Since February 2022, every employment contract in the UAE private sector is a limited (fixed-term) contract. That single change — introduced by Federal Decree-Law No. 33 of 2021 — also simplified how end-of-service gratuity works. If you are on a limited contract and want to know exactly what you will receive when your job ends, this guide walks through the rules, the formula and real examples.
Want the answer instantly? Use our free UAE Gratuity Calculator — enter your basic salary and dates, and it applies all the rules below automatically.
What is a limited contract?
A limited contract is an employment contract with a fixed end date. Under the current Labour Law:
- All new contracts must be limited (fixed-term). The old “unlimited” contract type was abolished, and existing unlimited contracts had to be converted.
- The term can be up to three years, and the contract can be renewed or extended for the same or a shorter period.
- Renewals count towards your continuous service, so your gratuity keeps building across renewals with the same employer.
In practice, this means almost every private-sector employee in the UAE today calculates gratuity the same way — the confusing old distinction between limited and unlimited contracts is gone.
Who qualifies for gratuity on a limited contract?
You are entitled to end-of-service gratuity if you have completed at least one year of continuous service with your employer. Two important details:
- Days of unpaid leave are excluded from the service calculation.
- Gratuity is calculated on your basic salary only — housing, transport and other allowances do not count.
UAE and GCC nationals are covered by national pension schemes instead, so gratuity rules apply mainly to expatriate employees.
The gratuity formula for limited contracts
The law sets two accrual rates based on length of service:
- First 5 years: 21 days of basic salary per year
- Beyond 5 years: 30 days of basic salary per year
Step 1 — daily basic wage:
Daily wage = (Basic monthly salary × 12) ÷ 365
Step 2 — apply the rates:
Gratuity = (21 × daily wage × years up to 5) + (30 × daily wage × years beyond 5)
Partial years after the first full year are paid pro rata, and the total is capped at two years’ total salary.
You can estimate your daily wage separately with our Salary Per Day Calculator.
Worked example 1: 3 years of service
Bilal’s basic salary is AED 5,000 and his 3-year limited contract ends without renewal.
- Daily wage: (5,000 × 12) ÷ 365 = AED 164.38
- Gratuity: 21 × 164.38 × 3 = AED 10,356
Worked example 2: 7 years across renewals
Ayesha has worked 7 years with the same employer across two renewed limited contracts. Her basic salary is AED 9,000.
- Daily wage: (9,000 × 12) ÷ 365 = AED 295.89
- First 5 years: 21 × 295.89 × 5 = AED 31,068
- Next 2 years: 30 × 295.89 × 2 = AED 17,753
- Total gratuity: AED 48,821
Her two renewals did not reset the clock — service is continuous with the same employer.
Worked example 3: 4 years 6 months (pro rata)
Imran resigns after 4 years and 6 months with a basic salary of AED 6,000.
- Daily wage: (6,000 × 12) ÷ 365 = AED 197.26
- Gratuity: 21 × 197.26 × 4.5 = AED 18,641
The 6 extra months count as half a year — nothing is lost for leaving mid-year.
Resignation vs termination on a limited contract
Under the current law, it makes no difference to the gratuity rate. Whether you resign or your employer ends the contract, you receive the full 21/30-day calculation for your service period, provided you:
- Completed at least one year of service; and
- Served your contractual notice period (30 to 90 days, as written in your contract).
This is a major improvement over the pre-2022 rules, when resigning employees on unlimited contracts lost one-third to two-thirds of their gratuity. That reduction no longer exists.
Gratuity can still be lost or reduced in limited cases — for example, dismissal for one of the serious violations listed in Article 44 of the Labour Law, or lawful deductions for amounts you owe the employer.
What if the contract ends early?
If either party ends the contract before its fixed end date, gratuity is still calculated on actual service completed using the same formula. Separately, the party who terminates early without a legal reason may owe compensation as specified in the contract (commonly up to three months’ wages) — but that is a contract matter and does not change your gratuity entitlement.
When must it be paid?
All end-of-service dues — gratuity, final salary and payment for unused annual leave — must be paid within 14 days of your last working day. If your employer delays, you can raise a complaint with MOHRE on 600 590000 or through the MOHRE app.
Frequently asked questions
Does renewing my limited contract reset my gratuity? No. Renewals with the same employer count as continuous service, so your gratuity keeps accruing from your original joining date.
I was on an unlimited contract before 2022. How is my gratuity calculated? Your contract will have been converted to a limited one, but your service period still runs from your original joining date. The current 21/30-day formula applies to the full period.
Is gratuity on a limited contract paid on gross salary? No — basic salary only. If your contract shows a low basic and high allowances, your gratuity will be lower. Check the split before signing.
Do I get gratuity if my 2-year contract is not renewed? Yes. Non-renewal is simply the contract ending — you receive full gratuity for your 2 years.
Does gratuity apply during probation? Probation is part of your service. If you pass probation and later complete one year in total, the probation months count towards your gratuity.
Where can I check my exact amount? Use our free UAE Gratuity Calculator — it applies the 21/30-day rates, pro rata service and the two-year cap automatically.
This article is for general information and is not legal advice. For your specific case, confirm with your HR department or MOHRE.