Gratuity is an important aspect of employment in many countries, especially those in the Middle East. It is a form of end-of-service benefit that employers are required to provide to their employees upon completion of their contract period. In the case of an unlimited contract, which is a type of contract in which there is no predefined end date, the calculation of gratuity can be a bit more complicated. In this article, we will guide you on how to calculate gratuity for unlimited contract.
Firstly, it is essential to understand that gratuity for unlimited contracts is calculated based on the number of years an employee has worked with the company. The calculation is usually done as follows:
Gratuity = (Basic salary ÷ 30) x (Number of years worked)
For example, if an employee`s basic salary is AED 5,000 and they have worked with the company for five years, the calculation for gratuity would be as follows:
Gratuity = (5,000 ÷ 30) x 5 = AED 8,333
The basic salary used in the calculation is the employee`s salary without any allowances or bonuses. It is important to note that if an employee has worked for less than a year, the gratuity amount will be calculated on a pro-rata basis. This means that the gratuity amount will be calculated based on the number of months worked.
Another factor to consider when calculating gratuity for unlimited contracts is the type of contract. There are two types of unlimited contracts – standard unlimited contract and unlimited contract with a mutual probation period.
For the standard unlimited contract, the gratuity calculation starts from the first day of employment. However, for the unlimited contract with a mutual probation period, the gratuity calculation starts from the completion of the probation period.
It is important to note that the UAE labour law mandates a minimum of 21 days of gratuity pay for each year worked. However, some companies offer more than the minimum amount as a way of retaining their employees.
In conclusion, gratuity for unlimited contracts is calculated based on the number of years an employee has worked with the company. It is important to ensure that the calculation is done correctly to avoid any legal issues. If you are unsure about the calculation, it is recommended to seek guidance from a legal professional or your HR department.