In a UAE salary structure, the split between basic salary and allowances decides how much gratuity, overtime and unused leave pay an employee receives, because all three are worked out on basic salary while housing and transport are left out. Two people on the same monthly package can leave with thousands of dirhams between them. This guide shows how, with figures you can check.
Many UAE offers break the monthly package into parts:
All of it is paid every month, and the employee usually thinks of the total. But the law uses basic salary for several calculations, so the structure matters long after the offer letter is signed.
Which calculations use basic salary?
Gratuity under Federal Decree-Law No. 33 of 2021 is 21 days of basic salary for each of the first five years, 30 days for each year after, nothing under one year of service, and a total capped at two years' wage. The UAE Government Portal states that it is worked on the last basic wage and does not include allowances, and that payment for unused annual leave on leaving is calculated on basic salary. Checked on 12 October 2026 against the u.ae pages on end of service benefits and on types of leaves.
Two employees, one package
Aisha and Ben both earn AED 12,000 a month, split differently:
Their payslips look identical at the bottom. Now each of them leaves.
Gratuity after four years
Both have four years of service, all in the 21-day band: 4 x 21 = 84 days.
Ben receives AED 8,400 more for the same years on the same package.
The gap widens with service. After eight years, each earns 105 days for the first five years plus 3 x 30 = 90 days, 195 days in all: AED 39,000 for Aisha and AED 58,500 for Ben. The two-year cap differs too: 24 x 6,000 = AED 144,000 for Aisha against 24 x 9,000 = AED 216,000 for Ben.
You can try other splits in the free UAE gratuity calculator.
Unused leave on leaving
Each has 10 days of annual leave not taken when they go. Paid on basic salary:
Overtime along the way
Using basic / 240 for the hourly rate and 125 per cent for ordinary overtime, 10 hours of overtime pays:
Across a year of regular overtime, that difference adds up.
What uses the full package?
Not everything follows basic. Pay items your contract or policy sets, rather than the law, may use the total. A common example is the value of a day of unpaid leave. Wurxa deducts (basic + allowances) / 30 per day, so for both Aisha and Ben a day of unpaid leave costs 12,000 / 30 = AED 400, the same for each. Some employers also choose to pay unused leave on the full package. Whatever you choose, write it into the policy and apply it the same way to everyone.
What this means for employers
Record the split, not just the total. If the payroll system holds one figure, someone will have to reconstruct the basic salary at the worst possible time: the week someone leaves.
Keep a history. Gratuity is worked on the last basic wage, so a raise to basic in the final year lifts the gratuity for every year counted. Changes to basic need an effective date, so a settlement uses the right figure.
Explain it at the start. An employee who knows their basic salary from the first day has fewer surprises when a settlement is worked on it.
Watch your liability. A company that raises basic salaries across the board raises its gratuity liability for all past service at once. Model it before agreeing a raise.
Make the documents agree. The offer letter, the employment contract, the payslip and the payroll record should all show the same basic salary and the same allowances. When they disagree, the settlement becomes an argument about which document is right rather than a calculation.
Questions to settle when you design a package
Before you send an offer, answer these and write the answers down:
Four answers in writing now save a long conversation at the end.
Holding the structure in payroll
In Wurxa Payroll, salary is held by component (basic, housing, transport and your own items) with history and effective dates. Gratuity and overtime are worked out from basic, unpaid leave from basic plus allowances, and at a final settlement you choose whether unused leave is paid on basic or on basic plus allowances, to match the contract.
To see how your own salary structure would be set up, Ask Sara on wurxa.com or message us.
This article is general information, not legal advice.
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