How Are Gratuity and Annual Leave Calculated When Transferring Within Group Companies?

Query on UAE Gratuity and Annual Leave Carry Forward Rules

I have a query regarding UAE gratuity and annual leave carry forward rules in case of transfer within group companies.

For example, when an employee gets transferred within the group:

• 1st Company
- Tenure: 3 years
- Basic salary: 5000 AED per month
- Gratuity as per UAE law will be = 10500 AED (5000/30 days * 21 days * 3 years)

• 2nd Company
- Tenure: 1 year
- Basic salary: 7000 AED per month
- Gratuity will be = 4900 AED (7000/30 days * 21 days * 1 year)

Gratuity Calculation at the End of 4 Years

1) If gratuity is calculated for 4 years based on the last drawn salary, then the amount will be 19600 AED (7000/30 * 21 * 4 years).

OR

2) Will it be broken down as per the last salary drawn in the individual companies, i.e., 10500 + 4900 = 15400 AED?

Annual Leave Balance Transfer and Final Settlement

The annual leave balance will be transferred from one company to another, but how will it be computed in the case of final settlement?

For example:

- In the 1st company, the annual leave balance was 30 days and was carried forward to the new company.
- In the 2nd company, the employee accrues 30 more days, and the balance is 60 days cumulatively.

Now, during final settlement, how will it be calculated? Is it based on the last drawn salary or split up?

Gratuity Calculation for UAE Employees

Gratuity is calculated as follows:

Gratuity is based on the basic salary. According to labor law, gratuity is 21 days.

If the staff has completed 1 year but less than 3 years, they will be eligible for 1/3rd of the gratuity, i.e., 7 days of the last drawn basic salary multiplied by the number of years completed.

If the staff has completed 3 years but less than 5 years, they will be eligible for 2/3rd of the gratuity, i.e., 14 days of the last drawn basic salary multiplied by the number of years completed.

If the staff has completed 5 years, they will be eligible for full gratuity, which is 21 days of basic salary multiplied by 5 years.

Case Study: Gratuity Calculation

In your staff's case:

Gratuity calculations are as follows:

- The last drawn basic salary is 7000 AED.
- Completed years: 4 years (less than 5 years), so eligible for 14 days of basic salary as gratuity.
- Gratuity will be 13,066 AED = (7000/30 * 14 * 4).

Accrued leave in the first company should have been paid while changing between the group. Since it hasn't been paid earlier, it's based on the last drawn salary only, with the understanding that the employee is working under the visa and labor card obtained through the first company.

Best Regards,
Guru

Thanks for the reply. But the calculation that you have provided is based on resignation; in the case of transfer, the amount accrued will be on 21 days, not on the basis of 1/3rd or 2/3rd of gratuity accrued, right?

Anyways, to be precise on the question earlier asked; the question I wanted to focus on was how the company will backcharge the old company.

After a bit of research and discussion with senior HR people, the calculation on backcharging to old companies will be as follows:

Gratuity Calculation for Backcharging

The 1st company will calculate gratuity accrual as per the old salary, which is = 5000/30*21*3 = 10500/-

The 2nd company will calculate the Gratuity = 7000/30*21*1 = 4900/-

But since the service is continuous and the employee has been in continuous service with the group, the gratuity will be calculated = 7000/30*21*1 = 19600/-

The 2nd company will bear the additional liability of the gratuity because there is an increase in basic pay and has to cover up the difference in cost. Hence, the 2nd company will backcharge the 1st company 10500/- and bear the additional liability of 4200/- (19600-10500-4900=4200).

The amount payable to the employee will be based on the last drawn salary without loss to the employee for serving continuously in the group = 19600/-(10500+4200+4900).

Hope the answer is clear...

Gratuity Calculation as per UAE Law

1 year to less than 3 years - 7 days' salary per year.

3 years to less than 4 years - 14 days' salary per year.

4 years to less than 5 years - 21 days' salary per year.

After 5 years, 30 days' salary will be given.

I would like to correct you on the gratuity calculation details as mentioned by you: "4 years to less than 5 years - 21 days salary/year" - this is incorrect. The UAE Law has only 3 tiers:
1-3 years: 7 days (1/3rd of 21 days basic salary)
3-5 years: 14 days (2/3rd of 21 days basic salary)
5 years and above: full gratuity on 30 days basic salary for every additional completed year of service.

There is also an upper ceiling to gratuity payout; the total gratuity should not exceed 2 years' pay.