UAE Limited vs Unlimited Contract Gratuity Guide (2026): Rules, Calculation & Labour Law
If you’re working in the UAE, understanding the difference between a limited contract and an unlimited contract is essential before resigning, changing jobs, or calculating your end-of-service benefits. Although the UAE Labour Law has introduced major changes to the employment contract system, many employees are still unsure whether their contract type affects gratuity, notice periods, resignation rights, or termination rules. This confusion often leads to incorrect gratuity estimates and misunderstandings during the final settlement process.
In this guide, you’ll learn the key differences between limited and unlimited contracts, how each contract works under the latest UAE Labour Law, and how gratuity is calculated based on your basic salary and years of service. We’ll also explain the current legal rules for resignation, termination, notice periods, and whether contract type still has any impact on your end-of-service benefits. Once you understand these rules, you can use our UAE Gratuity Calculator to estimate your gratuity quickly and confidently before leaving your job.
Limited vs Unlimited Contract in UAE (Quick Overview)
Both limited and unlimited contracts were widely used in the UAE employment system. While the latest labour law has made fixed-term contracts the standard for most employees, many workers still have questions about the differences between these contract types, especially regarding gratuity, resignation, notice periods, and termination rules. The table below provides a quick comparison to help you understand the key differences.
| Feature | Limited Contract | Unlimited Contract |
| Contract Duration | Fixed start and end date (up to 3 years, renewable) | No fixed end date |
| Contract Type | Fixed-term employment | Open-ended employment |
| Main Purpose | Project-based or temporary work | Long-term employment |
| Renewal | Can be renewed by mutual agreement | No renewal required |
| Notice Period | Usually 30–90 days | Usually 30–90 days |
| Resignation | Allowed with required notice | Allowed with required notice |
| Termination | According to UAE Labour Law and contract terms | According to UAE Labour Law |
| Gratuity Eligibility | After at least one year of continuous service | After at least one year of continuous service |
| Gratuity Formula | Same formula under current UAE Labour Law | Same formula under current UAE Labour Law |
| Early Contract Exit | May involve contractual obligations | May involve contractual obligations |
| Flexibility | Moderate | Higher |
| Job Security | Ends when contract expires unless renewed | Continues until terminated |
| Current Legal Position | Standard employment contract under Federal Decree-Law No. 33 of 2021 | Mostly applies to older employment agreements |
| Best For | Temporary or project-based roles | Long-term careers |
What Is a Limited Contract in the UAE?
A limited contract, also known as a fixed-term contract, is an employment agreement with a clearly defined start and end date. It is commonly used for project-based work, temporary positions, or roles where the employment period is agreed upon in advance. Under the current UAE Labour Law, most new employment contracts are issued as fixed-term contracts, providing greater clarity for both employers and employees.
Features of a Limited Contract
A limited contract specifies the exact duration of employment, which can generally be up to three years. The contract may be renewed if both the employer and employee agree to continue the employment relationship. Because the employment period is predefined, both parties clearly understand when the contract will end unless it is extended or terminated earlier according to the law.
Notice Period
If either party wishes to terminate a limited contract before its expiry, a written notice is generally required. Under UAE Labour Law, the notice period is usually between 30 and 90 days, depending on the terms stated in the employment contract. Both the employer and employee must comply with the agreed notice period unless a legal exception applies.
Resignation Rules
Employees working under a limited contract have the right to resign before the contract expires, provided they follow the notice period and other contractual obligations. Failing to give proper notice may result in legal consequences or compensation requirements depending on the circumstances and the employment agreement.
Termination Rules
An employer may terminate a limited contract for valid legal reasons, including poor performance, business restructuring, misconduct, or contract expiry. Any termination must follow the procedures outlined in UAE Labour Law, including serving the required notice period unless immediate dismissal is legally justified.
Gratuity Under Limited Contract
Employees who complete at least one year of continuous service are generally entitled to end-of-service gratuity under UAE Labour Law. The gratuity amount is based on the employee’s basic salary and total years of service, rather than the contract type itself.
What Is an Unlimited Contract?
