End-of-service gratuity: what it is and how it works

The concept is best known in the Gulf, but versions of it exist well beyond that region — Italy's TFR and Turkey's severance indemnity work on a similar principle. This page defines the term, how the calculation typically works, and where it applies. It sits alongside severance pay by country and statutory employee benefits by country as one more entitlement to budget when hiring abroad.

Last updated August 6, 2026. Jump to: What it is · How it works · Why it matters to employers · Which countries require it · Common mistakes · How Remote& handles it · FAQ

What end-of-service gratuity is

End-of-service gratuity, sometimes shortened to EOSG or called a "gratuity payment," "leaving indemnity," or "severance indemnity" depending on the country, is a mandatory payment an employer owes an employee at the end of employment — on resignation, termination, retirement, or contract expiry, depending on the local rules — based on how long the person worked and what they were last paid.

Two features distinguish it from a normal final paycheck:

• It is earned over time, not paid in the moment. Gratuity accrues gradually across the employment relationship, even though it is only paid out at the end — which is why employers are expected to treat it as a growing liability on the books, not a surprise cost that appears at termination.
• It applies regardless of why employment ended, within limits. Unlike severance in some countries, which can be tied specifically to termination without cause, gratuity in most gratuity-paying countries is owed for resignation and retirement too, sometimes at a reduced rate depending on tenure and how the employment ended.

How the calculation typically works

The mechanics vary by country, but most gratuity schemes share a similar shape:

• A minimum service threshold. Most schemes require a minimum period of continuous service, often around one year, before any gratuity is owed at all.
• A per-year-of-service rate. The payment is usually calculated as a set number of days' or weeks' pay for each completed year of service, sometimes rising after a longer tenure threshold.
• A defined salary base. Most schemes calculate the payment on basic salary specifically, not total compensation — allowances, bonuses, and benefits are typically excluded from the base, even though they were part of the employee's regular pay.
• Sometimes a cap. Several countries cap the total gratuity payable, either as a maximum number of years counted or a maximum absolute amount.

A worked illustration, from the UAE, where the rate is well documented: gratuity is owed after one year of service, at roughly 3 weeks of basic salary per year for the first five years, rising to about 1 month of basic salary per year after five years — calculated pro-rata and, in some cases, reduced for resignations before a set tenure threshold. Other gratuity-paying countries follow a broadly similar shape, with different rates, thresholds, and caps set by their own law.

Why it matters to employers

Gratuity is not a footnote in the employment relationship — it is a real, growing liability that shapes both accounting and workforce decisions.

• It should be accrued on the books, not budgeted at the end. Because gratuity builds up across the employment relationship, sound practice is to provision for it each year, the same way a company would provision for any earned-but-unpaid obligation, rather than treating it as a one-time cost that appears at termination.
• It is part of the true cost of employment. A salary comparison between a gratuity-paying country and a non-gratuity country understates the real cost gap unless the accrual is included — see our total cost of hiring abroad guide for how the pieces stack.
• Getting the final calculation wrong creates real legal exposure. Underpaying gratuity at termination is one of the more common sources of employment disputes in the countries where it applies, precisely because the calculation has several moving parts — tenure, salary base, and any resignation-related reductions.
• It affects workforce planning. Longer-tenured employees represent a growing gratuity liability, which is a real factor in decisions like restructuring or planned attrition in countries where the entitlement applies.

Which countries require end-of-service gratuity

The concept, or a close functional equivalent, exists in a specific set of countries rather than being close to universal. As of 2026, in general terms:

Countries not in this table, including most of North America, most of Western Europe outside Italy, and Australia, generally do not have a comparable statutory gratuity scheme — severance in those countries, where it exists, tends to be tied specifically to termination rather than owed for any reason employment ends. Check our severance pay by country guide for how that compares.

Common mistakes with end-of-service gratuity

• Not accruing the liability on the books. Treating gratuity as a cost that only exists at termination, instead of a growing obligation that should show up in financial planning every year employment continues.
• Calculating the payment on total compensation instead of basic salary. Most schemes calculate against basic salary specifically, excluding allowances and bonuses — using the wrong base either overpays or, more commonly, underpays the employee, which is a legal exposure either way.
• Assuming gratuity and severance are the same thing. In several countries they are separate, independently calculated entitlements that can both apply to one termination — treating them as interchangeable causes underpayment.
• Missing resignation-specific reduction rules. In some countries, resigning before a minimum tenure threshold reduces or forfeits gratuity, while termination by the employer does not — applying the wrong rule to the wrong scenario is a common payroll error.
• Ignoring the cap. Several gratuity schemes cap the total payable, either in years counted or absolute amount — failing to apply the cap correctly overpays the employee and misstates the liability.

How Remote& handles end-of-service gratuity

Where Remote& acts as employer of record in a country that requires end-of-service gratuity, we calculate and reserve the accrual correctly from the first day of employment, using local basic salary as the base and applying the country's actual formula, not a generic estimate. The accrual is factored into the total employer cost we quote up front, so there is no surprise liability at the end of the employment relationship.

When employment ends, Remote& calculates the final gratuity payment under local law, whether the departure is a resignation, a termination, or a contract expiry, and processes it as part of the final settlement alongside any other severance or notice-related pay owed. Every hire's accrual and final calculation sit on the same record in our AI-native HRIS, visible to the employer at any point, not only at the end.

Frequently asked questions

What is end-of-service gratuity?

End-of-service gratuity is a lump-sum payment owed to an employee when their employment ends, calculated from their length of service and final basic salary, and required by law in a specific set of countries. It functions as deferred compensation for time worked, accruing across the employment relationship and paid out at the end, whether the person resigns, is terminated, or retires, depending on the country's rules.

How is end-of-service gratuity calculated?

Most schemes calculate a set number of days' or weeks' pay for each completed year of service, applied to the employee's final basic salary rather than total compensation, after a minimum service threshold — often around one year. Some schemes increase the rate after a longer tenure threshold, and several apply a cap on the total amount or years counted. The exact formula, threshold, and cap are set by each country's own labor law.

Which countries require end-of-service gratuity?

The concept is best known in Gulf countries such as the United Arab Emirates and Saudi Arabia, but a similar statutory entitlement exists well beyond that region — India's Payment of Gratuity Act, Turkey's severance indemnity, and Italy's TFR all work on a comparable principle, as do statutory schemes in Egypt and Indonesia. Most of North America, most of Western Europe outside Italy, and Australia do not have a comparable statutory gratuity scheme.

Is end-of-service gratuity the same as severance pay?

Not always. In several countries, gratuity and severance are two separate, independently calculated entitlements that can both apply to the same termination. Gratuity is typically owed for length of service regardless of why employment ended, within limits, while severance in many countries is specifically tied to termination without cause. Whether they overlap, and how, depends on the specific country's law.

Do I still get gratuity if I resign?

In most gratuity-paying countries, yes, though the amount can be reduced or forfeited if the resignation happens before a minimum tenure threshold set by local law. Termination by the employer typically does not carry the same reduction. The specific rule depends on the country and, in some cases, the reason the employee is resigning.

How does Remote& handle end-of-service gratuity for hires abroad?

Where Remote& acts as employer of record in a country that requires it, we calculate and reserve the gratuity accrual correctly from day one, using the country's actual formula and local basic salary as the base, and factor it into the total employer cost quoted up front. At termination, we calculate and pay the final gratuity amount under local law as part of the final settlement.