Gratuity on an Unlimited Contract in the UAE

Q: Do unlimited contracts still exist in the UAE?

Not for new private-sector employment. Following the 2022 reforms, private-sector contracts moved to a single fixed-term (limited) model. Existing unlimited contracts were transitioned, but the term is still widely used by employees describing older arrangements.

Q: How is gratuity calculated for a former unlimited contract?

Under the current standard formula it is the same as any other private-sector contract: 21 days of basic wage per year for the first five years and 30 days per year afterwards, based on basic salary, with a one-year minimum and a two-year basic-wage cap.

Q: Does resigning from an unlimited contract reduce my gratuity?

No. The old unlimited-contract resignation reductions (to one-third or two-thirds) are historical and are not applied to current standard private-sector calculations. Resignation and termination use the same formula.

"Unlimited contract" is a phrase many UAE employees still use, even though the contract type was reformed in 2022. This guide explains what it meant, how end of service gratuity is calculated today, and why the old resignation reductions no longer apply.

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Last reviewed: 19 June 2026

What an unlimited contract meant

Before the 2022 labour reforms, UAE private-sector employees were hired on one of two contract types. An unlimited contract had no fixed end date and could be ended by either party with notice. It was the more flexible and more common arrangement. Since the reforms, all private-sector contracts are fixed-term, so "unlimited" is now a historical term — but it still appears on older contracts and in everyday conversation.

Gratuity eligibility

Eligibility has not changed with the contract type. To receive end of service gratuity you must:

Be a private-sector employee under the federal labour law.
Have completed at least one full year of continuous service.
End the relationship through resignation or lawful termination.

The current UAE formula

Whatever your contract was historically called, gratuity today is calculated the same way:

Rule	Detail
Basis	Basic salary only (allowances excluded)
Daily wage	Monthly basic salary ÷ 30
First 5 years	21 days of basic wage per year
After 5 years	30 days of basic wage per year
Minimum	1 year of service
Maximum	2 years' basic wage

Resignation note

Old resignation reductions no longer apply

Under the historical unlimited-contract rules, resigning could reduce gratuity to one-third (1–3 years) or two-thirds (3–5 years). These reductions are outdated and are not used in current standard private-sector calculations. Read more on our resignation gratuity page.

Termination note

If the employer ends the contract lawfully, the same 21/30-day calculation applies. Separate rules cover notice, pay in lieu and dismissal for gross misconduct — see our UAE notice period guide for how timing works.

Worked examples

An employee formerly on an unlimited contract, basic salary AED 10,000, 4 years of service:

Example

AED 10,000 basic · 4 years

Daily wage (10,000 ÷ 30)AED 333.33

Years 1–4 × 21 days84 days

Calculation333.33 × 84

Resignation reductionNone (current formula)

AED 28,000

Estimated gratuity

Under the old unlimited-contract resignation rule this might have been reduced to two-thirds (about AED 18,667) — which is exactly why using the outdated method gives the wrong number today.

Common misunderstandings

Believing unlimited contracts still have a special, separate gratuity formula.
Applying the old 1/3 and 2/3 resignation reductions.
Using gross salary instead of basic salary.
Assuming the contract label changes eligibility — it does not.

Check your figure instantly

The calculator uses the current formula with no resignation reduction.

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Frequently asked questions

Do unlimited contracts still exist in the UAE?

Not for new private-sector employment. After the 2022 reforms, contracts moved to a single fixed-term model. Existing unlimited contracts were transitioned, but the term is still widely used to describe older arrangements.

How is gratuity calculated for a former unlimited contract?

The same as any other private-sector contract: 21 days of basic wage per year for the first five years and 30 days per year afterwards, based on basic salary, with a one-year minimum and a two-year cap.

Does resigning from an unlimited contract reduce my gratuity?

No. The old unlimited-contract resignation reductions are historical and are not applied to current standard private-sector calculations. Resignation and termination use the same formula.

What salary is used for unlimited contract gratuity?

Basic salary only. Allowances such as housing and transport are excluded.

Official sources & further reading

Confirm details with the UAE Government portal (u.ae) and MOHRE. On this site, see the limited contract gratuity guide, the UAE Labour Law overview, and the step-by-step gratuity guide.

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