Termination of Limited Contract by Employer Gratuity Calculation: What You Need to Know

If you are an expatriate working in the UAE on a limited contract, it is important to understand your rights when it comes to termination by your employer. In the event of termination, you may be entitled to receive end-of-service gratuity pay, which is a lump sum payment made by your employer as a form of compensation for the end of your employment. In this article, we will discuss everything you need to know about the termination of limited contracts and how gratuity pay is calculated in the UAE.

Termination of Limited Contracts

Limited contracts in the UAE usually have a specific end-date, and termination can occur when the contract reaches its natural end. However, if the employer wishes to terminate the contract before the end-date, they must provide a valid and legal reason for doing so. Acceptable reasons for termination include a breach of contract by the employee, redundancy due to company restructuring, or unsatisfactory performance by the employee.

In the event that the employer terminates the limited contract without a valid reason, they may be required to pay compensation to the employee for the unexpired portion of the contract, as well as end-of-service gratuity.

Gratuity Pay Calculation

The UAE Labor Law requires employers to pay end-of-service gratuity to employees who have completed one year or more of continuous service. The amount of gratuity pay is calculated based on the employee`s basic salary at the time of termination, and the length of service.

For employees who have completed less than five years of service, they are entitled to receive 21 days` basic salary for each year of service. For employees who have worked for more than five years, they are entitled to receive 30 days` basic salary for each year of service beyond the first five years.

Here is an example of how gratuity pay is calculated for an employee who has worked for six years and five months, with a basic salary of AED 10,000:

– For the first five years of service, the employee is entitled to receive 150 days` basic salary (30 days x 5 years).

– For the remaining five months of service, the employee is entitled to receive 10 days` basic salary (21 days x 5/12 years).

– The total amount of gratuity pay for this employee would be AED 55,000 (150 days x AED 10,000) + (10 days x AED 10,000 x 5/12).

It is important to note that other factors may also affect the calculation of gratuity pay, such as any additional allowances or bonuses that are included in the employee`s total compensation package. Additionally, if the employer has provided notice of termination in accordance with the contract or Labor Law, the amount of gratuity pay may be reduced accordingly.

Conclusion

As an expatriate working in the UAE on a limited contract, it is important to understand your rights in the event of termination by your employer. If you have completed one year or more of continuous service, you may be entitled to receive end-of-service gratuity pay. The amount of gratuity pay is calculated based on your basic salary at the time of termination, and the length of service. By understanding how gratuity pay is calculated, you can ensure that you receive the compensation that you are entitled to if your limited contract is terminated by your employer.