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2 March 2026By Ruan van Rensburg
EOSB stands for End-of-Service Benefits. Its a lump-sum payment that every UAE employer must pay to an employee when their employment contract ends, provided the employee has completed at least one year of continuous service. EOSB is governed by Federal Decree-Law No. 33 of 2021 (the UAE Labour Law), specifically Article 51, which sets out the calculation formula, eligibility criteria, and payment obligations.
Since 2023, employers can alternatively enroll in the Voluntary Alternative End-of-Service Benefits Scheme established by Cabinet Resolution No. 96 of 2023. Under this scheme, the employer pays monthly contributions to a regulated investment fund rather than a lump sum at the end of employment. This guide explains both systems and why actuarial valuation remains essential under either approach.
Last reviewed: July 2026
Under Article 51 of Federal Decree-Law No. 33 of 2021, the EOSB calculation follows a two-tier formula based on the employee's basic salary and length of service.
| Service period | Rate |
|---|---|
| First 5 years | 21 days of basic salary per year |
| Each year beyond 5 years | 30 days of basic salary per year |
| Maximum cap | 2 years of basic salary (24 months) |
The daily rate is calculated as monthly basic salary divided by 30. Basic salary excludes all allowances such as housing, transport, and commissions. Only the fixed "basic salary" figure in the employment contract is used.
Worked example: An employee with a basic salary of AED 10,000 per month and 6 years of service would receive the following.
| Component | Calculation | Amount |
|---|---|---|
| Tier 1 (first 5 years) | 5 x 21 x (10,000 / 30) | AED 35,000 |
| Tier 2 (1 year beyond 5) | 1 x 30 x (10,000 / 30) | AED 10,000 |
| Total EOSB | AED 45,000 |
Since the 2021 law reform, there is no penalty for resignation. Employees receive the full EOSB amount whether they resign or are terminated, as long as they have completed at least one year of service. The only exception is dismissal for gross misconduct under Article 44, where the employer may reduce or withhold EOSB.
The employer must pay the full EOSB within 14 days of the employee's last working day. This is a statutory obligation independent of visa cancellation processes.
Under the standard UAE Labour Law, employees are entitled to a gratuity payment based on their final basic salary and length of service. The formula is 21 days of basic salary for each year of service for the first five years, then 30 days of basic salary for each additional year beyond five years.
The total gratuity is capped at two years of basic salary.
The weakness of this model is its unpredictability. Because the payout is based on the final salary, any promotion or annual increment given today retroactively increases the liability for every year that employee has already served. This is why specialized actuarial valuations are essential for maintaining an accurate balance sheet. A 10 percent salary increase for a 10-year employee increases the gratuity liability for all 10 years, not just the year going forward.
Launched as a voluntary alternative under Cabinet Resolution No. 96 of 2023, the new Savings Scheme allows employers to pay monthly contributions into an investment fund rather than carrying an unfunded lump-sum liability on the balance sheet.
Professional staff: Employers contribute a monthly percentage (5.83 percent for less than five years of service, 8.33 percent for five years or more) into a regulated fund managed by licensed providers approved by the Securities and Commodities Authority.
Employee contributions: Unlike traditional gratuity, employees can also choose to make voluntary contributions to their individual accounts, building personal savings alongside the employer contribution.
Portability: If an employee leaves, they can elect to receive their accumulated pot, leave it invested, or transfer it. This is a significant shift from the traditional "all or nothing" gratuity payout.
| Factor | Traditional Gratuity | Savings Scheme |
|---|---|---|
| Funding | Unfunded lump sum at exit | Monthly contributions to investment fund |
| Liability growth | Grows with every salary increase | Based on current salary only |
| Balance sheet impact | Growing unfunded liability | Funded, reduces over time |
| Investment risk | Employer bears all risk | Employee selects risk profile |
| Cash flow predictability | Unpredictable lump sums on exit | Predictable monthly outflows |
| Employee benefit | Guaranteed lump sum | Potential for investment growth |
Whether you stay with the traditional model or transition to the Savings Scheme, financial reporting standards like IAS 19 require you to measure and report these obligations accurately. An IAS 19 valuation is not optional for any organisation preparing IFRS-compliant financial statements.
