End-of-Service Gratuity vs TFR: UAE and Italy Compared

UAE HR and finance teams know the end-of-service gratuity well: 21 days of basic wage per year for the first five years, 30 days after that, paid to expatriates who complete a year. Italy has its own end-of-service payment, TFR (trattamento di fine rapporto), but it works differently: it accrues from day one on almost all pay and is paid on every exit, including resignation in the first month. Full comparison on Italy vs the UAE .

The UAE: gratuity under Decree-Law 33 of 2021  

The government portal summarises the mainland rules for expatriate full-time workers:

• Qualifying period: at least one year of continuous service. Below one year, no gratuity. Unpaid absence does not count.
• Formula: 21 days’ basic wage for each of the first five years, 30 days’ basic wage for each year after that; partial years are pro-rated.
• Base: basic salary only, excluding housing, transport, utilities and other allowances.
• Cap: total gratuity cannot exceed two years’ wage.
• Payment: with other dues within 14 days of the end of the contract.
• Nationals: UAE nationals are covered by the pension system rather than the gratuity formula.

Example: basic salary AED 15,000 a month, 7 years’ service. Daily basic is AED 500 (15,000 ÷ 30) . Gratuity is 5 × 21 × 500 + 2 × 30 × 500 = AED 52,500 + 30,000 = AED 82,500.

The optional savings scheme  

MoHRE also offers a voluntary alternative: the employer pays monthly contributions into an approved investment fund instead of accruing gratuity. Contributions are 5.83% of monthly basic salary for employees with less than five years’ service and 8.33% above five years, paid within 15 days of the start of each month. Employees may add voluntary contributions up to 25% of total wage and receive their balance within 14 days after employment ends. Once an employee is enrolled, the traditional gratuity stops for future service and the accrued amount must be settled.

DIFC and ADGM  

In the DIFC, the Employment Law replaced gratuity with mandatory monthly contributions to a qualifying scheme (DEWS is the default): 5.83% of monthly basic wage for the first five years of service and 8.33% for each additional year. In ADGM, gratuity follows the 21/30-day formula on basic wage with a two-year cap, payable after one year whatever the reason for termination, and employers may offer a pension or savings scheme instead.

Italy: TFR under art. 2120 of the civil code  

• Eligibility: every employee, permanent or fixed-term, from the first day.
• Accrual: each year the employer sets aside annual pay ÷ 13.5, about 7.41% of pay. “Pay” means all regular, non-occasional pay, including the 13th and 14th month, unless the CCNL says otherwise.
• Contribution offset: 0.50% of pay is deducted from the yearly accrual and paid to INPS (Law 297/1982), so the net accrual is about 6.91% of pay.
• Revaluation: each 31 December the accumulated fund is revalued at 1.5% plus 75% of ISTAT inflation.
• Payment: the whole amount is paid when employment ends, for any reason.
• Advances: after eight years, up to 70% for medical costs or a first home.

Example: RAL €45,000 accrues about €45,000 ÷ 13.5 = €3,333 a year, less €225 contribution, about €3,108, before revaluation.

Side by side  

Where the money sits in Italy  

Within six months of hiring, the employee chooses whether to keep TFR with the employer or send future accruals to a supplementary pension fund (Legislative Decree 252/2005). Silence sends it to the CCNL’s default fund. In companies with 50 or more employees, TFR not sent to a pension fund is transferred monthly to INPS’s Fondo di Tesoreria, so it leaves the company’s cash. The MoHRE savings scheme and DEWS work on a similar idea: the liability is funded month by month rather than paid as a lump sum at the end.

Tax  

UAE gratuity is not taxed, because there is no personal income tax. Italian TFR is subject to separate taxation (tassazione separata): a rate based on the employee’s average income over previous years, withheld by the employer when TFR is paid. Employees moving from the UAE should expect to see tax deducted.

Why the UAE habit of low basic salary does not help in Italy  

Because gratuity is calculated on basic pay, many UAE packages keep basic salary low and allowances high. In Italy TFR, contributions and the 13th month apply to nearly all regular pay, and the CCNL minimum applies to the basic element. Restructuring the package does not reduce TFR. Budget TFR at about 7% of total gross pay, every year, with no lapse.

Common questions from UAE finance teams  

Can we pay gratuity instead of TFR? No. TFR is a statutory right and cannot be replaced or folded into salary.

What if the employee leaves after three months? They receive three months of TFR in the final payslip. There is no one-year rule.

Does it show on the payslip? Yes, monthly accrual and running balance.

What this means if you hire through an EOR  

With an EOR, TFR accrues in Italian payroll each month and is included in the monthly employer cost you are invoiced. On exit, the EOR pays it in the final payslip (or the INPS fund or pension fund pays its share). There is no gratuity provision to calculate. Read how the Italian employment contract defines pay, compare on Italy vs your country , model cost in the cost calculator or contact us .

Related guides for UAE companies  

• Termination and notice vs Italian dismissal rules
• Tax-free salary vs IRPEF and INPS
• UAE fixed-term contracts vs the Italian contract and CCNL

General information, not legal advice.