Overview
The UAE Labour Law (Federal Decree-Law No. 33 of 2021) entitles employees to an end-of-service gratuity based on their length of service and final basic salary. This obligation constitutes a defined benefit under IAS 19 and must be valued using the projected unit credit method.
Key Provisions Under UAE Labour Law
Employees with more than one year of continuous service are entitled to gratuity calculated as follows: 21 days of basic salary for each year of the first five years of service, and 30 days of basic salary for each additional year. The total gratuity is capped at two years' basic salary.
IAS 19 Valuation Approach
While some entities approximate the gratuity liability using a simple accrual method, IAS 19 requires the use of the projected unit credit method. This involves projecting future salary growth, estimating the probability of employees reaching various service milestones, and discounting the projected benefits back to present value.
Why Professional Valuation Matters
The difference between a simple accrual and a proper actuarial valuation can be significant — particularly for entities with a young workforce (where future salary growth has a large impact) or a mature workforce (where short-term expected payments are high). Auditors increasingly require actuarial valuations for material gratuity obligations.
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