An unlimited contract is an employment agreement without a fixed end date. Unlike a limited contract, it continues until either the employer or the employee decides to end the employment relationship by following the applicable labour laws and contractual notice requirements. Although unlimited contracts were widely used in the past, most new employment agreements in the UAE are now issued as fixed-term contracts.
Features
An unlimited contract does not specify an expiry date, making it suitable for long-term employment relationships. It offers greater flexibility because the employment continues indefinitely unless terminated according to the law. Employees and employers can maintain the working relationship without renewing the contract after a specific period.
Notice Period
Either party can terminate an unlimited contract by providing written notice. The required notice period is generally 30 to 90 days, depending on the employment agreement. Both parties are expected to fulfil their obligations during the notice period unless otherwise permitted by UAE Labour Law.
Resignation Rules
Employees may resign from an unlimited contract at any time by serving the agreed notice period. Once the notice requirements are completed, the employee remains eligible for applicable end-of-service benefits if the minimum service requirement has been met.
Termination Rules
Employers may terminate an unlimited contract for legitimate business or legal reasons, provided they follow the notice period and comply with UAE Labour Law. Immediate termination is only permitted in specific cases involving serious misconduct or other legally recognised grounds.
Gratuity Under Unlimited Contract
Employees working under an unlimited contract are generally entitled to end-of-service gratuity after completing at least one year of continuous service. Under the current UAE Labour Law, gratuity is calculated using the employee’s basic salary and length of service, meaning the calculation method is largely the same as that used for limited contracts.
UAE Gratuity Rules for Limited and Unlimited Contracts
Whether you work under a limited contract or an unlimited contract, the current UAE Labour Law follows the same basic rules for calculating end-of-service gratuity. Today, gratuity mainly depends on your basic salary and total continuous years of service, not the type of employment contract.
Understanding these rules is important before resigning, changing jobs, or completing your employment. Using a UAE Gratuity Calculator can also help you estimate your gratuity quickly based on the latest legal guidelines.
Minimum Service Requirement
Employees become eligible for UAE end-of-service gratuity after completing at least one year of continuous service with the same employer.
If an employee leaves before completing one year, gratuity is generally not payable under the UAE Labour Law.
Basic Salary Used for Gratuity
Gratuity is calculated using the employee’s last basic salary, not the total monthly salary.
The following payments are generally not included in gratuity calculations:
- Housing allowance
- Transport allowance
- Overtime
- Bonuses
- Commissions
- Incentives
- Other variable payments
Only the basic salary forms the basis for calculating the end-of-service benefit.
UAE Gratuity Formula
For employees who complete at least one year of service, gratuity is calculated as follows:
- 21 days’ basic salary for each year of service during the first five years.
- 30 days’ basic salary for every additional year after completing five years.
Employees who complete partial years after the first year may also receive gratuity on a proportional basis.
UAE Labour Law for End-of-Service Benefits
End-of-service gratuity is governed by Federal Decree-Law No. 33 of 2021, which introduced a unified approach for employment contracts in the UAE.
Under the current law, eligible employees receive gratuity based on their length of service and basic salary, regardless of whether they work under a limited or an unlimited contract.
UAE Gratuity Formula
Knowing the gratuity formula makes it easier to estimate your final settlement before leaving your job. The UAE Labour Law applies different rates depending on how many years you have worked.
First Five Years of Service
For the first five years of continuous employment:
Gratuity = 21 Days Basic Salary × Completed Years of Service
This applies once the employee has completed at least one full year of employment.
After Five Years of Service
After completing five years with the same employer:
Gratuity = 30 Days Basic Salary × Additional Years of Service
The first five years continue to be calculated at 21 days per year, while every year after that is calculated at 30 days’ basic salary.
Maximum Gratuity Limit
Under UAE Labour Law, the total end-of-service gratuity cannot exceed the equivalent of two years’ basic salary, regardless of the employee’s total years of service.
UAE Gratuity Calculation Examples
The examples below demonstrate how gratuity is generally calculated under the current UAE Labour Law.
