Understanding Dubai free zone gratuity calculation is important for employers and employees, as it ensures legal compliance and financial planning.
This article explains how gratuity is calculated in Dubai’s free zones under the latest regulations (as of 2025) and why it matters.
We also outline how our law firm can assist with legal services related to gratuity compliance.
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Dubai Free Zone Gratuity Calculation Rules
Most Dubai and UAE free zone gratuity calculations follow federal labor law for end-of-service gratuity calculations.
Below is a general overview of gratuity calculation 2025 for Dubai free zone employees, along with key legal provisions and notable exceptions in certain zones.
Eligibility and Basis of Gratuity in Dubai Free Zones
An employee must complete at least one continuous year of service to be entitled to gratuity.
Gratuity is calculated based on the employee’s last basic salary (excluding allowances like housing and transport).
If the employee has any outstanding debts to the employer, the employer may deduct those amounts from the gratuity.
Employers must legally pay all end-of-service dues, including gratuity, within 14 days from the employee’s last working day, to avoid penalties.
General Gratuity Calculation Method in Dubai Free Zones
The standard formula in Dubai free zones mirrors the UAE Labour Law. If an employee has between 1 and 5 years of service, gratuity is 21 days’ basic wage for each year of service.
For service beyond 5 years, each additional year earns 30 days’ basic wage per year (for the period exceeding five years).
In all cases, the total gratuity amount is capped at two years’ worth of basic salary.
Even any fraction of the last year of employment is counted pro rata in the gratuity calculation (once the one-year minimum is met).
For example, if an employee worked 6 years and 3 months, they would accrue 21 days’ pay for each of the first five years, and 30 days’ pay for the 6th year, plus a prorated portion for the extra 3 months.
Periods of unpaid leave or absence are not included in the service length when calculating gratuity.
Practical Gratuity Calculation Example
Consider an employee in a Dubai free zone (non-DIFC) with a basic salary of AED 10,000 who worked 7 years and 3 months.
Under the standard calculation, their gratuity would be:
- For the first 5 years: 5 × 21 days = 105 days of pay.
- For year 6 and year 7: 2 × 30 days = 60 days of pay.
- For the additional 3 months beyond 7 years: 3/12 of 30 days = 7.5 days of pay.
- Total days of pay = 172.5 days.
- Based on a daily rate (which is monthly salary/30, so AED 10,000/30 ≈ AED 333.33 per day), this employee’s gratuity would be about 172.5 × 333.33 ≈ AED 57,500.
If the computed total exceeds two years’ salary, it would be capped at that limit, but in this example it does not.
Employers should perform such calculations carefully or seek legal guidance to ensure accuracy.
While most free zones in Dubai (such as JAFZA, DMCC, Dubai South, etc.) follow the standard UAE gratuity framework, some special jurisdictions like DIFC have their own schemes.
DIFC Employee Workplace Savings
DIFC has a unique end-of-service benefit system.
In January 2020, DIFC replaced the traditional gratuity regime with the DIFC Employee Workplace Savings (DEWS) plan, a funded and managed contribution scheme.
Employers in DIFC must register employees in an approved savings plan and contribute monthly to it instead of accruing a lump-sum gratuity liability.
The mandatory contribution rates are 5.83% of the employee’s monthly basic salary for each of the first five years of service, and 8.33% of basic salary for each additional year beyond five.
These percentages effectively mirror the 21/30 days formula (since 5.83% and 8.33% are the monthly equivalents of 21 and 30 days per year, respectively).
Employees stopped accruing the old gratuity in DIFC as of 31 January 2020; any gratuity earned up to that date is preserved and will be paid out on termination or can be transferred into the DEWS scheme.
For all service from 1 February 2020 onward, the DEWS contributions replace the end-of-service gratuity in DIFC.
This scheme provides a regulated, invested fund for employees’ end-of-service benefits, offering more security and potential growth.
It’s important for DIFC-based employers and employees to understand that DIFC’s gratuity calculation now operates through this contribution model, not a one-time calculation at end of service.
Federal Optional Savings Scheme
A recent development affecting Dubai free zone gratuity calculation is the UAE government’s introduction of an optional end-of-service savings plan for private sector and free zone employees.
Announced by the UAE Cabinet in 2023, this system allows employers (optionally) to participate in a fund where monthly contributions are made towards employees’ end-of-service benefits.
All employees in the private sector and free zones, regardless of rank or work pattern, can be included if the employer opts in.
The aim is to safeguard and invest employees’ gratuity funds during their employment.
If an employer joins this system, it would replace the traditional gratuity payout at the end of service with the accumulated savings (including any investment returns).
However, this scheme is voluntary for employers and is supervised by the Securities and Commodities Authority in coordination with MoHRE.
As of 2025, many employers still use the standard gratuity system, but it’s important to be aware of this option as it gains traction.
Notably, financial free zones like DIFC have already implemented a similar concept with DEWS (which is mandatory within DIFC), while other zones may gradually see uptake of the optional scheme.
Legal Services Related to Gratuity Calculations in Dubai Free Zones
Gratuity calculations can be complex, and businesses must handle them in line with the latest laws to avoid disputes or penalties.
Our law firm in UAE offers a range of legal services related explicitly to Dubai free zone gratuity calculation:
- Legal Advisory on Gratuity Compliance: We offer guidance on UAE labor laws for free zone companies, helping employers understand their gratuity obligations under the 2025 regulations and apply proper calculation methods to ensure compliance.
- Employment Contract Review and Drafting: Our lawyers review and draft employment contracts and HR policies to ensure clarity and compliance with free zone regulations, including necessary clauses for the DIFC’s DEWS scheme.
- Gratuity Calculation Audits: We assist HR departments in auditing gratuity calculations for departing employees, verifying service lengths and salary components to avoid costly errors and disputes.
- DIFC and Special Scheme Guidance: We provide specialized support for DIFC companies and those considering the federal optional savings scheme. Our team helps employers navigate the DEWS registration and advises on the implications of opting into the UAE’s new gratuity savings fund.
- Dispute Resolution and Claims: We provide representation in gratuity disputes, handling negotiations, mediation, and litigation. We ensure employees receive their dues while helping employers resolve claims.
- Free Zone Compliance: We collaborate with free zone authorities (e.g., DMCC, JAFZA, DIFC Authority) to clarify regulations and address compliance issues for our clients.
All our legal services are tailored to the context of Dubai’s free zones, meaning we account for any zone-specific procedures or laws.
Engaging our firm can help companies confidently Dubai free zone gratuity calculation matters, and employees can seek knowledgeable counsel to protect their rights.
FAQs about Dubai Free Zones Gratuity Calculations
Conclusion.
Dubai Free Zone gratuity calculation generally follows UAE Labour Law, with certain exceptions, and requires at least one year of service.
The formula includes 21 days of pay for each year of service up to five years, and 30 days for additional years.
New initiatives like the mandatory DIFC Employee Workplace Savings (DEWS) scheme and the UAE’s optional savings plan
reflect a modern approach to employee benefits, adding some complexity for businesses.
It is advisable to consult legal experts to navigate gratuity calculations in free zones.
Our law firm can help ensure compliance, benefiting employers and employees and fostering fair employment relations in Dubai’s dynamic environment.
Contact our law firm in UAE for expert help. Click the Whatsapp icon below.
A law graduate and legal writer focusing on UAE law, he became known for his ability to clarify complex legal concepts through his writings. His work simplifies the intricacies of the legal landscape in the Emirates, helping both locals and expatriates navigate their legal concerns.
