Insights · End of service benefits
Basic salary and end of service benefits in the UAE: why the split matters
/4 min read
End of service benefits in the UAE are calculated on basic salary, not total salary. For employers using the alternative end of service benefits scheme ("UAE Savings Scheme"), basic salary is the single input that sets monthly contribution cost: 5.83% of monthly basic for the first five years of service and 8.33% after that.
The split between basic salary and allowances is now a funding decision made every payroll cycle. It shapes both the cost of the scheme, and the value employees see in it. It also contributes towards the strength of the company's employee benefit offering.
Is end of service gratuity calculated on basic or total salary?
Basic salary. Under Article 51 of Federal Decree-Law No. 33 of 2021, a full-time expatriate employee with at least one year of continuous service earns 21 days' basic wage for each of the first five years and 30 days' for each year after that, capped at two years' wage.
Housing, transport and other allowances are not counted. Because the traditional gratuity is calculated on basic wage at exit, it is an unfunded liability that moves with every salary review: one increase in basic salary revalues the entire accrued balance on the employer's books.
How much does an employer contribute under the alternative end of service benefits scheme?
An employer pays 5.83% of monthly basic salary for service of up to five years and 8.33% for service beyond five years. Cabinet Resolution No. 96 of 2023 set these rates when it introduced a voluntary alternative to the gratuity for private sector employers onshore and in most free zones.
| Service with the employer | Monthly employer contribution |
|---|---|
| Up to five years | 5.83% of monthly basic salary |
| More than five years | 8.33% of monthly basic salary |
How does the basic salary split change contribution cost?
On the same AED 30,000 salary, a 60 per cent basic split costs AED 174.90 a month more in contributions than a 50 per cent split during the first five years, and AED 249.90 a month more after that. Over five years that is AED 10,494 per employee, all of it invested for the employee rather than held as a liability.
| Per employee, AED 30,000 salary | 50 per cent basic | 60 per cent basic |
|---|---|---|
| Basic salary (AED a month) | 15,000 | 18,000 |
| Contribution, years 1 to 5 (AED a month) | 875 | 1,049 |
| Contributions, years 1 to 5 (AED a year) | 10,494 | 12,593 |
| Contributions over five years (AED) | 52,470 | 62,964 |
| Contribution from year 6 (AED a month) | 1,250 | 1,499 |
This is an element of a company's benefit offering that may go unnoticed, particularly to employees new to the region, but which should be highlighted. Across a workforce the difference scales with headcount, so the split is worth settling before enrolment.
Figures are illustrative employer contributions only. They exclude investment returns and fees, and assume basic salary stays the same throughout the period.
What changes for employers when gratuity becomes a monthly contribution?
Cost becomes predictable. Under the gratuity model, the employer carries a liability revalued by each employee's final basic salary. Under the savings scheme model, each month's contribution is fixed by that month's basic and paid away, so a salary review changes future contributions rather than the whole past balance.
The legacy liability is fixed at enrolment. Gratuity earned before an employer joins the scheme is preserved.
Allowance increases do not change contributions. Where pay reviews land matters, because employees see the result in their balances every month.
The minimum is not the ceiling. Employers that want to strengthen the benefit can pay employer enhanced contributions above the basic subscription, and employees can add their own voluntary contributions. Cabinet Resolution No. 96 of 2023 neither expressly permits nor prohibits the use of the Savings Scheme to allow employers to facilitate contractually promised employer contributions offered over and above the basic subscription. The approach to allow employer enhanced contributions is effective within DIFC qualified schemes.
How should employers manage the basic salary split?
Treat the split as part of scheme design, not just payroll. Before enrolling employees in an alternative end of service benefits scheme, employers should be able to answer:
- Does the current basic and allowance split reflect what you intend to provide at end of service?
- Are pay reviews applied to basic salary consistently across the employee categories you enrol?
- Would employer enhanced contributions close a gap that the salary structure creates?
Cohlay builds the infrastructure behind workplace savings in the UAE: the employer portal, administration and member experience that scheme providers need to run an approved savings scheme.
Sources
- Cabinet Resolution No. 96 of 2023, UAE Legislation portal
This article is general information, not legal or financial advice.