UAE employment and company closure guide
When a UAE company closes, the team still needs to be paid. Owners often focus on the trade licence, debts and final accounts. But employee gratuity, unpaid wages and unused leave should be reviewed just as carefully. A clear settlement record can prevent disputes and make the closure process easier to manage.
This guide explains how end-of-service settlement during liquidation works, which payments to check, and what the UAE Labour Law says. It is a guide for eligible employees under the federal private-sector system. Special employment regimes may differ.
The meaning
What Is an End-of-Service Settlement?
It is the final amount a company owes an employee when employment ends. Gratuity is one part of that amount, but it may not be the only part. A worker might also be owed a final salary, accrued leave pay or other contractual benefits.
Liquidation does not automatically cancel these debts. The company should keep a separate calculation and payment record for each employee. If the business cannot pay its obligations, the owners should seek advice on the lawful insolvency route rather than assume the claims disappear.
Your payroll checklist
Which Payments Must a Closing Company Review?
| Payment | What to check |
|---|---|
| Unpaid wages | Final working date, last payroll run, unpaid overtime or agreed pay |
| End-of-service gratuity | Last basic wage, qualifying service period and applicable scheme |
| Unused annual leave | Eligible unused leave balance and applicable cash payment rules |
| Notice-related amounts | Contract terms, lawful notice and any applicable compensation |
| Other earned dues | Approved commissions, contract benefits and documented reimbursements |
Check each employee’s contract and actual payroll records. Do not estimate all employees from one average salary. Also check whether lawful deductions apply; they must have a proper basis and evidence.
The formula
How Is UAE End-of-Service Gratuity Calculated?
Under Article 51 of Federal Decree-Law No. 33 of 2021, an eligible full-time foreign worker with at least one year of continuous service generally receives gratuity based on the last basic wage. The normal formula is:
First five years: 21 days of basic wage for each qualifying year.
Years after five: 30 days of basic wage for each additional qualifying year.
Limit: The total gratuity is normally capped at two years’ wage.
Partial years: Proportionate amounts can apply after the first qualifying year. Unpaid absence is excluded from service time.
A Simple Example
Suppose an employee has a basic monthly wage of AED 6,000 and six complete qualifying years of service. Using a 30-day wage basis, the daily basic wage is AED 200. The first five years give 105 days (5 × 21), and the sixth year gives 30 days.
This is a basic illustration, not an employee-specific entitlement assessment. Unpaid leave, other work patterns, alternative savings schemes and special legal frameworks may change the outcome.
Source: MOHRE — Federal Decree-Law No. 33 of 2021, Articles 51 and 53.
Payment deadline
When Should Final Employee Dues Be Paid?
Article 53 generally requires employers to pay wages and other employment entitlements within 14 days from the end of the employment contract. This is not a 14-day deadline starting from the final trade licence cancellation. It relates to the end of employment.
Prepare employee settlement documents early. Waiting until the business reaches its last licensing step can leave too little time for checking payroll, transferring payments and resolving disputes. For the official rule, see the UAE Government end-of-service benefits guidance.
Different arrangements
Do All UAE Employees Follow the Same Gratuity Rules?
No. The formula above is for eligible workers under the standard federal private-sector system. UAE nationals generally have pension and social-security rules. Part-time and other work patterns can require separate calculations. Some employers join the voluntary alternative end-of-service savings scheme. Employment in certain financial free zones can follow a different legal framework.
Before issuing a final settlement, confirm the worker’s contract, jurisdiction and any applicable approved scheme. Do not use one calculation for every employee in every free zone.
Reference: MOHRE — Alternative End-of-Service Benefits Scheme.
Practical steps
Employee Settlement Checklist Before Liquidation
- Confirm records. List employees, start dates, end dates, contracts, pay slips, leave balances and unpaid absences.
- Calculate each amount. Separate basic-wage gratuity from wages, leave, commissions and other lawful amounts.
- Review the rules. Check standard labour law, free zone requirements and any savings scheme.
- Confirm available funds. Match the employee liabilities against cash, bank balances and company assets.
- Pay and document. Keep payment confirmations and settlement statements; never pressure an employee to acknowledge money they did not receive.
- Finish related formalities. Coordinate work-permit and visa cancellation through the appropriate authority after checking employment records.
See the company liquidation documents checklist for the wider business closure records. For possible timing issues, read the UAE liquidation timeline.
When money is short
What If the Company Cannot Afford All Employee Settlements?
Unpaid employee benefits remain an important liability. Owners should document the amounts owed, avoid improper transfers of company assets and seek qualified legal advice about creditor priorities and insolvency obligations. The legal treatment can depend on the company’s financial position and the governing framework.
Our guide to liquidation with outstanding debts explains why the company must review all creditor claims. When professional liquidator support is required, see Company Liquidator Services.
How MAK helps
How MAK Supports Employee Settlement Records
MAK Chartered Accountants L.L.C. can help a company review payroll records, reconcile employee balances and prepare financial information for the closure process within the agreed service scope. Where labour-law advice, a formal liquidator appointment or a legal dispute is involved, the company should work with the appropriate qualified professional.
For the broader closure process, visit our Company Liquidation Services in UAE page or the Free Zone Company Liquidation service.
Frequently asked questions
FAQs About Gratuity and Employee Dues During Liquidation
Must a company pay gratuity if it closes?
Eligible employees remain entitled to their lawful end-of-service benefits. Closing the trade licence does not erase these obligations.
Is gratuity calculated on basic or total salary?
For eligible full-time foreign employees under the standard federal scheme, gratuity is based on the last basic wage, not the full package including allowances.
How many gratuity days apply for six years of service?
Under the standard formula, the first five years count at 21 days of basic wage per year, and the sixth year at 30 days. The applicable employment arrangement must be checked.
How quickly must final employee dues be paid?
Article 53 of Federal Decree-Law No. 33 of 2021 generally requires wages and other employment entitlements within 14 days after the end of the contract.
Are free zone employees always subject to identical gratuity rules?
No. Certain free zones or employment arrangements may have their own laws or approved savings schemes. Check the worker’s applicable framework.
Can outstanding employee benefits be ignored if company assets are insufficient?
No. Record and assess the claims and seek qualified legal and insolvency advice when the company cannot meet its obligations.
Conclusion
Paying employees correctly is an important part of closing a business. Review gratuity, final wages, leave and other earned benefits before the last closure stage. Keep your calculations and proof of payment together. With sound records and the right advice, you can keep everything on the same page.
What Can MAK Chartered Accountants Help With?
We help UAE businesses organise final payroll liabilities, accounting records, employee settlement schedules and company closure documentation. Contact us to discuss your company’s position and the work involved.
Discuss Your Company [email protected] | +971 50 276 2132
Al Saraya Avenue, Block A, Office AM06, Al Garhoud, Dubai, UAE — View location.
General information only. Labour rules and entitlements depend on the applicable employment framework and the individual case. Confirm legal requirements before acting.
