The End of Service Gratuity (‘EOS’) is a benefit granted by the UAE Federal Law no. 8 of 1980, as amended (‘Employment Law’) to the expatriate workforce in the private sector. Consequently, the benefit applies to expatriate employees in UAE mainland companies and in UAE free zone companies, that operate under the remit of the Ministry of Human Resources and Emiratization (MOHRE). Notably, the financial free zones (DIFC and ADGM) do not fall under the scope of the EOS regulation under the Employment Law since these zones have enacted their employment legislation.
The EOS is a benefit payable at the termination of employment and applies only for employees that completed one year in the service of an employer. If the period of employment is less than one year, then the EOS is not payable, irrespective of the reason that led to the termination of employment. Since the EOS is a benefit granted by law, employers cannot waive it or diminish it, by, let us say, provisions in the employment contracts or otherwise.
At the outset, in UAE the Employees may enter two main types of employment contracts (for a limited term and an unlimited term). Few differentiations need to be made in this respect. As well, in the calculation of EOS, one should bear in mind the reason for terminating employment, as the calculation of EOS varies in cases of resignation (Employee terminates the employment contract) or termination (Employer terminates the employment contract).
One other variable to consider for calculating the EOS is the structure of the package (wage) of the employee. It is generally known that in UAE, the employee receives a basic salary and allowances (such as transportation, housing allowances, etc.). Only the basic salary is taken into consideration for the calculation of EOS.
As such, the calculation of the EOS is as follows:
|
Employment Contract type
|
Termination |
Resignation |
| Limited -Term Contract |
– For service of more than 1 year and less than 5 years, EOS is 21 days basic salary for every year of service, – For service exceeding 5 years, EOS is 30 days basic salary for every year of service, always provided that the total gratuity does not exceed the wage of two years
|
– The employee is entitled to EOS only if he exceeded 5 years of service
|
| Unlimited Term Contract |
– For service of more than 1 year and less than 5 years, EOS is 21 days basic salary for every year of service, – For service exceeding 5 years, EOS is 30 days basic salary for every year of service, always provided that the total gratuity does not exceed the wage of two years |
– For service of more than 1 year and less than 3 years, EOS is 21 days basic salary for every year of service, however, the employee will be entitled to 1/3 of the EOS, – For service of more than 3 years and less than 5 years, EOS is 21 days basic salary for every year of service, however, the employee will be entitled to 2/3 of the EOS, – For service exceeding 5 years, EOS is 30 days basic salary for every year of service and the employee is entitled to full EOS, always provided that the total gratuity does not exceed the wage of two years. |
Aside from the above, it is to be mentioned that EOS is calculated and payable pro rata for periods that constitute fractions of a year. For instance, if an employee has worked 1 year, four months and 16 days and his service is terminated by the Employer, then the end of service will be calculated as 21 days for the first year and pro-rata (fraction) for the four months and 16 days of service.
The Employment Law specifies cases where the Employee loses the EOS benefit, these being cases of severe misconduct on the part of that Employee. The Employee is usually deprived of EOS for cases specified at Art. 120 of the Employment Law, such as Employee assumes a false nationality or submits false documents for employment, causes a severe material loss to the Employer, assaults the Employer or colleagues, is finally convicted for a crime of honor or ethics, etc. As well, the Employee will be deprived of EOS once that Employee resigns to avoid the consequences of Art. 120, specified above, or leaves the work of his own accord, without completing the necessary formalities, such as notice period (for unlimited term contracts) or before completing 5 years of service (for limited-term contracts).
As an additional note, unpaid leave periods in the service of that Employee will not be accounted for the calculation of EOS. We would add one exception to this rule, which is Resolution 279 of 2020 related to the preventive measures related to the novel Coronavirus and the measures adopted in furtherance to that. For instance, if the Employee has availed the Early Leave initiative, given the same preventive measures, then such period (even unpaid) will be accounted for the calculation of EOS.
Notably, even if the Employment Law is clear on the matter, a high amount of labor complaints is recorded concerning payment of EOS by the Employers to the Employees. It is therefore advisable that Employees, which seem more vulnerable to such legal issues, to try to maintain clear records of their wage payments, salary slips, eventual deductions that the Employer has applied to their wage and the reason for such deduction, if any.
The Employer does have the right to deduct from the EOS the amounts owed to them by that Employee (for instance, if the Employee had a loan from the Employer and that loan remained unpaid at the time of termination of employment, then the Employer will have the right to deduct the loan amount from the EOS).
Whereas this article has discussed only the EOS as gratuity, the termination of employment implies other amounts payable to that respective Employee, such as a notice period (which is paid), the balance of unused annual leave days, any unpaid wages (if any), as well as repatriation expenses, if agreed in the employment contract or if they fall under the cases specified in the Employment Law.
By
Dr. Laura Voda
Senior Associate
Fichte & Co
