Recommended Book for the new managers:
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:
- Less
than 1 year of service: No gratuity is payable.
- 1–5
years of service: 21 days of basic salary for each year of
service.
- 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:
- Less
than 1 year of service: No gratuity is payable.
- 1–5
years of service: 21 days of basic salary for each year of
service.
- 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:
- Probation
Period: Employees who resign during the probation period are not
entitled to gratuity.
- Termination
by Employer: If the employer terminates the employee without a
valid reason, the employee may be entitled to additional compensation.
- 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
- Unpaid
Salary: (10,000 ÷ 30) × 10 = AED 3,333.33
- Accrued
Leave: (10,000 ÷ 30) × 15 = AED 5,000
- Gratuity: (10,000
÷ 30) × 21 × 4 = AED 28,000
- 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
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