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End of Service Gratuity (ESG) – everything you need to know

End of Service Gratuity (ESG) is the UAE’s answer to a pension scheme, designed to give employees a financial benefit for each year working. But what does it entail, and who’s entitled? 

With help from a Dubai-based employment lawyer, we’ve laid out the basics below.

For eligible employees working onshore in the UAE and the freezones (including the ADGM but excluding DIFC), an end of service gratuity (ESG) will be due on termination of employment – regardless of whether you or your employer end the contract.

ESG is a lump sum statutory payment made to expat employees (and GCC nationals only if they are not entitled to pension benefits) on termination of employment, provided that they have completed at least one year of continuous service. ESG is calculated with reference to an employee’s final basic salary (not including living allowance or other benefits) at the time of termination, having consideration to their overall length of service as follows:

  • 21 calendar days of basic salary for each year of service for the first 5 years of service, and
  • 30 calendar days of basic salary for each subsequent year of service

The ESG benefit is capped so that you cannot receive a sum of money that totals more than 2 years’ worth of full salary (basic plus other allowances).

A new voluntary employee savings scheme has recently been introduced in the UAE as an optional alternative to the traditional ESG. Employees may now choose to enroll their employees into the savings scheme and make monthly contributions on their behalf. The rates of contribution for full time employment are similar to the current ESG accrual rates:

  • 5.83% of basic salary for employees with under 5 years of services and;
  • 8.33% of basic salary for employees with over 5 years of service

What if I work in the DIFC?

In the DIFC, the DIFC Employee Workplace Savings Scheme (DEWS) replaced the traditional ESG scheme in February 2020 and is more in line with workplace pension schemes found in other countries.

All employers must register any employee who is not eligible for a GCC state pension scheme with the DEWS and make monthly contributions on their behalf. Employees are able to choose their level of investment risk and upon leaving the company can either choose to leave the funds invested, or withdraw.

 The minimum monthly contributions are as follows:

  • 5.83% of basic salary for employees with under 5 years of service and; 
  • 8.33% of basic salary for employees with over 5 years of service.

You can read more about ESG and how it’s calculated here: https://zws.zurich.ae/dews/employee