Alsafar ISO 9001-2008 Certified

EMPLOYMENT BENEFITS – End Of Service Gratuity

Literal meaning of severance or gratuity is a favor or gift, usually in the form of money, given in return for service. In other words a sum of money offered to certain service sector workers for a service they performed or anticipated. End of service gratuity is the amount paid by the employer to his worker for his hard work (Any exerted human effort – whether intellectual, technical or physical – in return for a wage, whether it is permanent or temporary) when the worker leaves the employment after successfully completing the stipulated years of service. Since almost 40 years, it has been one of the very important labor rights of the worker which employee is entitled to receive after serving employer for number of years.

The federal law no. 8 of 1980 of United Arab Emirates provides the provisions regarding the end of service gratuity. The present article discusses the said provisions including the calculation of the gratuity amount according to the salary of the worker and the number of years he has served a particular employer.

Law provides that an employee who completes one year or more in continuous services with the employer shall be entitled to gratuity at the end of the service. The gratuity shall be calculated on an annual basis if the employee has actually completed one year or more. The day of absence from work without pay shall not be included in calculating the total period of service. However, if the employee has completed one year then he will be entitled to gratuity for the fraction of the year proportional for the part of the year he spend in work provided that he has completed one year in continuous service.

Basic wage taken as a base for the calculation of gratuity is the salary last received by the employee before the termination of the employment contract. A basic wage means anything received by the employee as a wage excluding housing, transport, traveling allowances and overtime, family allowances entertaining allowances and any other bonus etc. This wage will be the basis for calculation of the gratuity for all the years during which the employee works for the employer calculated at the rate advised hereunder.

The severance pay shall be calculated as described in labour law such as 21 days remuneration for each year of the first 5 years of service and 30 days remuneration for each additional year of service provided that total amount of severance pay shall not exceed 2 years remuneration. Without prejudice to the laws provided in relation to the granting of pension or retirement benefits to employees. Severance pay shall be calculated on the basis of the remuneration last due to the worker for those who are paid on daily, weekly and monthly basis and on the average basis of the daily remuneration for those who are paid at piece rates basis.

After finding out the monthly wage of the worker, the wage per day can be found out by dividing the monthly wage amount by the number of working days of the month. Once we find the wage per day the next step would then be calculating the wage per 21 days and the wage per 30 days.

The above calculations shall hold good for workers of having limited employment Contracts. The exception to the rule is that gratuity is not granted in case the worker breaches the employment contracts by leaving work prior to expiry of the contract. Where the Employment Contract is of an unlimited nature, the gratuity amount is less if the worker leaves the employment on his own choice. Where the period of service of the worker varies from at least one completed year and at the most three completed years then the worker is entitled to one – third of the end of service gratuity. Where the worker has served for a period of three years at least and five years at most, he shall be entitled to two thirds of the said gratuity and to the full gratuity where the continuous period of service exceeds five years.

    1. Where the Employer terminates the service of the worker on one of the below mentioned grounds:
    a. In case the worker assumes false identity or nationality, or submits false certificates or documents.
    b. In case the worker is under probation, and the dismissal occurs during or at the end of the probation period.
    c. In case the worker commits an error resulting in colossal material losses to the employer, provided that the Labor Department is notified of the incident within 48 hours of the knowledge of the occurrence thereof.
    d. In case the worker violates the instructions related to the safety at work or in the work place, provided that such instructions be written and posted in a prominent location, and that he is notified thereof should he be illiterate.
    e. In case the worker fails to perform his main duties in accordance with the employment contract, and further also fails to remedy such failure despite a written investigation on the matter and a warning that he will be dismissed in case of recidivism.
    f. In case the worker divulges any of the secret of the establishment where he works.
    g. In case the worker is convicted in a final manner by the competent court in a crime of honor, honesty or public ethics.
    h. In case the worker is found in a state of drunkenness or under the influence of a narcotic during work hours.
    i. In case the worker assaults the employer, responsible manager or co – worker during work hours.
    j. In case the worker is absent without valid cause for more than twenty non – consecutive days in one year, or for more than seven consecutive days.
    2. Where a worker leaves the employment without notice in case of unlimited/ undetermined employment contracts except in following cases:
    a. In case the employer breaches his obligations towards the worker, as set forth in the contract or the law.
    b. In case the employer or the legal representative thereof assaults the worker.

Apart from this deduction from the ESG is also allowed where there is an amount of the worker due towards the employer i.e., loan etc.

An employee may be deprived of his/her gratuity if he/ she has been dismissed for one of the reason stated in article 120 Or if left job without notice in clauses other than mentioned in article 121 of UAE labour law and if he terminates the limited contract before the completion of the contract.

The parties may agree for payment of gratuity at a certain time to the employee for the years during which the employee served the employer and to start with new employment contract for the future. However, this agreement should be clearly stated, acknowledged and agreed between the employee and employer whereby gratuity will be paid for the preceding period.

The employee’s wage and other legal benefits including the end of service gratuity is considered a superior debt and the employee shall have a lien over any movable or immovable property owned by the employer.

United Arab Emirates is rapidly progressing towards global standards therefore it is important to ensure that governing laws are adequate to handle the business environment and employment relations. There is a famous law maxim that “the law is never static; it is always changing, being interpreted or redefined, as regulators and judges strive, with varying degrees of success, to ensure that the law constantly reflects changes in society itself”.

The amendments of laws in certain areas such as end of service benefits, calculation of gratuity, will certainly ease the way of settlement and lessen the jeopardy of litigation. In order to do this, there should be a consideration of the law and its sources as well as conversation of how these changes of laws can reflect the needs of society and to what extent.

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For legal advice regarding the subject, please call +971 4 4221944, or call 800-LAWYER (529937).


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