'When is the correct time to pay an employee's end of service gratuity?'

The Dubai employer wants to know how and when a departing staff member should receive the benefit

While the employer believes the payment should be made after the visa is cancelled, the employee says it should be paid before. So who is right? Getty Images

A member of staff is leaving and we have signed an undertaking to cancel his visa and issue his end of service payment, which must be made immediately after cancellation. However the employee claims it must be paid before. We have had some issues with this employee and I want to ensure that everything is done properly. Therefore I am unhappy paying him before the visa is cancelled. I also do not want to break the law. NH, Dubai

UAE Labour Law does not specify when the end of service gratuity and other final benefits should be paid, but the expectation is that this would be at the time of the ­final salary payment and when the residency visa is cancelled. Employees are asked to sign paperwork declaring they have received all that is due to them ahead of visa cancellation and this refers to the gratuity payment and any days of annual leave accrued and not taken. Therefore an employee should be paid on the last day of work and the visa cancelled immediately thereafter.

The gratuity payment is usually added to the last salary payment and paid to the individual’s UAE bank account, marked ‘final salary’. The visa can be cancelled immediately after as the employee can then sign the relevant paperwork.

I have an outstanding bank loan and I am one month behind on my payments. My father is ill, so my employer has allowed me to take leave and go home for two weeks. My worry is that I will have a travel ban and will not be allowed to leave as the bank has been calling me three times a week and they tell me they will ban me from leaving. Will I be able to leave? MV, Abu Dhabi

A bank cannot place a travel ban on anyone. They can only apply to a court for one and must present evidence to back up their request. Where a person is just one month behind in payments the bank is in a weak position and they cannot register a police case until a person has missed three monthly payments. The court would only support a claim for a travel ban if an individual is at risk of leaving and not returning and, in most cases, has significant debts. MV is not leaving her job and intends to return to the UAE so I do not believe there is sufficient reason for a travel ban to be obtained. In addition, there is a cost for a bank to take this type of action.

No bank should be calling an individual this often or making unsubstantiated threats to someone who is making payments, even if a month behind. I am aware that the loan in question is not large with some Dh12,000 now outstanding. MV has the right to complain to the Central Bank of the UAE citing harassment.

We plan to terminate an employee as his position is no longer required and the cost is not justified. He will not be replaced. We simply do not need the function he has been preforming. He has not had any warning letters and it is not personal. The employee has completed one year of service and is on an unlimited contract, with a one-month notice period.  What are we supposed to pay to the employee, apart from the gratuity? CA, Dubai 

Terminating the employment of an individual for economic reasons is considered legitimate cause and the employer should give the individual written notice of redundancy. While it is not obligatory, for the sake of clarity and courtesy, it is sensible to explain why. This situation is not classed as arbitrary dismissal so no additional payment is due to the employee, over and above the standard payments on leaving service.

They must be given notice per the contract of employment, so in this case, 30 days. The employee is also entitled to the gratuity paid in full without reduction. So if they have worked for a year at the time the visa is cancelled at the end of the notice period, then they are entitled to a year's worth of gratuity; this is based on the basic salary and paid at a rate of 21 days for each full year of service. If total service exceeds one full calendar year then it is payable prorated for each extra day. If the employee has accrued days of annual leave that have not been taken, payment in lieu should be included in the final settlement.

Keren Bobker is an independent financial adviser and senior partner with Holborn Assets in Dubai, with over 25 years’ experience. Contact her at [e-mail]. Follow her on Twitter at @FinancialUAE

The advice provided in our columns does not constitute legal advice and is provided for information only