Key Takeaways

• UAE law mandates an EOS gratuity for employees with over one year of service, based on their basic salary and years of service.

• EOSG payments are crucial for compliance; failure can lead to penalties and risk to company reputation.

• BSH provides accurate EOS and final settlement calculations, ensuring compliance with UAE labour regulations.

Payroll is one of the crucial organisational functions that is subject to compliance with various regulatory frameworks. This legal obligation, which covers payroll solutions, is not limited to the UAE but extends globally.

Many factors influence payroll calculation; some are mandated by law, while others are voluntarily offered by the company to enhance employee engagement within human resource management.

BSH's Payroll Services and End-of-Service Support

At BSH, our outsourced payroll solutions are designed to meet the unique needs of organisations of all sizes and types. We prioritise compliance, accuracy, and efficiency in every aspect of our payroll and human resource management solutions.

One of the most common questions we receive from our clients is whether our service includes End-Of-Service (EOS) gratuity and final settlement calculations. This article provides a comprehensive overview of end-of-service gratuity and final settlement calculations, as well as how we cater to these needs within our services.

What You Need to Know About End-of-Service Gratuity

End-of-Service Gratuity (EOSG) is a mandatory lump-sum payment provided to employees in the UAE upon the conclusion of their employment, as long as they have completed at least one year of continuous service. In accordance with UAE Labour Law, the gratuity is calculated based on the employee’s final basic salary, total length of service, and the terms of the employment contract.

A Financial Risk Factor

EOSG represents a significant financial obligation for employers. Failing to plan for or properly fund these benefits can expose a business to legal risks, compliance issues, and unanticipated cash flow challenges, especially during significant layoffs, resignations, or financial downturns.

A Talent Strategy Tool

A well-structured End-of-Service Gratuity (EOSG) benefit goes beyond legal compliance; it can enhance an employer’s overall value proposition. Clear and reliable EOSG provisions contribute to employee confidence and loyalty, making it an effective mechanism for reducing turnover and supporting long-term workforce stability.

An Accounting and Compliance Priority

While UAE law does not currently require employers to allocate End-of-Service Gratuity (EOSG) funds into a separate trust or escrow account, it is considered best practice to record regular accruals in financial statements. Failure to do so may undermine employee confidence, particularly in situations involving insolvency or inflation, where outstanding EOSG obligations may remain unsettled.

What’s Included in Final Settlement Calculations

Final settlement calculation sums the due amounts for an employee who is leaving, quitting, or being terminated by the company. It includes the computation of all compulsory payments that should be released as part of the employee’s payroll at the end of their employment. This includes but is not limited to:

• End-of-service gratuity 

• Unprocessed salary 

• Repatriation ticket, if applicable 

• Notice period pay, if applicable

• Any unutilised leave, i.e,. vacation pay

• Any other benefits or compensation mentioned in the employment contract 

• Any other outstanding payment or deduction

According to the new UAE Labour Law, Federal Decree-Law No. 33 of 2021, employers should clear all End of Service Benefits within 14 days of an employee’s last day. The previous statute covering this legislation did not have such a deadline.

How Does The EOSG Calculation In UAE Work

Employees are eligible for EOSG only after completing one year of service at the company. It is calculated based on the employee’s basic salary on their last day of work or termination, as well as the years of service. This excludes all allowances, such as housing, travel, and utilities.

EOSG Calculation Overview:

• Employees who have worked for less than one year are not entitled to any gratuity pay.

• Those who have worked for 1-5 years receive 21 days of their last basic salary for each year of employment.

• Employees who have worked for more than 5 years are entitled to 30 days of their last basic salary for each year of employment.

The final year calculation will be based on the number of days completed in that year. The total end-of-service gratuity payment should not exceed the value of two years of the last basic salary.

EOSG for Resignation vs Termination: What’s the Difference

Under UAE labour law, the calculation of End-of-Service Gratuity (EOSG) can vary depending on whether the employee resigns or is terminated, as the nature of separation influences eligibility, entitlement percentage, and payout timelines, particularly under the previous labour framework. Understanding this distinction is crucial for both employers and employees to ensure accurate settlement and legal compliance.

Under the Previous Labour Law (Before 2022):

• Employees who resigned before completing five years of service often received a reduced gratuity.

• The percentage of EOSG entitlement was based on the length of service: 

  • 1–3 years: 1/3 of gratuity

  • 3–5 years: 2/3 of gratuity

  • More than 5 years: full gratuity

Under the Current Law (Federal Decree-Law No. 33 of 2021):

• The distinction between resignation and termination has been removed.

• Employees are now entitled to full EOSG upon completing one year of service, regardless of whether they resigned or were terminated, unless dismissed for gross misconduct.

New End of Service Investment Scheme

Compliance and Regulatory Landscape

Unlike many other organisational functions, human resource management and payroll are inevitably subject to regulatory compliance. Failure to adhere to these can lead to expensive fines and penalties, and in the worst cases, damage to an organisation’s reputation and credibility.

New Alternative to Traditional EOSG Payments

As part of its initiative to make Dubai and the UAE a better place to work and live, the government introduced UAE Cabinet Decision No. 96 of 2023, effective 10 October 2023. This amendment reflects its commitment to employee rights by establishing a voluntary alternative end-of-service scheme for non-GCC national employees in the UAE and certain free zones.

Under the alternative end-of-service scheme established through Cabinet Decision No. 96 of 2023, eligible employees may choose to participate in a system where employers make monthly contributions to a regulated investment fund. This replaces the traditional lump-sum EOSG payment made at the end of employment.

How BSH Simplifies End-of-Service Gratuity and Final Settlement Calculations

As a leading provider of human resource management and payroll solutions, we believe time is money for businesses. Our core objective is to alleviate the excess responsibility companies face in managing routine and compliance-related payroll tasks, allowing them to focus more on other key areas of business operations.

Our payroll solutions covering human resource management include accurate and efficient EOS gratuity and final settlement calculations for UAE businesses, complying with the latest regulations. We have a dedicated team of hand-picked professionals who handle outsourced payroll solutions, which helps us ensure we provide the best personalised services for your company.

With the help of cutting-edge software and technology, our team thoroughly understands your company’s payroll nature and human resource management strategies before we design a tailor-made execution plan.

All our services, including outsourced payroll and software solutions, are designed to ensure timely compliance with regulatory changes in the UAE. Through this, we believe we provide our clients with the ultimate peace of mind, knowing their payroll responsibilities are securely managed by professionals who excel in their field.