Gratuity for Limited and Unlimited Contract in UAE (Gratuity Guide 2026)
Gratuity rules under fixed-term and fixed-term contracts in the UAE depend on the length of employment, the nature of the contract, and labor laws. Many employees want to know how gratuity is calculated under these two contracts, what the notice period is, and what laws apply in the event of resignation or termination of employment.
This article explains the difference between fixed-term and fixed-term contracts, the calculation of gratuity, the notice period, legal requirements, and employee rights in a simple way. It also briefly and clearly explains the main principles of the UAE employment system and the structure of the various contracts.
Types of Employment Contracts in UAE
Employment contracts in the UAE are regulated by law and overseen by MOHRE to protect the rights of both employees and companies. As of 2026, every job contract in the UAE must be registered to be legal, making the work system more transparent and organized.
In the past, two basic types of employment contracts were more popular in the UAE Limited Contract and Unlimited Contract. These two contracts remained the basis of the employment system for a long time. However, over time, business needs and working methods changed, leading to the emergence of new work models.
Today, employment contracts are not only divided based on duration but also according to working style, such as full-time, part-time, temporary, remote work, and job sharing. These new models offer both companies and employees greater convenience and flexibility. That is why the UAE’s employment system is now becoming more modern, clear, and in line with legal principles.
Limited Term Contract
What Is a Limited Term Contract?
Limited Contract or Fixed-term Contract is considered the most common employment contract in the UAE. This contract specifies the start and end dates of the job, which can usually be up to three years.
Duration and Purpose of a Fixed-Term Contract
It is mostly used for jobs that have a known duration, such as for a specific project or for a limited time. The contract can be extended if both the company and the employee agree. A notice period of 30 to 90 days is usually required to terminate the contract, while gratuity and other benefits are given according to the length of employment.
How Fixed-Term Contracts Work in UAE Employment
A fixed-term contract in the UAE is a job contract with a fixed start and end date. It is usually for up to 3 years and is mostly used for project or temporary work. It automatically terminates when its term is up, unless both parties agree to extend it.
UAE Labour Law Rules for Limited Contracts
These contracts are created when the duration of the employment is clear in advance. This gives both the employer and the employee an understanding of how long the work will last. Most new employment contracts in the UAE are created on this system under Federal Decree-Law No. 33 of 2021.
Termination Rules for Limited Term Contracts
A fixed-term contract generally cannot be terminated before its term, unless there is a legal reason. In most cases, 30 to 90 days‘ notice is required. There must be a solid reason for termination, such as poor performance or misconduct.
Compensation for Early Contract Termination
If a contract is terminated prematurely without a valid reason, the party that terminated it may be required to pay damages or compensation. This principle is to ensure fairness to both parties under UAE labor law.
Gratuity and Benefits Under Limited Contract
Employees are entitled to an End-of-Service Gratuity after completing one year of employment. The employment contract can be extended if both parties agree.
Unlimited Contract
What Is an Unlimited Contract in UAE?
In the UAE, an unlimited contract is a job contract that does not have a fixed end date. It runs until either the company or the employee terminates it. It is mostly for permanent and long-term jobs.
Changes in UAE Employment Contracts Under New Labour Law
This contract was very common in the past, but now, after new laws in the UAE, Limited Contract is being preferred in most places.
Purpose and Benefits of an Unlimited Contract
This contract is for long-term jobs that are not tied to a specific project. It gives both the company and the employee the flexibility and ease to continue working.
Termination Rules for Unlimited Contracts
An unlimited contract usually requires 30 to 90 days’ notice to terminate. Either party can terminate it if there is a valid reason, such as performance or the company’s need. However, if there is a serious mistake or misconduct, the contract can be terminated immediately, according to UAE law.
Compensation for Unfair Contract Termination
If a contract is terminated without a valid legal reason, damages or compensation may have to be paid. Employees are also usually entitled to an End-of-Service Gratuity after completing a fixed period of employment.
Resignation Rules Under Unlimited Contract
Employees can resign by giving the necessary notice as per the contract and UAE Labour Law.
