When it comes to working in the United Arab Emirates (UAE), many employees are familiar with the concept of a second salary. Also known as a “gratuity” or “end-of-service benefit,” the second salary is an additional income that employees receive at the end of their employment. In this article, we will explore what the second salary is, how it is calculated, and its importance for both employers and employees in the UAE.
What is the second salary?
The second salary is a lump-sum payment that is given to employees at the end of their employment in the UAE. It acts as a form of compensation for the years of service rendered by the employee. The payment is intended to provide financial support during the transition period between jobs or retirement.
How is the second salary calculated?
The calculation of the second salary in the UAE depends on various factors such as the length of service, the basic salary, and the reason for the termination of employment. According to the UAE Labour Law, an employee who completes at least one year of continuous service is entitled to the second salary.
The calculation varies based on the employment contract type:
1. Limited contract:
- If the employee resigns before completing the contract term, the gratuity is not payable.
- If the employer terminates the employee, the gratuity is calculated as 21 days’ basic salary for each year of the first five years, and 30 days’ basic salary for each subsequent year.
- If the employee completes the contract term, the gratuity is calculated as 21 days’ basic salary for each year of the first five years, and 30 days’ basic salary for each subsequent year.
2. Unlimited contract:
- If the employee resigns and served the company for less than one year, the gratuity is not payable.
- If the employee resigns and served the company for more than one year but less than three years, the gratuity is calculated as one-third of 21 days’ basic salary for each of the first three years, and two-thirds of 30 days’ basic salary for each subsequent year.
- If the employee resigns and served the company for more than three years, the gratuity is calculated as two-thirds of 21 days’ basic salary for each of the first five years, and the whole 30 days’ basic salary for each subsequent year.
The importance of the second salary in UAE
The second salary plays a crucial role in the financial planning of both employers and employees in the UAE. For employers, it is an additional cost that they need to consider when budgeting for their employees’ compensation packages. Providing a competitive and fair gratuity can help attract and retain talented employees.
For employees, the second salary is an essential source of financial security. It acts as a cushion during the transition period between jobs, or as a retirement fund for those who have completed their employment tenure. It provides a sense of stability and helps individuals plan for the future.
The second salary, also known as a gratuity or end-of-service benefit, is a significant aspect of the employment landscape in the UAE. It provides employees with a financial safety net and acts as a reward for their years of service. Both employers and employees need to understand the calculation and importance of the second salary to ensure fair compensation and financial planning.