Example 1 – Limited Contract
Employee Details
- Basic Salary: AED 6,000
- Contract Type: Limited
- Service: 3 Years
Calculation
Daily Basic Salary = AED 6,000 ÷ 30 = AED 200
21 Days Salary = AED 4,200
Gratuity = AED 4,200 × 3
Estimated Gratuity = AED 12,600
Example 2 – Unlimited Contract
Employee Details
- Basic Salary: AED 8,000
- Contract Type: Unlimited
- Service: 7 Years
Calculation
First 5 Years
21 Days × AED 8,000 = AED 5,600 per year
AED 5,600 × 5 = AED 28,000
Remaining 2 Years
30 Days Salary = AED 8,000
AED 8,000 × 2 = AED 16,000
Estimated Gratuity = AED 44,000
Example 3 – Employee Resigns
If an employee resigns after completing 4 years of continuous service, gratuity is generally calculated using the standard UAE Labour Law formula based on their basic salary.
As long as the employee completes the required notice period and meets the legal eligibility requirements, resignation does not automatically reduce gratuity under the current law.
Example 4 – Employee Is Terminated
If an employer terminates an employee after 6 years of continuous service for reasons permitted under the law, the employee is generally entitled to receive full end-of-service gratuity based on their completed years of service and last basic salary.
Does Contract Type Affect UAE Gratuity?
Many employees still believe that limited and unlimited contracts have different gratuity rules. This was true under the previous UAE labour law, but the rules have changed.
Current UAE Gratuity Rules
| Previous UAE Labour Law | Current UAE Labour Law |
| Different gratuity rules for limited and unlimited contracts | Same gratuity calculation method for eligible employees |
| Contract type had a greater impact on gratuity entitlement | Basic salary and years of service are the primary factors |
| More complex resignation rules | Simplified employment framework under Federal Decree-Law No. 33 of 2021 |
Under the Old UAE Labour Law
Previously, gratuity calculations could differ depending on whether an employee worked under a limited or unlimited contract. Resignation under an unlimited contract sometimes reduced gratuity entitlement, while limited contracts followed different conditions.
Changes Under the New Labour Law
With the introduction of Federal Decree-Law No. 33 of 2021, the UAE replaced the old contract system with a unified employment framework based on fixed-term contracts.
The updated law simplified gratuity rules and removed many of the previous differences between contract types.
Current UAE Gratuity Rules
Today, the contract type has very little impact on gratuity calculations.
Instead, gratuity mainly depends on:
- Your last basic salary
- Total years of continuous service
- Compliance with UAE Labour Law
- Completion of the required notice period where applicable
For most employees, the same gratuity formula now applies regardless of whether their previous employment was under a limited or unlimited contract.
Notice Period for Limited vs Unlimited Contracts
The exact notice period depends on the employment contract signed by both the employer and employee. However, UAE Labour Law generally allows a notice period between 30 and 90 days, and both parties are expected to follow the agreed notice period unless another legal provision applies.
| Notice Period | When It Applies |
| 30 Days | Standard minimum notice period for most employees. |
| 60 Days | Common in professional and managerial positions where stated in the employment contract. |
| 90 Days | Maximum notice period generally permitted under UAE Labour Law for certain employment agreements. |
Can You Resign From a Limited Contract?
Yes. Employees working under a limited (fixed-term) contract can resign before the contract expires, provided they follow the notice period and other conditions mentioned in their employment agreement.
Under the current UAE Labour Law, employees are generally free to change jobs after serving the required notice. However, failing to comply with contractual obligations or leaving without proper notice may lead to compensation claims or other legal consequences, depending on the circumstances.
Can You Resign From an Unlimited Contract?
Yes, you can resign from an unlimited contract in the UAE at any time, provided you follow the notice period mentioned in your employment contract and comply with the UAE Labour Law. In most cases, employees are required to give 30 to 90 days’ written notice, depending on the terms agreed with their employer.
Resigning from an unlimited contract does not automatically affect your gratuity entitlement. If you have completed at least one year of continuous service, you are generally eligible to receive your End of Service Gratuity based on your basic salary and total years of service. Before submitting your resignation, it’s always a good idea to review your employment contract and calculate your expected gratuity to avoid any surprises during your final settlement.
