Limited Contract Gratuity in the UAE
The limited (fixed-term) contract is now the standard form of private-sector employment in the UAE. This guide explains what that means for your end of service gratuity, how it is calculated, and what happens when a fixed term ends.
Last reviewed: 19 June 2026
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What a limited contract means
A limited contract — also called a fixed-term contract — is issued for a defined period (for example two or three years) and can be renewed by agreement. Since the 2022 reforms, this is the only contract type for new private-sector employees, replacing the older limited/unlimited split.
How gratuity is treated
Gratuity on a limited contract uses the standard national formula. The contract being fixed-term does not create a separate calculation:
- Daily wage = monthly basic salary ÷ 30.
- 21 days of basic wage per year for the first five years.
- 30 days of basic wage per year after five years.
- One full year of service is required to qualify.
- The total is capped at two years' basic wage.
Current labour law context
Because all private-sector contracts are now fixed-term, the historical resignation reductions that once applied to "unlimited" contracts are no longer relevant. Resignation and lawful termination produce the same gratuity. If your contract was previously unlimited, see our unlimited contract gratuity guide for the transition context.
When a fixed term ends
| Situation | Gratuity outcome (1+ year of service) |
|---|---|
| Contract completes and is not renewed | Payable on qualifying service |
| Employee resigns before the term ends | Payable — no resignation reduction under current formula |
| Employer terminates lawfully | Payable on qualifying service |
| Less than one year of service | Not eligible |
Notice, pay in lieu and any early-termination compensation are separate from the gratuity calculation.
Worked example
An employee on a limited contract with a basic salary of AED 6,500 completes 2 years of service:
Example
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Official sources & further reading
Confirm details with the UAE Government portal (u.ae) and MOHRE. On this site, read the unlimited contract gratuity guide, the UAE Labour Law overview, and the full gratuity guide.