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End of Service Calculator Gratuity & severance across the Gulf
difference between gratuity and severance pay
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Gratuity vs End of Service vs Severance vs Indemnity

Four words for broadly the same thing — the money your employer owes you when your job ends. Here is what each means, and which one applies where.

If you work in the Gulf, you have probably seen your end-of-employment payout called several different things. Gratuity, end of service, indemnity and severance all describe a lump sum paid when a contract ends — but the word that applies to you depends on your country, and in one case on whether the payment is set by law at all.

The indemnity meaning here is simply the Gulf term — used in Kuwait and Bahrain — for the same statutory end-of-service payment.

The three Gulf terms — gratuity, end of service and indemnity — are statutory: the amount is fixed by the labour law and your employer must pay it. Severance, the term most common in the United States, is usually contractual rather than statutory, which means it depends on your agreement rather than a national formula. That single distinction is the most important one to understand.

Below is how the words map to countries, followed by a calculator link for each so you can get your own figure.

What is the difference between gratuity and severance pay?

The core difference between gratuity and severance pay is how they are set. Gratuity is a statutory end-of-service benefit fixed by a country's labour law — you earn a defined number of days of pay for every year you work, and your employer is legally obliged to pay it. Severance pay, the term used mainly in the United States and other Western markets, is normally contractual: there is no national formula, so the amount depends on your employment contract, company policy or a negotiated agreement. In short, gratuity is guaranteed by law and can be calculated in advance; severance pay is negotiated and varies case by case.

Gratuity vs severance pay vs end of service vs indemnity at a glance
TermLegal basisWho sets the amountTypical regions
GratuityStatutory (labour law)Fixed formula — days of pay per yearUAE, Oman, Pakistan
End of serviceStatutory (labour law)Fixed formula — wage × yearsSaudi Arabia, Qatar, Egypt
IndemnityStatutory (labour law)Fixed formula, with resignation scalingKuwait, Bahrain
Severance payUsually contractualContract / policy / negotiationUnited States & Western markets
Term
What it means
Statutory?
End of service
Gulf umbrella term — Saudi Arabia, Qatar, Egypt
Yes
Gratuity
UAE, Oman, Pakistan — days of pay per year
Yes
Indemnity
Kuwait, Bahrain (“leaving indemnity”)
Yes
Severance
US / Western term for pay on dismissal
Usually no

End of service — the Gulf umbrella term

In Saudi Arabia and Qatar, the statutory payment is called the end-of-service award or benefit. It is calculated from your wage and your length of service, and it is owed whether you are terminated or resign — though resignation can reduce it. You can calculate your Saudi end-of-service award or use the Qatar end-of-service tool to see your figure.

Gratuity — the UAE and beyond

In the UAE, Oman and Pakistan the same benefit is called gratuity, usually expressed in days of basic pay per year of service. The UAE’s 2021 law sets 21 days a year for the first five years and 30 days thereafter, capped at two years’ pay. Run the numbers with the UAE gratuity calculator.

Indemnity — Kuwait and Bahrain

Kuwait and Bahrain use the word indemnity (Bahrain: “leaving indemnity”). The structure is similar — a number of days per year that steps up with longer service — and Kuwait applies a resignation scale. Check yours with the Kuwait indemnity calculator.

Severance — contractual, not statutory

Severance is the term used mostly in the United States and other Western markets. Crucially, there is no federal statutory formula — severance is whatever your contract, company policy or a negotiated agreement provides. That is why a calculator can give you a Gulf gratuity or indemnity figure with confidence, but severance always comes down to your individual agreement.

Get your own number

Whichever term applies to you, the calculator does the maths. Pick your country:

Saudi Arabia → UAE → Qatar → Kuwait →

Is severance pay taxable — and is gratuity?

This is where the two terms diverge most sharply, and it is the part most comparisons skip. In the United States, severance pay is taxable: it is treated as ordinary wage income, subject to income tax and to Social Security and Medicare (FICA) withholding. A lump-sum payment is typically withheld at the 22% supplemental-wage rate, though your final liability is settled when you file.

Gulf end-of-service gratuity works the other way. There is no personal income tax in Saudi Arabia, the UAE, Qatar, Kuwait, Oman or Bahrain, so the statutory award is paid to you in full. The catch for expatriates is tax residency: if you remain tax-resident in the United States, the United Kingdom or India, your home country may still want to see the payment declared even though the Gulf state took nothing.

Service pay vs severance pay vs gratuity

A third term, service pay, appears in some jurisdictions and adds to the confusion. The useful distinction is not the label but the source of the obligation: gratuity, end of service and indemnity are statutory — a formula in the labour law that the employer must apply. Severance pay and service pay are usually contractual or negotiated, which is why a calculator can give you a reliable Gulf gratuity figure but no one can compute your severance without reading your agreement.

Frequently asked questions

What is the difference between gratuity and severance pay?
Gratuity is a statutory end-of-service benefit set by a country's labour law and calculated from your wage and years of service, so your employer must pay a defined amount. Severance pay, common in the United States, is usually contractual — there is no national formula, so the amount depends on your contract, company policy or a negotiated agreement.
Is gratuity the same as end of service?
In the Gulf, yes — gratuity and end of service describe the same statutory lump sum paid when a contract ends. The word simply varies by country: 'gratuity' in the UAE, Oman and Pakistan, and 'end of service' in Saudi Arabia, Qatar and Egypt.
Is severance pay required by law?
In most Western countries there is no general statutory severance-pay formula; it is set by contract, company policy or negotiation. The Gulf equivalents — gratuity, end of service and indemnity — are required by law.
Is severance pay taxable?
In the United States, yes — severance is treated as ordinary wage income and is subject to income tax plus Social Security and Medicare withholding, with lump sums commonly withheld at the 22% supplemental rate. Gulf end-of-service gratuity is different: there is no personal income tax in the GCC states, so the award is paid in full, though expatriates may still have home-country reporting obligations.
How is severance pay calculated?
There is usually no statutory formula. Severance is set by your contract, company policy or a negotiated agreement, and a common benchmark in the United States is one to two weeks of pay per year of service. This is the key practical difference from Gulf gratuity, where the labour law fixes the number of days per year.
What is the difference between service pay, severance pay and gratuity?
Gratuity, end of service and indemnity are statutory entitlements — the labour law sets a formula the employer must follow. Severance pay and service pay are normally contractual or negotiated, with no national formula behind them. That is why a Gulf gratuity can be calculated in advance while severance depends entirely on your agreement.