Gratuity on limited and unlimited contracts after the UAE labour reform

Every private-sector contract under UAE Federal Decree-Law No. 33 of 2021 is limited, meaning fixed-term and renewable, so the unlimited contract is a legacy form. Gratuity is the same on any limited contract: 21 days of basic wage for each of the first five years, 30 days after that, capped at two years’ wage.

Key takeaways

• Under the current Labour Law every contract is fixed-term and renewable; the “unlimited” contracts of the 1980 law had to be converted.
• Article 51 gives the gratuity on years of service: 21 days’ basic wage a year for the first five years and 30 days for each year after, with a cap of two years’ wage.
• The Article 51 calculation does not change with the length of the contract term or with who ends the contract, and it contains no reduction for resignation.
• A contract that expires and is not renewed is an ordinary way for service to end, and the gratuity is still due once the worker has at least one year of continuous service.
• Contracts of undefined term made under the 1980 law can still be treated differently: Article 68 lets the employer calculate their end-of-service benefits under that law’s provisions.

On this page 9 sections

What changed in the Labour Law

Under the old law, Federal Law No. 8 of 1980, an employer could hire on a contract of undefined term, usually called an unlimited contract, or on a contract for a set period, a limited one. Federal Decree-Law No. 33 of 2021 (the Labour Law, in force since 2022) removed that choice. Every contract under it is fixed-term and renewable, and a contract that both sides keep performing after it expires counts as renewed on the same terms (u.ae, employment contracts page).

The law dealt with the old contracts in Article 68: employers had to convert unlimited contracts to fixed-term ones within one year of the law coming into force, and the Minister may extend that period. So today a “limited contract” is simply the standard contract, and “unlimited” survives mostly as a description of an arrangement that began under the old law.

The rules for ending a contract early, including notice, are covered in resignation and termination under UAE labour law. This page is about one question: whether the gratuity differs between the two contract types.

How gratuity works on a limited contract

Article 51(2) gives the end-of-service gratuity to the full-time expatriate worker with at least one year of continuous service. The full rules are in the guide to end-of-service gratuity; in short:

• Rate. 21 days’ basic wage for each of the first five years of service, and 30 days’ basic wage for each year after the fifth.
• Part years. After the first full year, part years count in proportion (Article 51(3)). Days of unpaid absence come off the length of service (Article 51(4)).
• Pay base. The last basic wage the worker was entitled to, without allowances (Article 51(5)).
• Cap. The total may not exceed two years’ wage (Article 51(6)). The gratuity guide applies this as 24 months of basic wage.
• Emiratis. They do not receive this gratuity; Article 51(1) gives them end-of-service benefits under the pensions and social security legislation instead, as set out in the Emiratisation rules for private employers.

Nothing in this calculation refers to the term of the contract. The rates are stated per year of service, so a worker with seven years’ service has the same entitlement whether those years were one three-year contract and a renewal, or several shorter terms renewed in turn. That is a reading of the text of Article 51, which counts service and not contracts.

Worked example: seven years on renewed contracts

Worked example

Basic wage of AED 6,000 and 7 years of service

The wage and length of service are illustrations. The worker is a full-time expatriate whose contract has been renewed several times, and the last basic wage is AED 6,000 a month. A day’s wage is taken as the monthly basic wage ÷ 30, an assumption the law does not fix.

1. A day’s basic wage: AED 6,000 ÷ 30 = AED 200.
2. First five years: 5 × 21 = 105 days.
3. Years six and seven: 2 × 30 = 60 days.
4. Total days: 105 + 60 = 165 days. Gratuity: 165 × AED 200 = AED 33,000.
5. Cap check: 24 × AED 6,000 = AED 144,000, so the cap does not bite.

Gratuity at the legal minimum rates: AED 33,000.

The figure would be the same had the seven years been served on one long-running arrangement. What changes the number is the length of service and the last basic wage, not the label on the contract. The gratuity calculator runs the same steps from your own dates and wage.

Does it matter how the contract ends?

For a limited contract the usual endings are expiry without renewal, written agreement, or notice from either side (Article 42). The gratuity guide notes that Article 51 does not make the gratuity depend on who ends the contract or why, and that it contains no reduction for a worker who resigns.

• Expiry without renewal. The contract simply ends on its end date. Service up to that date counts, and the gratuity is calculated as above.
• Resignation or dismissal with notice. The contract stays in force until the notice period ends (Article 43(2)), so the notice period counts as service and the gratuity runs to the last day.
• Ending early without serving notice. This can create a notice allowance owed by the party at fault (Article 43(3) and (4)). That is a separate amount from the gratuity.
• Probation. A worker still in probation has not reached the one-year minimum; see the probation period rules.

The employer must pay the gratuity within 14 days of the end of the contract, together with unpaid wages and other entitlements (Article 53). It may deduct amounts due under the law or a court judgment (Article 51(7)). If it is not paid, the worker can file a complaint with the Ministry of Human Resources and Emiratisation (MOHRE).

Legacy unlimited contracts under Article 68

The one place where “unlimited” still matters is the transition rule in Article 68. As the gratuity guide records it, an employer may calculate end-of-service benefits for contracts of undefined term made under the 1980 law using that law’s provisions. In practice that means an employee who has been with the same employer since before 2022 on an old unlimited contract could find the employer applying different rules to the years it covers.

This guide has not read the text of the repealed 1980 law, so it does not state how that law treated resignation or length of service, and it gives no figures for it. If you are in this position, ask for the calculation in writing and compare it with Article 51, or check the position with MOHRE or a licensed adviser. Where the old contract was converted to a fixed-term one, the current law applies to the converted contract.

Limited and unlimited contracts at a glance

What employers and employees should check

Look at the contract and the pay records before relying on any rule of thumb.

• The contract type and start date. A contract signed before the 2022 law may still be described as unlimited. Ask whether it was converted and when.
• The basic wage line. Gratuity is on the basic wage only, so how pay is split between basic wage and allowances changes the result. Salaries paid through the system described in Wage Protection System (WPS) leave a record of what was paid each month.
• Continuity of service. Because renewal counts as continuing the same contract on the same terms, keep the dates of each renewal and any unpaid absence, since days of unpaid absence reduce service.
• Free zones. The Labour Law does not apply in every jurisdiction. The Abu Dhabi Global Market and the Dubai International Financial Centre have their own employment laws, which this guide does not cover.

More private-sector rules are collected in the Employment and payroll guides.