An amount of money that a government requires people to pay according to their income, the value of their property, etc., and that is used to pay for the things done by the government.A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity) by a governmental organization in order to fund government spending and various public expenditures (regional, local, or national), and tax compliance refers to policy actions and individual behaviour aimed at ensuring that taxpayers are paying the right amount of tax at the right time and securing the correct tax allowances and tax reliefs.The first known taxation took place in Ancient Egypt around 3000–2800 BC. A failure to pay in a timely manner (non-compliance), along with evasion of or resistance to taxation, is punishable by law. Taxes consist of direct or indirect taxes and may be paid in money or as its labor equivalent.
International Financial Reporting Standards (IFRS) are a set of accounting rules for the financial statements of public companies that are intended to make them consistent, transparent, and easily comparable around the world.
IFRS currently has complete profiles for 167 jurisdictions, including those in the European Union. The United States uses a different system, the generally accepted accounting principles (GAAP).
The IFRS is issued by the International Accounting Standards Board (IASB).
The IFRS system is sometimes confused with International Accounting Standards (IAS), which are the older standards that IFRS replaced in 2001.
KEY TAKEAWAYS
Gratuity Calculation in UAE – Updated for 2022
Gratuity is a great way to improve employee retention and at the same time it encourages employees to stay longer for their employers. UAE’s labor law requires businesses to pay gratuity to employees who have provided more than a year of continuous service. Whether you’re a business owner or an employee, at some point you want to know how much gratuity you owe to your employees or how much gratuity your employees can claim from you. This guide will provide detailed information to both the parties.
What is Gratuity?
Gratuity is a form of end-of-services benefits that employees are entitled to. Simply put, it is a sum of money awarded to an employee from the employer, as a token of appreciation for their services. The UAE labor law dictates that any employee who has worked for a company for a certain amount of time is entitled to gratuity.
Employees on, both, limited and unlimited contracts are eligible for gratuity (provided that they meet other pre-requisites as well).
The exact amount of gratuity owed to an employee is determined by a handful of factors. There’s a complete formula through which one’s gratuity amount is calculated. Before we get into the gratuity calculation method, let’s go through the eligibility criteria first.
Who is Eligible for Gratuity?
Gratuity isn’t something that every employee can get. There are a several conditions that must be met. Some of these conditions are:
Gratuity computation sounds rather complex, but once you wrap your head around the basics, it becomes quite easy to understand. Your gratuity amount depends on 3 main factors:
In both types of contracts, your gratuity calculation varies depending on whether you resign or get fired. Gratuity payment calculation is further broken down into 3 tiers:
• 1-3 years of service
• 3-5 years of service
• 5 years and more of service
If an employee is terminated, then only 2 tiers remain:
• 1-5 years of service
• 5 years or more of service
As an employee progresses through these tiers, the calculation for their payment changes.
Upon Resignation
• For employees who have worked for 1-3 years, their gratuity consists of 1/3rd of their basic salary of 21 days for each year of service.
• For employees who have worked for 3-5 years, their gratuity consists of 2/3rd of their basic salary of 21 days for each year of service.
• After 5 years or more of service, an employee’s gratuity consists of their complete basic salary of 21 days for each year of service.
Upon Termination
• For employees who have worked for 1-5 years, their gratuity consists of their basic salary of 21 days for each year of service.
• For employees who have worked for more than 5 years, their gratuity consists of their basic salary of 21 days for up to their 5th year of service. For every year after their 5th year, 30 days’ basic salary is counted.
For limited contracts, the rules of calculation are more or less the same. Your gratuity calculation will vary based on the number of years you’ve worked and the nature of your termination. However, the payment tiers will be different:
• Completion of a contract with less than 5 years of service
• More than 5 years of service
If you have been fired then the following tiers will apply to you:
• 1-5 years of service
• 5 years or more of service
Upon Resignation
• If you have completed your contract with less than 5 years of service, your gratuity will consist of your basic salary for 21 days for every year of service.
• If you have more than 5 years of service, then your gratuity will consist of your basic salary for 21 days of your first 5 years. For every year after their 5th year, 30 days’ basic salary is counted.
Upon Termination
• For employees who have worked for 1-5 years, their gratuity consists of their basic salary of 21 days for each year of service.
• For employees who have worked for more than 5 years, their gratuity consists of their basic salary of 21 days for up to their 5th year of service. For every year after their 5th year, 30 days’ basic salary is counted.
Upon Resignation
• For 1-3 years of service:
Gratuity = (7 days X Basic Salary X Service Years)/30
• For 1-5 years of service:
Gratuity = (14 days X Basic Salary X Service Years)/30
• For more than 5 years of service:
Gratuity = (21 days X Basic Salary X Service Years)/30
Upon Termination
• For 1-5 years of service:
Gratuity = (21 days X Basic Salary X Service Years)/30
• For more than 5 years of service:
Gratuity = (30 days X Basic Salary X Service Years)/30
Upon Resignation
• For completion of contract with less than 5 years of service:
Gratuity = (21 days X Basic Salary X Service Years)/30
• For more than 5 years of service:
Gratuity = (30 days X Basic Salary X Service Years)/30
Upon Termination
• For 1-5 years of service:
Gratuity = (21 days X Basic Salary X Service Years)/30
• For more than 5 years of service:
Gratuity = (30 days X Basic Salary X Service Years)/30
If you don’t have the time to apply these formulas on your own, you can use an online Gratuity calculator tool instead.
While it’s good for an employee to have a basic understanding of gratuity calculation, it can also be confusing. The UAE Gratuity Calculator is a really useful tool that takes care of all the technical elements of gratuity calculation in UAE. You can find this tool on the Dubai Development Authority’s (DDA) website. Just follow these steps and calculate the exact amount owed to you:
1. Go to the DDA’s website and open the gratuity calculator.
2. The tool will ask you for basic information regarding your contract type, service years, method of separation, and your basic salary. Enter all of this information and click the “calculate” button.
3. The tool will calculate your exact gratuity for you
4. A great thing about this tool is that since it’s provided by the authorities, its calculation methods are up-to-date with current laws.
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