Limited and Unlimited Contract Gratuity Calculation: What You Need to Know

Gratuity is an important component of an employee’s compensation package, especially in the Middle East. It is a sum of money paid by the employer to the employee as a token of appreciation for their long years of service. Gratuity is calculated based on the employee’s length of service, the type of contract (limited or unlimited), and the employee’s basic salary. In this article, we’ll discuss the calculation of gratuity for limited and unlimited contract employees.

Limited Contract Gratuity Calculation

A limited contract is a type of employment contract that has a specific end date, usually between 1 to 3 years, after which the contract is terminated. For limited contract employees, gratuity is calculated as follows:

End of Contract Gratuity = (Basic Salary ÷ 30) x Service Period in Years

For example, if an employee’s basic salary is AED 10,000 and they have completed 3 years of service, their gratuity would be calculated as:

End of Contract Gratuity = (10,000 ÷ 30) x 3 = AED 10,000

In case the employee resigns before completing the contract period, they are entitled to receive half of the gratuity amount for the completed years of service. However, if the employer terminates the employee’s contract, the employee is entitled to receive the full gratuity amount for the completed years of service.

Unlimited Contract Gratuity Calculation

An unlimited contract has no specific end date and can be terminated by either party with notice. For unlimited contract employees, gratuity is calculated as follows:

Gratuity = (Basic Salary ÷ 30) x 21 x Service Period in Years

In this case, the maximum number of years for which gratuity can be calculated is 21 years. For example, if an employee’s basic salary is AED 10,000 and they have completed 5 years of service, their gratuity would be calculated as:

Gratuity = (10,000 ÷ 30) x 21 x 5 = AED 35,000

In case the employee resigns before completing 5 years of service, they are not entitled to receive any gratuity. However, if the employer terminates the employee’s contract, the employee is entitled to receive the full gratuity amount for the completed years of service.

Important Points to Consider

1. The gratuity amount is calculated on the employee’s basic salary excluding any allowances or bonuses.

2. The length of service is calculated in full years and any period less than a year is not considered.

3. If the employee’s basic salary changes during their service period, the calculation is done based on the average of the last 12 months’ basic salary.

4. The gratuity amount is payable within 30 days of the employee’s last day of service.

In conclusion, gratuity is an important benefit for employees in the UAE, and its calculation is based on the employee’s length of service, type of contract, and basic salary. As a professional, it’s important to consider the relevant keywords and phrases to optimize the article for search engines and ensure it answers the readers` questions.