these days do not count towards your gratuity.
  • Unpaid Sick Leave: You are entitled to 90 days of sick leave per year. The first 15 are fully paid and the next 30 are half-paid; both of these periods count towards your service. However, the final 45 days are unpaid and are excluded from the gratuity calculation if taken.
  • Unauthorized Absences: Any days you miss work without permission are, unsurprisingly, excluded from your service period and can lead to disciplinary action.

Statutory paid leave, such as annual leave, official public holidays, maternity leave, and parental leave, always counts toward your service period and will not reduce your gratuity.

A Real-World Calculation: Seeing the Financial Impact

Let’s illustrate this with an example. Imagine an employee named Karim with a basic salary of AED 12,000/month.

Scenario 1: Karim has no unpaid leave

  • Service Duration: Exactly 4 years.
  • Daily Basic Salary: AED 12,000/30=AED 400
  • Gratuity Per Year: 21×AED 400=AED 8,400
  • Total Gratuity: 4 years×AED 8,400=AED 33,600

Scenario 2: Karim took 60 days of unpaid leave over 4 years

  • Total Employment: 4 years (1,460 days).
  • Unpaid Leave: 60 days.
  • Actual Service Period: 1,460−60=1,400 days.
  • Actual Years of Service: 1,400/365=3.83 years.
  • New Gratuity Calculation: 3.83 years×(21 days/year)×(AED 400/day)=AED 32,172

That period of unpaid leave resulted in a reduction of nearly AED 1,500 from his final settlement.

These calculations can become complex when dealing with irregular dates and different service tenures. To get a precise and instant estimate based on your specific salary and dates, using a free online UAE gratuity calculator is highly recommended. It removes the guesswork and provides a clear picture of what you should expect.

How to Protect Your Full Gratuity

Being informed is the best way to safeguard your earnings. Follow these simple steps:

  • Know Your Entitlements: Understand your full allowance for paid annual and sick leave.
  • Prioritize Paid Leave: Always use your paid leave options before considering unpaid leave.
  • Document Everything: Ensure any unpaid leave is formally approved and documented in writing by your employer.
  • Communicate with HR: Before taking a long period of unpaid leave, ask your HR department for a projection of how it will affect your final gratuity.

By taking these proactive steps, you can make informed decisions and ensure there are no financial surprises when your employment ends.

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