Common Mistakes Employees Make When Calculating UAE Gratuity
Many employees receive incorrect gratuity estimates because they misunderstand the calculation rules. Avoiding these common mistakes can help you estimate your end-of-service benefits more accurately.
Using Gross Salary Instead of Basic Salary
One of the most common mistakes is calculating gratuity using the total monthly salary. Under UAE Labour Law, gratuity is generally calculated using the basic salary, not allowances such as housing, transport, bonuses, or overtime.
Ignoring the Notice Period
Some employees assume the notice period has no effect on their final settlement. Failing to serve the required notice period may result in salary deductions or other contractual consequences.
Counting Incorrect Years of Service
Gratuity depends on your actual period of continuous employment. Incorrect joining dates, leaving dates, unpaid leave, or breaks in service can affect the final calculation.
Assuming Contract Type Changes the Formula
Many employees still believe limited and unlimited contracts use different gratuity formulas. Under the current UAE Labour Law, gratuity is generally calculated using the same formula for eligible employees, regardless of contract type.
Ignoring Partial Years of Service
Many employees calculate gratuity using only completed years of service and forget that partial years may also be included on a proportional basis after meeting the minimum eligibility requirements. Checking your exact employment dates helps ensure a more accurate gratuity estimate.
Calculate Your UAE Gratuity Online
Want to know how much gratuity you’re likely to receive before resigning or changing jobs? Our UAE Gratuity Calculator makes the process simple. Just enter your basic salary, years of service, and employment details to receive an instant gratuity estimate based on the latest UAE Labour Law. It’s a quick and reliable way to understand your expected end-of-service benefits before discussing your final settlement with your employer.
Frequently Asked Questions
1. Is gratuity calculated differently for limited and unlimited contracts?
No. Under the current UAE Labour Law, eligible employees generally receive gratuity using the same calculation method regardless of whether their contract is limited or unlimited.
2. Who qualifies for UAE End of Service Gratuity?
Employees who complete at least one year of continuous service are generally eligible for gratuity, subject to the conditions of UAE Labour Law.
3. Is gratuity calculated on basic salary or total salary?
Gratuity is calculated using the employee’s basic salary, not the total monthly salary that includes allowances or bonuses.
4. What is the gratuity formula in the UAE?
Employees generally receive 21 days’ basic salary for each year of service during the first five years and 30 days’ basic salary for every additional year thereafter.
5. Does unpaid leave affect gratuity?
Extended unpaid leave may affect the eligible service period used for gratuity calculations, depending on the employment terms and applicable labour regulations.
6. What is the maximum gratuity payable in the UAE?
The total End of Service Gratuity cannot exceed the equivalent of two years’ basic salary under the applicable labour regulations.
7. Can my employer refuse to pay gratuity?
An employer cannot legally refuse gratuity if the employee meets the eligibility requirements, except in situations specifically allowed under UAE Labour Law.
8. How can I calculate my UAE gratuity accurately?
The easiest way is to use a UAE Gratuity Calculator, which estimates your gratuity based on your basic salary, years of service, and employment details.
Sources & Legal References
The information provided in this guide is based on the latest UAE Labour Law (Federal Decree-Law No. 33 of 2021), publicly available employment regulations, and official guidance published by the Ministry of Human Resources and Emiratisation (MOHRE). While we regularly review and update our content, employment situations may vary depending on individual contracts and company policies. For official confirmation of your gratuity entitlement, you should consult your employer or the relevant UAE labour authority.
Final Thoughts
Understanding the difference between limited and unlimited contracts is important, but when it comes to UAE End of Service Gratuity, the most important factors are your basic salary, continuous years of service, and the latest UAE Labour Law. Knowing these rules helps you estimate your final settlement with confidence and avoid common calculation mistakes.
Whether you’re planning to resign, changing employers, or completing your employment contract, it’s always a good idea to calculate your gratuity before leaving your job. Our UAE Gratuity Calculator provides a quick and reliable estimate of your end-of-service benefits. If you’d like to learn more about gratuity rules, you can also read our UAE Gratuity Guide for a complete explanation of eligibility, labour laws, and calculation methods.
