What is Limited vs Unlimited Contracts in UAE

Introduction to Limited vs Unlimited Contracts in UAE

In the United Arab Emirates, understanding employment contracts is very important for both employers and employees because it directly impacts job security, gratuity, and overall work rights.

Why Understanding UAE Contracts is Important

Employment contracts in the UAE define the working relationship between an employee and an employer. They set the boundaries for rights, responsibilities, and benefits. Knowing whether your contract is limited or unlimited can help you understand your entitlements, termination rules, and gratuity payments.

Overview of Employment Laws in UAE

The UAE Labour Law, regulated by the Ministry of Human Resources and Emiratisation (MOHRE), provides the framework for employment agreements. The latest updates in 2022 and 2023 changed how contracts work, aiming to make the system more transparent. With these changes, both limited and unlimited contracts play a central role in determining the future of employees in Dubai, Abu Dhabi, and other emirates.

What is a Limited Contract in UAE?

Duration and Terms of Limited Contract

A limited contract in the UAE is an employment agreement signed for a fixed period, commonly two or three years. The contract specifies both a starting and an ending date. Once the contract expires, it can either be renewed with mutual consent or simply end without further obligations from either party.

Limited Contract Resignation Rules in UAE 2024

Resignation under a limited contract must follow the terms written in the agreement. If an employee wishes to resign before the contract’s expiry, they are usually required to serve the notice period defined in the document. Breaking a limited contract without a valid reason may result in financial compensation to the employer. The new 2024 labour law updates make resignation slightly more flexible, but it still requires compliance with agreed conditions.

Gratuity Calculation under Limited Contract

Employees on a limited contract are entitled to gratuity if they complete at least one full year of continuous service. The gratuity is calculated based on the last drawn basic salary:

• 21 days of basic wage for each year of service up to five years.
• 30 days of basic wage for each additional year after completing five years.

This formula ensures that long-term employees receive higher end-of-service benefits, rewarding their loyalty and service.

What is an Unlimited Contract in UAE?

Duration and Terms of Unlimited Contract

An unlimited contract in the UAE does not have a fixed end date. Instead, it continues until either the employer or the employee decides to end it by following the agreed notice period. This type of contract offers more flexibility compared to limited contracts, making it a popular choice among many companies and employees in Dubai and across the UAE.

Resignation and Termination Rules

Employees on an unlimited contract can resign at any time, provided they give the required notice period, which is typically between 30 to 90 days depending on the agreement. Similarly, employers can also terminate the contract by giving proper notice, but they must follow fair dismissal procedures as per UAE Labour Law. This gives employees greater job security, as unfair termination can lead to legal action or compensation.

Gratuity Calculation under Unlimited Contract

Like limited contracts, gratuity is also available under unlimited contracts if the employee completes at least one year of continuous service. The calculation is based on the last basic salary drawn:

• 21 days of basic wage for each year of service during the first five years.
• 30 days of basic wage for every additional year after five years of service.

However, if the employee resigns before completing five years, the gratuity may be reduced depending on how long they have worked. This makes it essential for employees to understand the terms of their resignation under unlimited contracts.

Key Differences Between Limited and Unlimited Contracts in UAE

Understanding the difference between limited and unlimited contracts in the UAE is essential for both employers and employees. Each type has its own rules regarding duration, termination, and gratuity, which can impact career stability and financial benefits.

Contract Duration and Renewal

• Limited Contract: Signed for a fixed term (usually 2–3 years). It automatically ends on the specified date unless renewed.
• Unlimited Contract: Has no fixed end date and continues until one party terminates it with proper notice.

Termination Conditions

• Limited Contract: Early termination without valid reason may lead to penalties or compensation for the employer.
• Unlimited Contract: Either party can terminate by serving notice, but employers must provide a fair reason to avoid legal disputes

Employee Rights and Employer Obligations

• Limited Contract: Employee mobility is restricted until the contract ends, and resignation rules are stricter.
• Unlimited Contract: Provides more flexibility in switching jobs, provided the employee respects the notice period.

