What Severance Pay Rules Must Employers Follow in The United Arab Emirates?

Which Employees Qualify for Severance Pay?

• Most private-sector employees on the mainland with at least one year of continuous service are entitled to end-of-service gratuity on termination.
• Employees on unlimited or fixed-term contracts qualify, provided the termination is lawful and not for a reason that forfeits gratuity under the Labour Law.
• Full-time employees are covered, while part-time and flexible workers may receive a proportionate gratuity if they meet statutory criteria.
• UAE nationals in the private sector are usually covered by pension schemes instead of gratuity, so different rules can apply to them.
• Free zone employees generally qualify where the free zone applies the UAE Labour Law or has similar gratuity provisions in its own regulations.
• Employees dismissed for gross misconduct under the law may lose their gratuity entitlement, depending on the circumstances and proof.

What Are the Legal Timelines for Paying Severance?

In the UAE, you are expected to settle all final dues, including end-of-service gratuity, promptly upon termination of employment. While the Labour Law does not fix a single universal payment deadline, the market norm and court expectations are that payment is made within a few days of the last working day, and unnecessary delay can trigger disputes. Many employers target payment within 7 to 14 days to stay clearly on the safe side. You should also factor in time for visa cancellation, return of company property, and final payroll calculations. Document the calculation, obtain written acknowledgment from the employee, and keep records in case of inspection or claim.

What Penalties Apply if Severance Is Not Paid Correctly?

If your company fails to pay end-of-service gratuity correctly or on time, you risk labour complaints, court claims, and financial penalties. The Ministry of Human Resources and Emiratisation (MOHRE) can investigate, and courts can order payment of underpaid amounts plus additional sums and costs. Non-compliance can also affect your company’s ability to obtain or renew work permits and may damage your reputation with regulators and employees.

• Employees can file complaints with MOHRE, leading to investigations and binding settlement directions.
• Courts may award the unpaid gratuity plus legal interest and court fees against your company.
• Administrative fines can be imposed for breaches of the Labour Law and failure to follow MOHRE decisions.
• Serious or repeated violations can lead to suspension or downgrading of your company’s MOHRE classification.
• Disputes over gratuity can trigger audits of wider HR practices, increasing compliance risk.

Does Outsourcing Employment via an EOR Change Severance Liability?

Using an Employer of Record (EOR) such as https://www.playroll.com/employer-of-record does not remove the need to comply with UAE end-of-service rules, but it can shift how obligations are managed in practice. In most EOR models, the EOR is the legal employer on paper and is responsible for calculating and paying gratuity in line with UAE law. However, your company typically funds these costs through service fees, and contracts will allocate ultimate financial responsibility back to you. If the EOR miscalculates or delays payment, employees and regulators may still look to both the EOR and your business for a remedy. You should therefore ensure your EOR has strong local expertise, transparent calculations, and clear indemnities around severance compliance.

Be 100 Percent Compliant in Offering Severance with Playroll

Playroll helps your company stay compliant with UAE severance rules by embedding local legal requirements into every employment setup. Our team tracks changes to the Labour Law, free zone regulations, and MOHRE guidance, so your contracts, policies, and terminations reflect current rules on gratuity eligibility and calculation. We standardise documentation around resignations, dismissals, and end-of-contract scenarios, reducing the risk of disputes about whether gratuity is owed and how it was computed.

When you use Playroll as your global employment partner, we handle the heavy lifting on end-of-service calculations, final pay runs, and record-keeping. You get clear breakdowns of each employee’s gratuity accrual and final entitlement, so finance teams can forecast costs and approve payouts with confidence. This combination of local expertise, automated calculations, and transparent reporting helps your company avoid penalties, protect employee trust, and close out UAE employment relationships cleanly.