Gratuity Calculator

Gratuity (also called end-of-service benefit, severance pay, or service gratuity) is a lump-sum payment made by an employer to an employee upon resignation, retirement, or termination after completing a qualifying period of service. It is legally mandated in many countries and is separate from provident fund contributions.

Three systems are covered here, because they work differently enough that using the wrong one produces an answer that is not just imprecise but structurally wrong. Pick the scheme that governs your contract.

India: Payment of Gratuity Act, 1972

Gratuity = (Last Drawn Salary × 15 × Years of Service) ÷ 26

Where:

• Last Drawn Salary is Basic Pay plus Dearness Allowance (DA). It is not total gross salary, and this is the single most common mistake people make with this formula.
• 15 is fifteen days’ worth of salary earned per year of service
• 26 is the working days in a month, being a 30-day month less four Sundays
• Years of Service rounds up when the final part-year exceeds six months, and down otherwise. Twelve years and seven months counts as thirteen; twelve years and five months counts as twelve.

Employers not covered by the Act (broadly, establishments under ten employees) commonly use the same formula with a divisor of 30 instead of 26, which produces about 13% less.

Eligibility: five years of continuous service. The five-year rule is waived if service ends through death or permanent disablement.

The ceiling: ₹20 lakh (₹2,000,000) is the maximum that is exempt from income tax. Anything above it is taxable in the employee’s hands. The cap is on the exemption, not on what an employer is allowed to pay.

UAE: Federal Decree-Law No. 33 of 2021

Calculated on basic salary only, excluding housing, transport and other allowances.

• Under 1 year of service: nothing is payable
• First 5 years: 21 days’ basic salary for each year
• Beyond 5 years: 30 days’ basic salary for each additional year
• Total is capped at two years’ wages

Gratuity = (Basic ÷ 30) × 21 × (first 5 years) + (Basic ÷ 30) × 30 × (years beyond 5)

The 2021 law removed the old sliding scale that cut a resigning employee’s gratuity to a third or two thirds. Resignation and end of contract are now treated the same way.

Saudi Arabia: Labor Law, Articles 84 and 85

The award accrues at half a month’s wage for each of the first five years, and a full month’s wage for each year after that. Note that this is an employer obligation and has nothing to do with GOSI, which is the separate social insurance scheme.

What changes is how much of that award you actually receive when you resign:

If the employer terminates the contract, or the contract simply ends, the full award is payable regardless of length of service.

Worked example, India

Basic salary ₹45,000/month, DA ₹5,000/month, service of 12 years and 7 months.

• Eligible salary: ₹45,000 + ₹5,000 = ₹50,000
• Rounded service: 12 years 7 months is over the half-year mark, so 13 years
• Gratuity: (₹50,000 × 15 × 13) ÷ 26 = ₹9,750,000 ÷ 26 = ₹375,000
• Tax: ₹375,000 sits well under the ₹2,000,000 ceiling, so it is fully exempt

Worked example, UAE

Basic salary AED 8,000/month, service of 7 years.

• First 5 years: (8,000 ÷ 30) × 21 × 5 = 266.67 × 21 × 5 = AED 28,000
• Next 2 years: (8,000 ÷ 30) × 30 × 2 = 266.67 × 30 × 2 = AED 16,000
• Total: AED 44,000, comfortably under the two-year wage cap of AED 192,000

These are summaries of the statutes as they stand, not legal advice, and all three countries amend their labour codes regularly. Check the figure against your own contract and a current copy of the law before you rely on it in a negotiation.