Difference Between Limited and Unlimited Contract in the UAE
Understanding the difference between a limited and unlimited contract in the UAE is important for employees, especially when calculating end of service benefits and gratuity.
Many UAE employees are unsure how their contract type affects gratuity calculation, resignation rules, and final settlement. This guide explains the key differences clearly and how each contract impacts UAE gratuity.
What Is a Limited Contract in the UAE?
A limited contract is an employment contract with a fixed duration, usually one to three years. The contract automatically ends on the agreed date unless renewed by both employer and employee.
Key Features of a Limited Contract
- Fixed start and end date
- Ends automatically on expiry
Early termination may have conditions
Gratuity eligibility depends on completion of service
Employees working under limited contracts often search for:
- Dubai gratuity law
- Computation of gratuity in Dubai
- Calculate end of service Dubai
What Is an Unlimited Contract in the UAE?
An unlimited contract is open-ended and continues indefinitely unless ended by either party in accordance with the applicable notice requirements under UAE labour regulations.
Key Features of an Unlimited Contract
- No fixed expiry date
- Can be terminated with notice
- More flexible for job changes
- Gratuity rules depend on years of service
Employees under this contract frequently use:
- Gratuity calculator Dubai
- End of service calculator Abu Dhabi
- Gratuity rule in Dubai
Difference Between Limited and Unlimited Contract (Quick Comparison)
| Feature | Limited Contract | Unlimited Contract |
|---|---|---|
| Contract duration | Fixed | No fixed end |
| Expiry | Automatic | Not applicable |
| Termination | Conditions apply | Notice-based |
| Job flexibility | Lower | Higher |
| Gratuity eligibility | After 1 year | After 1 year |
How Contract Type Affects Gratuity in UAE
The UAE gratuity calculation is mainly based on:
- Basic salary
- Years of service
- Reason for leaving
However, contract type can influence eligibility, especially in resignation cases.
Gratuity Under Limited Contract
- Less than 1 year: No gratuity
1 year or more: Gratuity applies
- Early resignation may affect entitlement depending on terms
Gratuity Under Unlimited Contract
- Less than 1 year: No gratuity
- 1–5 years: 21 days basic salary per year
- 30 days of basic pay for every year after the fifth year.
To get an exact estimate, use our UAE Gratuity Calculator to check your eligibility and amount.
Gratuity Calculation Is the Same Across Emirates
Many employees believe gratuity rules differ by city, but Dubai gratuity law applies across the UAE.
The same calculation method is used for:
- Gratuity calculator Dubai
- Gratuity calculator Abu Dhabi
- Gratuity calculator Sharjah
- Gratuity calculator Ajman
- Gratuity calculator Fujairah
- Gratuity calculator Ras Al Khaimah
- Gratuity calculator Umm Al Quwain
Federal labour law governs gratuity for all emirates.
Example: End of Service Calculation (Unlimited Contract)
Basic Salary: AED 5,000
Years of Service: 4
Daily salary = 5,000 ÷ 30
Gratuity = 21 days × 4 years
Estimated gratuity = AED 14,000 (approx)
You can calculate this instantly using our end-of-service calculator Dubai available on Emirates Calculator.
Which Contract Is Better for Employees?
There is no single “better” contract, as it depends on personal circumstances.
Limited Contract May Be Better If:
- You prefer fixed-term stability
- You plan to stay until contract completion
Unlimited Contract May Be Better If:
- You want flexibility
- You may change jobs
- You want easier resignation terms
Regardless of contract type, gratuity is calculated on basic salary only.
Common Misunderstandings About Contracts and Gratuity
❌ Gratuity includes allowances
❌ Contract type changes daily salary calculation
❌ Gratuity differs between Dubai and Abu Dhabi
✔ Gratuity is based on basic salary
✔ Same rules apply across UAE
✔ Contract type mainly affects termination terms
Final Thoughts
Knowing the difference between limited and unlimited contracts in the UAE helps you make informed decisions about employment, resignation, and financial planning.
Before leaving a job, always:
- Check your contract type
- Confirm years of service
- Calculate gratuity accurately
Use our UAE Gratuity Calculator on EmiratesCalculator.com to get a quick and reliable estimate based on your details.