Gratuity Payment Comparison

• Limited Contract: Gratuity entitlement is straightforward alculated on the full period worked once an employee completes one year.
• Unlimited Contract: Gratuity entitlement depends not only on service years but also on how the resignation occurs, especially if service is less than five years.

Limited vs Unlimited Contract UAE Gratuity Rules

Gratuity is one of the most important benefits employees receive at the end of their service in the UAE. Both limited and unlimited contracts provide gratuity, but the calculation methods and conditions may slightly differ.

How Gratuity is Calculated for Limited Contract

Under a limited contract, gratuity is paid if the employee has completed at least one year of continuous service. The calculation is:

• 21 days of basic wage for each year of service up to five years.
• 30 days of basic wage for every year after completing five years.

This calculation is straightforward because it applies uniformly once the employee completes the required service period, regardless of whether they resign or the contract ends.

How Gratuity is Calculated for Unlimited Contract

For unlimited contracts, gratuity depends not only on years of service but also on how the employment ends:

• If an employee resigns after 1–3 years: one-third of 21 days’ basic wage per year.
• If an employee resigns after 3–5 years: two-thirds of 21 days’ basic wage per year.
• If an employee resigns after 5 years or more: full 21 days for the first five years and 30 days for each year after.

This means employees on unlimited contracts may receive a reduced gratuity if they resign before completing five years.

Examples of Gratuity Calculation

Example 1 – Limited Contract:
If an employee works for 4 years with a basic monthly salary of AED 5,000:

• 21 days × 4 years = 84 days’ salary = AED 14,000.

Example 2 – Unlimited Contract (Resignation after 4 years):
If the same employee resigns after 4 years under an unlimited contract:

• Two-thirds of gratuity (since between 3–5 years).
• 21 days × 4 years = 84 days’ salary.
• Two-thirds = AED 9,333 approx.

This example highlights how gratuity differs based on contract type and resignation rules.

How to Check If Your Contract is Limited or Unlimited in UAE

Many employees in the UAE are unsure whether their contract is limited or unlimited. Knowing this detail is important because it directly affects your resignation rights, gratuity, and job security.

Using MOHRE or Labour Card Information

The simplest way to check your contract type is by reviewing your details through the Ministry of Human Resources and Emiratisation (MOHRE). Employees can log in to the MOHRE app or website using their Emirates ID and check their official contract. The document clearly mentions whether it is a limited or unlimited contract.

In addition, your labour card also holds important details about your employment. By cross-checking the contract clauses and duration mentioned, you can easily identify the type of agreement.

Key Clauses to Identify Contract Type

If you don’t have immediate access to MOHRE, you can check the physical contract you signed with your employer. Look for these signs:

• If the agreement mentions a specific start and end date, it is a limited contract.
• If the agreement mentions no fixed end date and only states a notice period for resignation, it is an unlimited contract.

This small distinction helps employees understand their rights and plan their careers more effectively in the UAE job market.

Which is Better: Limited or Unlimited Contract in UAE?

Choosing between a limited and an unlimited contract in the UAE depends on individual priorities, career plans, and the type of employment. Each has its advantages and drawbacks.

Benefits of Limited Contract

• Provides clear start and end dates, giving both employer and employee a defined period of commitment.
• Usually offered for specific projects or fixed-term employment, making it suitable for short-term roles.
• Straightforward gratuity calculation once service is completed.
• Often used when companies want employees to stay until project completion.

Benefits of Unlimited Contract

• Offers greater flexibility since there is no fixed end date.
• Employees can resign anytime by serving the agreed notice period, without worrying about contract expiry.
• Provides better job mobility within the UAE, especially for those looking to switch careers.
• Encourages long-term employment relationships, which may bring more stability for both parties.

Choosing the Right Contract for Your Career

• If you prefer stability with a fixed commitment, a limited contract may suit you better.
• If you want flexibility, career growth, and easier resignation options, then an unlimited contract is the better choice.
• For expatriates planning a long-term stay in the UAE, unlimited contracts often prove to be more beneficial.

Ultimately, the “better” option depends on personal circumstances, job nature, and the company’s policy. Employees should always review their rights and discuss terms with the employer before signing any contract.

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