What counts as basic salary

Gratuity is calculated on basic wage alone. For most employees in the UAE that is a fraction of the package they were hired on, and it is where the majority of gratuity disagreements begin.

Article 51

End-of-service gratuity is calculated on the basic wage. Allowances of every kind are excluded — housing, transport, mobile, education, fuel, and any other sum paid on top of basic.

Why this matters more than the formula

A typical UAE package is split. Someone earning 20,000 AED a month might have a contract that reads:

A representative split. The proportions vary widely by employer.
Component	Monthly	Counts for gratuity?
Basic wage	10,000	Yes
Housing allowance	7,000	No
Transport allowance	2,000	No
Mobile allowance	1,000	No
Total package	20,000	—

After five years, that employee's gratuity is 105 days of 10,000, not of 20,000 — 35,000 AED rather than 70,000. The formula is identical in both cases. The split is what halved the answer.

This is the number to check before anything else, and the place to look is your signed contract and your MOHRE offer letter, not your payslip total or what you tell people you earn.

Where to find your basic wage

The MOHRE employment contract you signed is the authoritative document. It itemises basic and each allowance separately.
Your payslip should show the same breakdown. If it shows only a single figure, ask HR for the split in writing.
The offer letter registered with MOHRE should match the contract. Where an offer letter and a later contract disagree, that discrepancy is worth taking advice on.

Which salary applies — the first or the last?

The basic wage at the time the employment ends. If you were promoted or received increases, the gratuity for your entire service is calculated on the final basic wage, not on what you earned in each year. That works substantially in your favour over a long career.

It also means a reduction in basic shortly before leaving reduces the gratuity for all preceding years. A salary restructure that cuts basic while raising allowances leaves the package unchanged and quietly shrinks the gratuity liability. If that is proposed to you, understand what it costs before agreeing.

A pattern worth recognising

An unusually low basic — say 30% of package — is legal but reduces every entitlement calculated on basic: gratuity, annual leave pay, sick pay and overtime. It is not something you can change at the end. It is something to negotiate at the offer stage, when the split is still open.

Commission, bonus and overtime

None of these form part of basic wage for the gratuity calculation, even where they are substantial and regular. A salesperson whose earnings are mostly commission will find the gratuity calculated on the small basic component alone.

Where commission is genuinely the principal remuneration and the arrangement appears structured to avoid statutory entitlements, that is an argument to put to a lawyer rather than a calculation to make yourself.

Questions

My contract shows one salary figure with no breakdown. What is my basic?

Where the contract states a single undivided wage, that figure is the wage for the purposes of the calculation. Employers who wish to exclude allowances have to itemise them. Ask for written confirmation of the split before you accept a lower figure.

I was promoted last year. Which basic is used?

The basic wage in force at the end of the employment, applied across your whole service period.

My employer cut my basic and raised my housing allowance. Is that allowed?

Changing contractual terms requires your agreement. The effect on your gratuity is real and worth quantifying before you sign anything — run both figures through the calculator and compare.

Does the housing allowance count if it is paid as a lump sum once a year?

No. How an allowance is paid does not change what it is. Only basic wage enters the gratuity calculation.

Reviewed 2026-09-19 against Federal Decree-Law No. 33 of 2021. General guidance, not legal advice — see the disclaimer.