Rules of Calculating the End of Service Gratuities Abu Dhabi Lawyer
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The Rules of Calculating the End of Service Gratuities
In accordance with the Federal Law No. 8 of 1980 and its amendments
The remuneration for which basis the end of service gratuity is calculated.
Article No. 134 states that: “Without prejudice to the provisions of what has been decided by certain laws regarding the granting of pensions and gratuities to employees in certain establishments, the end of service gratuity shall be calculated on the basis of last wage which the employee was entitled to, in respect of those drawing their salary per month, week or day, and on the basis of average daily wage stipulated in Article (57) in respect of those drawing their wages on piece work basis. The wage which is considered as basis for computation of the end of service gratuity shall not include anything given to the employee in kind, housing allowance, transport allowance, travel allowance, overtime allowance, representation allowance, cashier’s allowance, children education allowance, recreation and social services allowance or any other allowances”.
Therefore, the basis for calculating the end of service gratuity does not include all what is given to the employee in kind, overtime and all other allowances, which is mainly for the employee who is still at his job. The employee is not entitled to compensation for the overtime if his service for the employer is over/ended.
The duration for which basis the gratuity is calculated:
As Article No. 132 States that: 1) Twenty one day’s pay for each year of the first five years of service. 2) Thirty days pay for each additional year.
For example: In the event that the employee has spent seven consecutive years in the service of the employer, the end of service gratuity for this employee is equivalent to one twenty-one days for each of the first five years of service, plus thirty days’ wages for each of the following two years. The remuneration of the employee may not exceed two years, unless employment duration exceeds 25 years.
The impact of leaving the employee his work by his choice:
We distinguish here between two cases in which the employee left the work according to the nature of the existing contract, whether it was limited or unlimited contract, if it is Unlimited contract the rules of Article No. 137shall be applied when calculating the end of service gratuity as follows; If an employee under a contract with unlimited period has left his work at his own option after a continuous service of not less than one year and not more than three years, he shall be entitled to one third of the end of service gratuity provided for in the previous Article. If the period of his continued service is more than 3 years and less than 5 years he becomes entitled to 2/3 of the said gratuity, but if his continued service exceeds 5 years, he becomes entitled to the entire gratuity
Noting that the employee of an unlimited contract is deprived of the end of service gratuity if he leaves the work by his own choice and without warning the employer, in accordance with Article (139) of this law.
And in the event of the limited term contract the rules of Article No. 138 shall be applied; “If an employee under a contract with limited period leaves his work at his own option before the end of the contract period he shall not be entitled to end of service gratuity unless the period of his continuous service exceeds five years”.
It is worth noting that if the contract is terminated for a reason that does not relate to the employee’s will, then the text of Article No. 132 shall be applied in this case. For example, when the contract is terminated by the employer for reasons other than the cases which stipulated in Article No. 120 or in the event of (1) the death of the employee or the employer if the subject of the contract was connected to him, (2) the end of the term of the contract, if the contract is limited-term, (3) the employer’s breach of the obligations agreed upon in the contract or stipulated in the law, including the performance of the wages on the scheduled dates which led the employee to leave his work.
The employee is entitled to have a gratuity for the fractions of the year:
As states in Article No. 133: “The employee shall be entitled to end of service remuneration in respect of fractions of the year payable pro rata to the time actually worked provided that he has completed one year of continuous service”.
The law stipulates that the worker shall not be entitled to the end of services gratuity unless he completes one or more years in the service of the employer. If the employee continues to serve the employer for a period of one year and two months, then his service is ended, he will be entitled to have the end of service gratuity for the year in addition to the gratuity for the extra two months.
Accordingly, we can consider that the employee’s end of service gratuity is calculated in months rather than years, provided that the employee`s continuous period of service for the employer should be one year or more.
The Gratuity, the saving fund and the system of retirement or insurance:
When a saving fund is existing in the establishment we have to distinguish between two cases as states in Article No. 140: “In any establishment where a saving fund is raised for employees and if the regulations of such fund provide that payments made by the employer to the fund for the account of employee is a legal commitment against the end of service gratuity, the amount of savings or benefits due hereunder shall be paid whichever is greater. If the fund regulations have no provisions that amounts paid by employers is a legal commitment for the end of service gratuity, the employee shall collect amount due to him from the saving fund in addition to the legal gratuity”
In accordance with the aforementioned Article, the employee may be entitled to have the gratuity in addition to his share in the saving fund in the event that the saving fund did not stipulate that the amounts paid by the employee is for his legal obligation concerning the end of service gratuity. If the scheme of the fund states the opposite the employee shall be entitled to has the saving amount or the entitled gratuity pursuant to the law, whichever is greater.
In addition, Article No. 141 states the case of the existence of a scheme for retirement or insurance in the establishment. In this case, the employee may be entitled to a retirement pension and he may choose between pension and the prescribed gratuity or what he deserves in the annuity fund or insurance, whichever is favorable. As follows; “In any establishment where a pension or insurance schemes or similar schemes are maintained, the employee who is entitled to retirement pension may select either this latter or the prescribed gratuity or whichever from both thus is more favorable to him”
Also, we should refer to the text of Article No. 136 which states that: “ In fulfillment of the provisions of Article (132), cases of employment preceding the effective date of this Law shall not be considered as cases entitling the employee to end of service gratuity. Without prejudice to rights acquired by the employee under any repealed labor law or contracts of employment, agreements, by-laws or regulations of the establishment. In the event of his death, the employee’s gratuity shall be paid to his legal heirs.”
The aforementioned Article includes a special provision for civil servants, whereas it considered the cases of employment which preceded the issuance date of the Labor Law in 1980 as the cases for which the employee is entitled to the end of service gratuity if the employee is a citizen, meaning that the citizen employee who spent a certain period for the employer before the law came into force, this period shall be calculated when calculating the end of service gratuity. However the non-citizen employee shall be excluded and his end of service gratuity shall be calculated as of the issuance date of this law ( 1980)