Many companies make the mistake of assuming their gratuity liability is simply current salary multiplied by years of service. This ignores three critical actuarial factors.
Discount rates: The time value of money means a future payment is worth less today. The discount rate is derived from high-quality bond yields at the duration matching your liability.
Salary escalation: Future pay raises must be projected. A 3 percent annual increase compounds significantly over a 10-year employee tenure.
Attrition rates: Not every employee stays long enough to collect gratuity. Turnover assumptions reduce the reported liability, but they must be defensible to auditors.
Failure to accurately value these benefits can lead to significant shocks on the cash flow statement and balance sheet when audit season arrives. If you are considering the transition to the alternative savings scheme, our EOSB advisory team can help you model the cash-flow impact and compare fund managers independently.
If your organization is considering the move to the alternative Savings Scheme, follow these steps to ensure compliance.
Conduct a financial and gap analysis. Use an actuarial financial review to determine your current accrued liability under the traditional model, then compare it against the projected cost of the savings scheme over a 5 to 7 year horizon.
Obtain board approval. The move to the Savings Scheme is a long-term financial commitment, though typically cheaper than the existing EOSB model once the transition period ends. Your board needs year-by-year cash-flow projections showing the double-payment period where both legacy liabilities and new contributions run in parallel.
Communicate with employees. Clear communication is vital. Employees need to understand that their past service is protected, that the new scheme offers investment growth potential, and that they have choices about their risk profile and voluntary contributions.
Partner with independent experts. Select a CMA-regulated financial consultancy that will give you independent, experienced, professional advice. Fund managers cannot offer independent advice because they sell their own products. Your advisor should have no ties to any fund manager.
The UAE is rapidly aligning its labor market with global standards. While the traditional EOSB model served the region well for decades, the savings scheme offers a more sustainable path forward for both employers and employees. The scheme is voluntary today, but the regulatory direction is clear.
By staying ahead of UAE End of Service Benefits regulations and ensuring your IAS 19 compliance, you protect your balance sheet and your workforce. The right time to assess your options is before adoption becomes mandatory.
Need employer-specific support? Our UAE EOSB consultancy helps boards compare the Alternative Savings Scheme with traditional gratuity, model legacy liabilities and cash flow, select a fund manager, and implement the transition.
EOSB is not part of your monthly salary. It is a separate end-of-service benefit payment that your employer must pay when your employment ends, provided you have completed at least one year of service. It is calculated on your basic salary only, not your total package. Under Federal Decree-Law No. 33 of 2021, you are entitled to 21 days of basic salary per year for the first 5 years and 30 days per year thereafter.
Any private-sector employee who has completed at least one year of continuous service with the same employer is eligible for EOSB. This includes full-time, part-time (calculated proportionally), and limited or unlimited contract employees of all nationalities. Government employees and domestic workers are covered by separate laws. Probation periods count toward the one-year requirement.
EOSB is calculated on basic salary only. Housing allowance, transport allowance, commissions, bonuses, and all other allowances are excluded. Check your employment contract for the basic salary figure. If your contract shows only a single total amount with no breakdown, the entire amount is treated as basic salary for EOSB purposes.
Yes. Since the 2021 labour law reform, there is no penalty for resignation. You receive the full EOSB amount whether you resign or are terminated, as long as you have completed at least one year of service. The only exception is dismissal for gross misconduct under Article 44, where the employer may reduce or withhold the payment.
The Voluntary Alternative End-of-Service Benefits Scheme was established by Cabinet Resolution No. 96 of 2023. Instead of paying a lump sum at the end of employment, the employer makes monthly contributions to a regulated investment fund. The employee can choose between different investment risk profiles. The scheme is voluntary as of 2026.
Your employer must pay your full EOSB within 14 days of your last working day. This is a statutory obligation under UAE law and is independent of visa cancellation processes. If the employer fails to pay, you can file a free complaint with the Ministry of Human Resources and Emiratisation (MoHRE).
The total EOSB is capped at 2 years (24 months) of your basic salary. For most employees this cap never applies. It only affects those with very high salaries combined with very long service, typically 20 or more years at senior salary levels.
For most free zones including JAFZA, DMCC, and DAFZA, the standard federal EOSB rules apply. However, DIFC and ADGM have their own separate employment laws with different gratuity calculations. Check which law governs your employment contract.
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