End-of-service gratuity is one of the most important labor rights guaranteed to every employee who has completed a full year of employment. Many workers are unsure how to calculate their entitlement accurately, or what difference it makes whether they resign versus being dismissed. This article explains the calculation method in a straightforward way that applies to most labor systems in the Arab world.
End-of-service gratuity is a lump sum paid by an employer to an employee when their employment ends — whether due to contract expiry, dismissal, or resignation. It is regulated by labor laws in most Arab countries, though rates and details vary from one country to another.
An employee becomes eligible after completing one full year of continuous service. Those who leave before completing a year are generally not entitled to a gratuity, though some employers grant it voluntarily. In many systems, female employees who resign for family reasons such as marriage or childbirth are entitled to the full gratuity as provided by law.
Labor laws typically cover all private-sector employees, with exceptions for government employees and domestic workers who fall under separate regulations. Always verify the labor law in your country.
The calculation is based on the basic salary only (excluding allowances such as housing or transportation) and on the total years and months of service.
For dismissal or contract expiry: for each of the first five years, the employee receives half a month's salary (15 days); for each year beyond five years, a full month's salary (30 days) is due.
For resignation: if service is between 2 and 5 years, the employee receives one-third of the calculated gratuity. Between 5 and 10 years, two-thirds. After 10 years, the full amount as if dismissed.
Practical example: an employee with a basic salary of 6,000 units (in your local currency) who served 7 years and resigned. Gratuity as if dismissed = (5 × 3,000) + (2 × 6,000) = 27,000. Upon resignation after 7 years (between 5 and 10), they receive two-thirds = 18,000. Note: percentages may differ based on labor law in your country.
Fixed-term contract (e.g., a two-year contract): if the employer terminates it early without a legitimate reason, additional compensation of at least the remaining period's salary is added on top of the gratuity. If the employee leaves early without justification, they may be liable for compensation.
Open-ended contract: the employer cannot terminate an employee without a legitimate reason; arbitrary dismissal entitles the employee to full compensation. Resignation generally requires one month's notice.
In both cases, arbitrary dismissal obligates the employer to pay the full gratuity regardless of service duration, in addition to the system-prescribed compensation.
Labor laws include specific cases where an employer may withhold all or part of the gratuity: if the employee caused a serious financial loss to the company, disclosed trade secrets, committed a grave breach of their obligations, or was convicted of a crime involving dishonesty.
These are exceptional circumstances; an employer cannot invoke them arbitrarily. Disputes are resolved by the competent labor courts. Always obtain a written termination letter documenting the reason your employment ended.
The employer is obligated to pay the gratuity immediately upon termination. If payment is delayed, the employee may file a complaint through the electronic labor complaint platforms or labor offices in their country.
Make sure you obtain a termination letter stating the reason for ending employment (resignation or dismissal), and keep copies of your qualifications and work documents. You can use the End-of-Service Calculator on Haseebat to determine the exact amount due before making a claim.
A: In most labor systems, it is calculated on basic salary only and does not include allowances such as housing, transportation, or food. Some companies calculate it on total salary as a matter of policy, which is better for the employee.
A: Legally, you are not entitled to gratuity if you have not completed a full year. However, some employers grant it voluntarily. Check your employment contract, as it may stipulate a gratuity after, say, six months.
A: In most countries, labor laws apply to all private-sector workers regardless of nationality, and the gratuity is the same for citizens and foreign workers. Check the labor law in your country to confirm.
A: In many countries, end-of-service gratuity is exempt from income tax or receives special tax treatment. Consult the applicable tax laws in your country to understand what applies to your situation.
A: Months beyond full years are calculated on a pro-rata basis. For example, someone with 3 years and 6 months receives gratuity for 3.5 years. Remaining days are also calculated proportionally.
A: The employer may deduct any debts the employee owes the company (loans, advances, or notice-period compensation), provided the deduction does not exceed half the gratuity value unless there is a court order to the contrary.