How to Calculate Your End-of-Service Gratuity Provision

End-of-service gratuity can be one of the largest liabilities on an SME balance sheet in the Gulf, and it often only gets a proper look when auditors arrive. If your year end is December, now is the time to work out the number staff by staff. This guide shows how to calculate it for Qatar, the UAE and India, and how to keep it current every month.

Why the gratuity provision matters

Gratuity builds up quietly. Every month a person works, you owe them a little more when they leave, but no cash goes out until they do. That makes it easy to forget, and easy to get wrong.

A missing or stale provision overstates profit and understates liabilities. It also hits cash without warning when long-serving staff resign together, or when you restructure a team. Owners and lenders want to see the real figure, and auditors will test it.

How gratuity works in Qatar, the UAE and India

The rules differ by country, so set up your calculation country by country. Always check the employment contract too, because a contract can give more than the legal minimum.

Qatar. An employee who completes at least one year of continuous service is entitled to gratuity of not less than three weeks' final basic salary for each completed year, and is paid pro rata for part years after the first full year, according to Clyde & Co's guide to staff demobilisation in Qatar. Allowances are left out; it is based on basic salary.

UAE. For private-sector staff, gratuity is 21 days of basic pay for each of the first five years and 30 days for each year after that, capped at two years' salary, as Gulf News explains. The employee needs at least one year of continuous service, and unpaid leave days do not count towards the period of service.

India. India's four labour codes took effect on 21 November 2025. Two changes matter for your provision. Fixed-term employees now qualify for gratuity after one year of service, rather than the five years that applied before. And at least 50% of an employee's total pay must be treated as wages, with gratuity worked out on wages that meet that floor, as Business Today reported from ICAI's guidance. Many companies with low basic pay and large allowances will see their liability rise. Some rules under the codes were still being finalised in early 2026, so check the current position with your adviser.

A worked example

Here are two hypothetical examples to show the method. Daily and weekly rates can be worked out in more than one way, so agree your basis with your auditor and apply it consistently.

For example, a Doha trading company has an employee on a basic salary of QAR 6,000 a month with four and a half years of service. A weekly rate of QAR 6,000 × 12 ÷ 52 gives about QAR 1,385. Three weeks per year is about QAR 4,154, and for 4.5 years the provision is about QAR 18,690.

Now take a Dubai distributor with an employee on a basic salary of AED 10,000 and seven years of service. Using a daily rate of basic ÷ 30, that is about AED 333 a day. The first five years earn 105 days and the next two earn 60 days, so 165 days in total, or about AED 55,000.

Do this for every employee, add it up, and compare it with the balance in your books. The difference goes through the profit and loss account as this period's charge.

Keeping the number right through the year

The calculation is the easy part. The hard part is keeping the inputs clean. Most errors come from wrong joining dates, old salary figures, unpaid leave not deducted, or leavers whose gratuity was paid but never released from the provision.

Many SMEs use a simple "what we would owe if everyone left today" calculation. Larger companies reporting under IFRS often commission an IAS 19 actuarial valuation to measure the liability more precisely. Ask your auditor which approach suits your size and reporting framework.

Gratuity is also a cash question, not just an accounting one. If several long-serving staff could leave in the next quarter, that payout belongs in your cash forecast now.

Your year-end gratuity checklist

• Build one master staff list with joining date, country, contract type, current basic salary and unpaid leave days for every employee.
• Check contracts for anything more generous than the legal minimum.
• Recalculate the provision employee by employee using one documented method per country.
• Reconcile to the ledger: opening balance, plus this year's charge, less payments to leavers, should equal the closing balance.
• Review India pay structures against the 50% wages rule and add fixed-term staff with a year's service.
• Flag likely leavers and put expected payouts into your 13-week cash forecast.
• Update monthly, not once a year, so the charge is spread evenly across your management accounts.
• Check the legal position with your adviser, especially for India while the rules are being settled.

Tools such as NexCFO can help here by bringing the gratuity payout into your 13-week cash forecast and showing the monthly charge in your MIS pack, so there are no surprises at year end.

Get the gratuity number right now, and your audit, your accounts and your cash plan all get easier.