Limited vs. Unlimited Contracts in UAE: The Complete Guide (2025 Update)

What is a Limited Contract?

A Limited Contract (Fixed-Term Contract) is now the standard employment format in the UAE private sector. It links the employment relationship to a specific timeframe, with clear start and end dates.

• Duration: Typically ranges from 2 to 3 years, renewable upon mutual agreement.
• Structure: It provides stability for both employer and employee.
• Status: As of the latest MOHRE regulations, almost all private sector employees must be transitioned to this format.

What Happened to Unlimited Contracts?

Previously, "Unlimited Contracts" were common, offering open-ended employment with no specific expiry date. However, following Federal Decree-Law No. 33 of 2021, the UAE government mandated the conversion of unlimited contracts to fixed-term (Limited) contracts.

Impact on Gratuity Calculation

This shift makes calculating gratuity much simpler. Under the old "Unlimited" rules, resigning employees often faced reductions (e.g., losing 1/3 or 2/3 of their gratuity based on years served).

Under the new Limited Contract rules:

• No Reduction on Resignation: As long as you complete your notice period, you are entitled to full gratuity.
• Standard Formula: 21 days basic salary per year for the first 5 years, and 30 days basic salary for every subsequent year.

You can check your exact amount using our Gratuity Calculator.

Resignation & Notice Periods

Even in Limited Contracts, you can resign before the contract ends. However, you must adhere to the Notice Period agreed upon in your contract (usually 30 to 90 days).

Failure to serve the notice period may result in a "Compensation in Lieu of Notice" penalty, where you must pay the employer the equivalent salary for the unserved days.