If you are trying to work out the difference between limited vs unlimited contract gratuity in the UAE, here is the short answer: the distinction no longer exists. Since Federal Decree-Law No. 33 of 2021 took effect in February 2022, the UAE abolished the old split between limited and unlimited contracts. Every private-sector employee is now on a fixed-term contract, and end-of-service gratuity is calculated the same way for everyone. Most importantly, resigning no longer cuts your gratuity — you receive the full amount whether you resign or your employer terminates you.
That is a big change from how things worked for decades, and a lot of the advice still floating around online describes the old rules. This guide explains what actually applies today, shows the old system side by side with the current one so you can see exactly what changed, and walks through a worked example so you know what to expect when you leave a job.
Limited vs unlimited contracts: what changed in 2021
For years, UAE labour contracts came in two flavours. A limited (fixed-term) contract had a set end date, while an unlimited contract ran indefinitely until one party ended it. The type of contract you signed mattered enormously at the end of your job, because it determined how much gratuity you walked away with — especially if you were the one who chose to resign.
Federal Decree-Law No. 33 of 2021, the UAE's overhauled labour law administered by the Ministry of Human Resources and Emiratisation (MOHRE, mohre.gov.ae), scrapped that whole framework when it came into force in February 2022. Under the new law, all private-sector employment contracts are fixed-term — in effect, everyone is now on what used to be called a "limited" contract. The old "unlimited" category simply ceased to exist.
Crucially, the reform also unified the gratuity rules. The penalty that once shrank an unlimited-contract employee's gratuity for resigning early, and the harsher rule that could wipe out a limited-contract employee's gratuity for leaving before the term ended, are both gone. Today the way your service pay is calculated has nothing to do with the label on your old contract. For the full picture of how the current law treats end-of-service benefits, see our UAE gratuity law explained guide.
Old rules vs the current unified rule
The table below compares how gratuity used to work under the old Federal Law No. 8 of 1980 — separately for unlimited and limited contracts when the employee resigned — against the single rule that applies to everyone today. This is the clearest way to see why the old contract distinction mattered and why it no longer does.
| Scenario | Old unlimited contract (resigning, pre-2022) | Old limited contract (resigning early, pre-2022) | Current unified rule (since Feb 2022) |
|---|---|---|---|
| Under 1 year of service | No gratuity | No gratuity | No gratuity (1-year minimum) |
| 1 to 3 years | One-third of gratuity | Could forfeit entirely (some exceptions) | Full gratuity |
| 3 to 5 years | Two-thirds of gratuity | Could forfeit entirely (some exceptions) | Full gratuity |
| Over 5 years | Full gratuity | Full gratuity | Full gratuity |
| Effect of resigning | Reduced on a sliding scale | Often lost the benefit | No reduction — same as termination |
Under the old system, a terminated employee generally received their full gratuity regardless of contract type — it was resignation that triggered the penalties. That asymmetry is exactly what the 2021 reform removed. Please treat the two "old" columns purely as historical background. They do not apply to anyone leaving a job in the UAE today, and you should not use them to estimate what you are owed now.
How gratuity is calculated now
The current formula is refreshingly simple and applies to every private-sector worker. You earn 21 days of basic pay for each of your first five years of service, and 30 days of basic pay for every year beyond five. The calculation is based on your basic salary only — housing, transport and other allowances are excluded — and you need at least one full year of continuous service to qualify at all.
The building blocks
To turn those day counts into money, you first work out your daily wage: divide your monthly basic salary by 30. Multiply that daily figure by 21 for each of the first five years and by 30 for each additional year. The total is capped at two years' worth of pay, so no matter how long you stay, your gratuity will not exceed the equivalent of 24 months' basic salary. And because resignation no longer reduces anything, the number you calculate is what you receive — full stop.
Worked example: 8 years of service
Say your monthly basic salary is AED 10,000. Your daily wage is 10,000 ÷ 30 = AED 333.33. For the first five years you earn 21 days each year, and for the remaining three years you earn 30 days each:
First 5 years: 5 × 21 × 333.33 = AED 35,000.
Next 3 years: 3 × 30 × 333.33 = AED 30,000.
Total gratuity: 35,000 + 30,000 = AED 65,000.
The key point: that AED 65,000 is what you receive whether you resign or your employer terminates you. Under the old unlimited-contract rules, resigning after eight years would still have paid full gratuity, but resigning after two or three years would have cost you a third or two-thirds of it. That penalty is gone. To run the numbers for your own salary and tenure, use our UAE gratuity calculator.
What if I'm still on an old contract?
A common worry is: "My contract says unlimited — does the old sliding scale still apply to me?" The answer is no. When the 2021 law took effect, existing unlimited contracts were migrated to the new fixed-term framework, and employers were given a transition window to formally update their paperwork. Whether or not your physical contract has been re-issued, the gratuity rules that govern your end-of-service pay today are the unified ones described above.
In practical terms, that means you should ignore the "limited" or "unlimited" wording entirely when estimating your entitlement. Two things drive your gratuity now: your basic salary and your years of continuous service. The old contract label is a piece of history with no bearing on the payout. If you are ever quoted a reduced figure "because you resigned" or "because of your contract type," that is the old law being applied incorrectly — and worth raising with MOHRE.
The bottom line on limited vs unlimited contract gratuity in the UAE is that the debate is settled: one rule, one calculation, full entitlement on resignation or termination alike. Know your basic salary, count your years, apply 21 and 30 days, and you have your answer.