In the UAE, gratuity is a key part of employee compensation, often viewed as a reward for long-term service. However, there are specific conditions under which an employee may not be entitled to receive this benefit. Understanding these rules is essential for both employers and employees to avoid disputes and ensure compliance with UAE labor laws.
This article outlines the scenarios in which an employee will not receive gratuity, based on the UAE Labour Law under Federal Decree-Law No. 33 of 2021.
What Is Gratuity?
Gratuity is a lump sum payment given to an employee at the end of their employment, based on the length of service and the final salary. It is an entitlement for expatriate employees who have completed at least one year of service, and it is calculated based on the basic salary, not the full salary.
Situations Where an Employee Is Not Entitled to Gratuity
1. Termination Due to Gross Misconduct (Article 44)
If an employee is dismissed due to serious misconduct, they are not entitled to receive end-of-service gratuity. The UAE labor law specifies several actions that constitute gross misconduct, which include:
- Falsifying documents: If an employee is caught forging documents or providing false information to gain employment, they can be terminated without notice or gratuity.
- Workplace offenses: Theft, dishonesty, assault, or severe breaches of safety rules can lead to immediate dismissal, disqualifying the employee from receiving gratuity.
- Absence without valid reason: If an employee absents themselves from work without a legitimate reason for more than seven consecutive days or 20 non-consecutive days in a year, they lose their entitlement to gratuity.
2. Resignation Before Completing One Year of Service
An employee must complete at least one year of continuous service with their employer to qualify for any gratuity payment. If they resign or are terminated before this one-year mark, they are not entitled to gratuity.
3. Resignation Before Completing Five Years of Service in an Unlimited Contract (Pro-rata Gratuity Reduction)
Under an unlimited contract, an employee who resigns after completing at least one year but less than five years of service is entitled to reduced gratuity. However, if they resign before completing five years, they receive:
- Two-thirds of the gratuity if the service period is between three and five years.
- One-third of the gratuity if the service period is between one and three years.
- No gratuity if the service period is less than one year.
4. Resignation in a Limited Contract Before the End of the Contract Period
In a limited-term contract, if an employee resigns before the end of their contract period and without justifiable reasons, they may forfeit their right to gratuity. The UAE labor law permits the employer to deny gratuity in cases where the employee unilaterally terminates the contract prematurely, causing financial or operational harm to the company.
5. Employment Under a Probation Period
Employees who are terminated during their probation period are not entitled to receive any gratuity. The probation period in the UAE usually lasts for a maximum of six months, during which either party can terminate the employment contract without notice or severance.
6. Termination Under Specific Contractual Stipulations
In some cases, employment contracts may include specific clauses that outline the conditions under which an employee will forfeit their right to gratuity. For example, certain roles, especially in the private sector, may have stricter terms related to the performance, compliance with company policies, or fulfilling the contract duration. If an employee breaches these terms, they may not be eligible for gratuity.
7. Non-compliance with Resignation Notice Period
If an employee resigns without giving the required notice period as per their contract (usually 30 days unless otherwise agreed), the employer may deduct the value of the notice period from the employee’s final settlement. In certain cases, this can impact the gratuity payment.
8. Employees Under Daily Wage Systems
According to the law, gratuity for employees paid on a daily wage basis is calculated differently. However, if the nature of the employment is such that the employee did not complete one year of service or if the contract explicitly states that gratuity is not applicable, the employee might not be entitled to gratuity.
Conclusion
In the UAE, while gratuity is a standard part of an employee’s end-of-service benefits, there are clear circumstances where employees may lose this entitlement. Termination for misconduct, not completing the required service period, resigning without notice, or breaking the terms of a contract can all lead to a loss of gratuity.
For both employers and employees, it is crucial to understand the UAE labor laws to ensure that they are clear on their rights and obligations. If there are disputes regarding gratuity, it is recommended to seek legal advice or consult with the Ministry of Human Resources and Emiratisation (MOHRE) to resolve the matter.
By being informed of the rules surrounding gratuity, both parties can avoid conflicts and ensure smooth termination or resignation processes.
