Gratuity Computation for Limited Contract

Gratuity Computation for Limited Contract: A Guide for Employers and Employees

Gratuity is a form of retirement benefit that is paid to employees who have completed a minimum of 5 years of continuous service with their employer. In the UAE, gratuity is regulated by the UAE Labour Law, which provides guidelines for the calculation and payment of this benefit.

For employees who are on limited contracts, the computation of gratuity can be a bit more complex. In this article, we will provide an overview of the basic rules for gratuity calculation for limited contract employees.

What is a Limited Contract?

A limited contract is a type of employment contract that has a specific start and end date. This means that an employee is contracted to work for a specific period of time, after which their employment will come to an end unless their contract is renewed.

Gratuity Calculation for Limited Contract Employees

For limited contract employees, the gratuity entitlement is calculated as follows:

– If the employee completes their contract period, they are entitled to a gratuity payment of 21 days` basic salary for each year of service, up to a maximum of 2 years` salary.

– If the employee resigns before completing their contract period, they are entitled to a gratuity payment of 1/3 of their 21 day salary for each year of service, up to a maximum of 2 years` salary.

– If the employee is terminated before completing their contract period, they are entitled to a gratuity payment of 1/3 of their 21 day salary for each year of service, for the period they have worked.

It is important to note that the basic salary used for gratuity calculation does not include any allowances or bonuses.

Examples of Gratuity Calculation for Limited Contract Employees

Let`s take a look at some examples to better understand how gratuity calculation works for limited contract employees:

Example 1: John has been working for a company on a 2-year limited contract. His basic salary is AED 5,000 per month. He completes his contract and resigns after the 2-year period.

Gratuity calculation: 21 days` basic salary x 2 years = 42 days` basic salary.

42 days` basic salary = (5,000/30) x 42 = AED 7,000

John is entitled to a gratuity payment of AED 7,000.

Example 2: Maria has been working for a company on a 3-year limited contract. Her basic salary is AED 6,000 per month. She resigns after working for 2 years and 7 months.

Gratuity calculation: 1/3 of 21 days` basic salary x 3 years = 21 days` basic salary.

21 days` basic salary = (6,000/30) x 21 = AED 4,200

Maria is entitled to a gratuity payment of AED 4,200.

Example 3: Ali has been working for a company on a 1-year limited contract. His basic salary is AED 4,000 per month. He is terminated by the company after working for 6 months.

Gratuity calculation: 1/3 of 21 days` basic salary x 1 year = 7 days` basic salary.

7 days` basic salary = (4,000/30) x 7 = AED 933.33

Ali is entitled to a gratuity payment of AED 933.33.

Conclusion

Gratuity is an important benefit for employees in the UAE, and it is essential for both employers and employees to understand how it is calculated. For employees on limited contracts, the calculation of gratuity can be a bit more complex, but by following the guidelines provided by the UAE Labour Law, it is possible to ensure that both employers and employees are aware of their entitlements.