Understanding Contract Types Under UAE Labour Law
Your contract type determines how much end-of-service gratuity you receive — and under what circumstances you receive it. With the introduction of Federal Decree-Law No. 33 of 2021, the rules changed significantly, and many employees are still unaware of how this affects them.
Need to calculate gratuity? Use our free calculator
This guide breaks down the difference between limited and unlimited contracts, compares gratuity entitlements side by side, and helps you work out which is better for your situation.
What Changed in 2021?
Before Federal Decree-Law No. 33 of 2021 came into effect, both limited and unlimited contracts were common in the UAE private sector. The new law introduced a major shift: all new employment contracts issued from February 2022 must be fixed-term (limited) contracts, renewable for up to three years. This means most employees hired after this date are on limited contracts by default.
Employees on unlimited contracts before 2022 had until the end of 2023 to transition. If you are still on an unlimited contract, check with HR whether yours has been updated.
What Is a Limited Contract?
A limited contract (fixed-term contract) has a defined start and end date, typically one to three years, with the option to renew. This is now the standard contract type for all UAE private sector employees under the 2021 law.
Gratuity Rights on a Limited Contract
- First 5 years of service: 21 days of basic salary per year
- After 5 years: 30 days of basic salary per year
- Maximum gratuity: 2 years of basic salary
- Full gratuity whether you resign or are terminated (minimum 1 year of service required)
What Is an Unlimited Contract?
An unlimited contract has no fixed end date. While no longer issued for new hires under the 2021 law, many employees who joined before 2022 may still hold one. The gratuity rules are more complex around resignation.
Gratuity Rights on an Unlimited Contract
- Terminated by employer: Full gratuity (same rates as limited)
- Resign, less than 1 year: No gratuity
- Resign, 1–3 years: One-third (1/3) of full gratuity
- Resign, 3–5 years: Two-thirds (2/3) of full gratuity
- Resign, 5+ years: Full gratuity
Side-by-Side Comparison
| Scenario | Limited Contract | Unlimited Contract |
|---|---|---|
| Resign after 2 years | Full gratuity | 1/3 of full gratuity |
| Resign after 4 years | Full gratuity | 2/3 of full gratuity |
| Resign after 6 years | Full gratuity | Full gratuity |
| Terminated (any point) | Full gratuity | Full gratuity |
| Contract expires | Full gratuity | N/A |
Example 1: AED 8,000 Salary, 3 Years, Resignation
Ahmed earns AED 8,000 basic salary and resigns after 3 years.
Limited contract (full gratuity):
(8,000 ÷ 30) × 21 × 3 = AED 16,800
Unlimited contract (resign between 1–3 years = one-third):
16,800 × (1/3) = AED 5,600
Difference: AED 11,200 — a significant gap that catches many employees off guard.
Example 2: AED 12,000 Salary, 7 Years, Resignation
Maria earns AED 12,000 basic salary and resigns after 7 years. Both contracts pay full gratuity after 5+ years.
- First 5 years: (12,000 ÷ 30) × 21 × 5 = AED 42,000
- Next 2 years: (12,000 ÷ 30) × 30 × 2 = AED 24,000
- Total: AED 66,000 (same on either contract type)
Once you pass five years of service, contract type no longer affects the gratuity amount on resignation.
Does Contract Renewal Reset Your Gratuity?
No. Gratuity is calculated on your total continuous service with the same employer, not on individual contract periods. If your limited contract is renewed twice over six years, your gratuity is based on all six years — not just the most recent contract term. This is one of the most common misunderstandings among UAE employees.
What If You Are Not Sure Which Contract You Are On?
- Check your employment contract — it should state “fixed-term” or include a specific end date
- Log into the MOHRE e-services portal to view your registered contract
- Ask HR — they are legally required to tell you your contract type and terms
Frequently Asked Questions
Can my employer still issue an unlimited contract today?
No. Since the 2021 law, all new private sector contracts must be fixed-term. An unlimited contract issued after February 2022 does not comply with UAE Labour Law.
If I resigned from an unlimited contract after 4 years, am I getting the right amount?
You should receive two-thirds of full gratuity. Use our UAE Gratuity Calculator to calculate the full entitlement, then take two-thirds. If your employer paid less, contact MOHRE on 800 60.
My contract was renewed three times. Does each renewal period count separately?
No. Your service period runs continuously from your first joining date. Renewals do not reset gratuity.
Which contract gives more gratuity overall?
For employees who resign within the first five years, limited contracts pay significantly more. After five years, both are equal. Since the 2021 law makes limited contracts the standard, this is generally good news for UAE workers.
All information is based on Federal Decree-Law No. 33 of 2021. For complex employment disputes, contact MOHRE or consult a qualified UAE employment lawyer.