Key Regulatory Aspects of UAE Employment System
Every employment contract in the UAE must be registered with MOHRE. Probation is a maximum of 6 months and a notice of 30 to 90 days is required to terminate the employment. This entire system is now being made more modern and systematic.
Key Differences Between Limited and Unlimited Contracts
| Factor | Limited Contract | Unlimited Contract |
| Contract Duration | Fixed start and end date (up to 3 years) | No fixed end date |
| Contract Type | Fixed-term employment | Open-ended employment |
| Main Purpose | Project-based or temporary work | Permanent or long-term work |
| Renewal Requirement | Must be renewed after expiry | No renewal required |
| Termination Rules | Early termination may require compensation | Can end with notice period |
| Notice Period | Usually 30–90 days as per contract | Usually 30–90 days as per labour law |
| Resignation Rules | More restrictive | More flexible |
| Gratuity Eligibility | After minimum 1 year service | After minimum 1 year service |
| Gratuity Formula | 21 days first 5 years, 30 days after | Same calculation method |
| Early Exit Penalty | Possible compensation/payment | Usually lower restrictions |
| Flexibility | Less flexible | More flexible |
| Job Security | Lower after contract expiry | Higher long-term stability |
| Job Transfer | More restricted | Easier to switch employers |
| Compensation Risk | Higher if contract breaks early | Lower compared to limited |
| Legal Status in UAE | Standard contract under new UAE Labour Law | Mostly legacy contract system |
| Best For | Temporary/project roles | Long-term careers |
Does Contract Type Affect UAE Gratuity Calculation?
Under current UAE labour law, gratuity is mainly based on length of service and basic salary. The old difference between limited and unlimited contracts has mostly been removed. Now, the contract type has little effect on gratuity calculation.
Employees who want a quick estimate of their end-of-service benefits can use a UAE Gratuity Calculator to calculate gratuity based on basic salary, years of service, and employment type. This helps verify calculations before reviewing the final settlement with an employer.
Frequently Asked Questions
How is gratuity calculated in limited and unlimited contracts in UAE?
Gratuity in the UAE is calculated based on basic salary and length of service. Generally, an employee receives 21 days’ salary for each year of service for the first 5 years, and 30 days’ salary for every additional year after that.
What is the new rule for gratuity in the UAE?
Under the updated UAE labour law, employees who complete at least one year of service are entitled to gratuity. It is calculated as 21 days of basic salary for each year during the first five years, and 30 days for every year after that.
Do I need to pay if I resign under a limited contract?
Yes, it depends on the situation. If an employee resigns without giving the required notice, the employer may deduct salary equivalent to the notice period. In some cases, additional compensation may also be claimed if the contract breach causes financial loss.
Can I resign from an unlimited contract?
Yes, an employee can resign from an unlimited contract. However, they must follow the notice period mentioned in the contract, which is usually at least 30 days or more depending on the agreement.
What is the notice period for a limited contract in UAE?
Under UAE labour law, the notice period for a limited contract is usually between 30 to 90 days, depending on what is mentioned in the employment contract. If nothing is specified, the minimum legal notice period is 30 days. Proper written notice is required for termination or non-renewal.
Calculate Your UAE Gratuity Online
Want to know your exact end-of-service benefits before resigning or changing jobs? Use our UAE Gratuity Calculator to estimate your gratuity based on your basic salary, years of service, resignation, or termination details. The calculator follows the latest UAE Labour Law guidelines and provides instant results to help you verify your expected settlement.
Final Thoughts
At the end of the day, gratuity in the UAE is quite simple once you understand the basics. It mainly depends on your basic salary and how long you’ve worked, not so much on whether your contract was limited or unlimited. As long as you complete at least one year of service, you have a legal right to receive your end-of-service benefits.
What really matters is that you follow your contract properly, serve your notice period, and keep your records clear. Most problems happen when employees don’t fully understand the rules or rely only on HR calculations. If you know how the system works, you can easily check your own gratuity and make sure you’re getting exactly what you deserve when your job ends.
