End of Service Benefits: Basic Salary or Comprehensive?

End-of-service gratuity in the UAE is calculated on the basis of the "basic wage" only, not the comprehensive wage that includes housing allowance, transport allowance, or other benefits — unless the contract or agreement between the parties expressly or implicitly states that such an increase was added to the basic wage itself. This rule is well established in the case law of the Abu Dhabi Court of Cassation, and it is one of the most common points of dispute between employers and employees at the end of the employment relationship.

Basic Wage vs. Comprehensive Wage: What's the Difference?

The basic wage is defined as the amount expressly stated in the employment contract in return for the employee's work, excluding any allowances or in-kind benefits. The comprehensive (gross) wage, on the other hand, adds to the basic wage everything granted to the employee in the form of allowances and benefits — such as housing, transport, and cost-of-living allowances — whether stipulated in the contract or customarily granted until they became a regular part of the employee's entitlements.

How Is End-of-Service Gratuity Calculated?

Under the labour relations law, an employee who has completed one year or more of continuous service is entitled to end-of-service gratuity upon termination of the contract, whether the termination is by the employer or by the employee's resignation, following the legislator's abolition of the old distinction that used to reduce the gratuity in cases of resignation. The gratuity is calculated based on the employee's last basic wage, as follows:

Annual Leave Allowance: A Different Rule Depending on Timing

There is an important distinction often overlooked by employees: the annual leave allowance for an employee still in service is calculated on the basic wage plus the housing allowance, if any, while the leave allowance due after termination of service is calculated on the basic wage alone, without any addition, since the claim arises after the employment relationship — and its underlying reason — has ended.

What About Compensation for Arbitrary Dismissal?

End-of-service gratuity is due regardless of the reason for termination, and is entirely separate from compensation for arbitrary dismissal. If it is established that the employer terminated the employee's contract without lawful justification, the employee is entitled to claim additional compensation, assessed by the courts having regard to the type of work, the extent of the harm, and the length of service, provided it does not exceed three months' wage. In such a case, the employee is not entitled to demand reinstatement, as their right is limited to the financial compensation prescribed by law, nor may this compensation be combined with any other compensation for the same material or moral harm arising from the same dismissal.

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