How to Calculate the Final Settlement in the UAE? - The Evolved HR!

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How to Calculate the Final Settlement in the UAE?

 Calculating the final settlement for an employee in the UAE involves several steps and requires a thorough understanding of the UAE Labor Law (Federal Decree-Law No. 33 of 2021). The final settlement includes unpaid salary, accrued leave, end-of-service gratuity, and other entitlements. Below is a step-by-step guide to help HR professionals calculate the final settlement:


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Step 1: Understand the Employee’s Employment Type

  • Determine whether the employee is on an unlimited or limited (fixed-term) contract.
  • Confirm the reason for termination (resignation, end of contract, or termination by employer).

Step 2: Calculate Unpaid Salary

  • Calculate the employee’s unpaid salary up to their last working day.
  • Formula:
    Unpaid Salary = (Total Salary ÷ 30) × Number of Unpaid Days

 

Step 3: Calculate Accrued Leave Balance

  • Determine the employee’s unused annual leave days.
  • Formula:
    Accrued Leave = (Basic Salary ÷ 30) × Unused Leave Days

 

Step 4: Calculate End-of-Service Gratuity

The end-of-service gratuity is calculated based on the employee’s length of service and type of contract.

For Unlimited Contracts:

  1. Less than 1 year of service: No gratuity is payable.
  2. 1–5 years of service: 21 days of basic salary for each year of service.
  3. More than 5 years of service: 30 days of basic salary for each year of service after the first 5 years.

For Limited (Fixed-Term) Contracts:

  1. Less than 1 year of service: No gratuity is payable.
  2. 1–5 years of service: 21 days of basic salary for each year of service.
  3. More than 5 years of service: 30 days of basic salary for each year of service after the first 5 years.

CalculateOnline GRATUITY: CLICK HERE

Formula:

  • For the first 5 years:
    Gratuity = (Basic Salary ÷ 30) × 21 × Number of Years
  • For each year after 5 years:
    Gratuity = (Basic Salary ÷ 30) × 30 × Number of Additional Years

Note:

  • If the employee resigns before completing 1 year, they are not entitled to gratuity.
  • If the employee resigns between 1–3 years, they are entitled to a reduced gratuity (1/3 for the first 3 years, 2/3 for 3–5 years, and full gratuity after 5 years).

 

Step 5: Deduct Any Outstanding Amounts

  • Deduct any unpaid loans, advances, or other amounts owed by the employee to the company.
  • Ensure proper documentation and employee consent for deductions.

 

Step 6: Include Other Entitlements

  • Include any other entitlements such as:
    • Unpaid overtime.
    • Bonuses or commissions (if applicable).
    • Repatriation ticket costs (if applicable).

 

Step 7: Calculate the Final Settlement Amount

  • Add up all the components:
    Final Settlement = Unpaid Salary + Accrued Leave + End-of-Service Gratuity + Other Entitlements - Deductions

 

Step 8: Issue the Final Settlement

  • Prepare a final settlement statement for the employee.
  • Ensure the employee signs the statement to acknowledge receipt.
  • Process the payment within 14 days of the employee’s last working day, as per UAE Labor Law.

 

Step 9: Cancel Visa and Process Clearance

  • Cancel the employee’s visa and labor card.
  • Obtain a clearance certificate from the employee confirming no further dues.

 

Important Notes:

  1. Probation Period: Employees who resign during the probation period are not entitled to gratuity.
  2. Termination by Employer: If the employer terminates the employee without a valid reason, the employee may be entitled to additional compensation.
  3. Public Holidays and Leave: Ensure public holidays and leave days are accounted for in the final settlement.

 

Example Calculation:

  • Basic Salary: AED 10,000
  • Last Working Day: 30th June
  • Unpaid Days: 10 days
  • Unused Leave Days: 15 days
  • Service Duration: 4 years
  • Outstanding Loan: AED 2,000
  1. Unpaid Salary: (10,000 ÷ 30) × 10 = AED 3,333.33
  2. Accrued Leave: (10,000 ÷ 30) × 15 = AED 5,000
  3. Gratuity: (10,000 ÷ 30) × 21 × 4 = AED 28,000
  4. Final Settlement: 3,333.33 + 5,000 + 28,000 - 2,000 = AED 34,333.33

 

By following these steps, HR professionals can ensure compliance with UAE Labor Law and provide a fair and accurate final settlement to employees. Always consult with legal experts or the Ministry of Human Resources and E

 miratisation (MOHRE) for specific cases.

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