Gratuity Calculation for a Limited Contract in the UAE

People search for "limited contract" gratuity because the UAE spent four decades with two contract types that produced two different end-of-service outcomes. Under Federal Law No. 8 of 1980 a limited contract and an unlimited contract had different termination consequences and different gratuity treatment, so knowing which one you held mattered enormously.

That distinction is gone. Article 8(3) of Federal Decree-Law No. 33 of 2021 provides that the employment contract is concluded for a specific term, extendable or renewable by agreement for a similar or shorter term, once or more. There is no longer any provision under which a private-sector contract can be concluded for an undefined term. Every contract registered with the Ministry today is what people used to call a limited contract.

Article 68 dealt with the ones already in existence. Clause 1 makes the Decree-Law apply to undefined-term contracts concluded under Federal Law No. 8 of 1980. Clause 2 required employers to adjust their situations and convert those contracts to fixed-term contracts within one year from the date the Decree-Law took effect — it came into force on 2 February 2022 — and allows the Minister to extend that period as the public interest requires. Article 73 then abrogated the 1980 law outright.

So the question "how is gratuity calculated in the UAE for a limited contract" has a slightly deflating answer: it is calculated under Article 51, the same as for everybody else, because there is nothing left for it to be contrasted with.

Article 51(2) entitles the full-time foreign worker who has completed a year or more in continuous service to end-of-service benefits calculated on the basic wage: 21 days for each year of the first five years of service, and 30 days for each year exceeding that period.

The supporting clauses matter as much as the bands. Article 51(3) gives a proportionate benefit for parts of a year, provided one full year of continuous service is complete. Article 51(4) excludes unpaid days of absence from the service term. Article 51(5) takes the last basic wage the worker was entitled to as the basis. Article 51(6) caps the benefit in its entirety at two years' wage. Article 51(7) allows deduction only of amounts payable under the law or a judgment. Article 67 makes a month 30 days and a year 365 days for the purposes of the law, which is what makes the daily rate the monthly basic wage divided by 30.

None of those clauses reference the contract type, its term, or how many times it has been renewed.

The single most valuable provision for anyone on a fixed-term contract is Article 8(4): where the contract is extended or renewed, the new term is considered an extension of the original term and is added to it when calculating the worker's continuous term of service.

That matters because rolling two-year and three-year contracts are now the norm, and a worker who has signed three successive contracts with the same employer sometimes assumes — or is told — that each term stands alone. It does not. Three consecutive two-year terms are six years of continuous service: five years at 21 days plus one year at 30 days, not six separate calculations and certainly not three sub-one-year gaps that fail the Article 51(2) qualifying test.

Article 8(5) closes the obvious gap. Where both parties simply carry on performing the contract after the original term expires, without an express agreement, the original contract is considered implicitly extended on the same conditions. Service does not pause while paperwork is late.

Article 9(2) adds the front end: where the worker passes probation and continues, that period is counted within the term of service. The gratuity clock therefore starts on the first day of employment, not on the day probation was confirmed and not on the date of the current contract.

Competitor pages on this query still publish the old limited-contract early-termination compensation — a fixed number of days' pay, or half the remaining term. That belonged to Federal Law No. 8 of 1980 and went with it under Article 73. We do not restate the figures, because reproducing them is how they survive.

Under the current law, ending a fixed-term contract early works like this:

• Article 43(1) allows either party to terminate for any legitimate reason on written notice, with work continuing during the notice period agreed in the contract, which may not be less than 30 days or more than 90. That applies to a fixed-term contract as it does to any other; the term being unexpired is not itself a bar.
• Article 43(3) makes the party who does not observe the notice period pay the other a notice period allowance equal to the worker's wage for the full notice period or the remaining part of it — payable even where the failure to notify caused no damage.
• Article 44 lets an employer dismiss without notice in ten specified cases, after a written investigation and a written, justified decision handed to the worker. It creates no forfeiture of the end-of-service benefit; there is no clause in Article 44 that touches Article 51.
• Article 45 lets a worker leave without notice while retaining end-of-service rights in four cases, each with its own procedural condition.
• Article 47 treats termination as unlawful where it follows a serious complaint to the Ministry or a proven lawsuit against the employer, and the court may award compensation capped at three months' wage on the last wage received — separate from, and additional to, gratuity.

In short, the consequences of an early exit now sit in the notice and unlawful-termination provisions, not in a special limited-contract compensation rule.

There is a genuine two-part case, and it is the only one where the 1980 regime legitimately appears.

Article 68(3) provides that, subject to the conversion duty in Clause 2, the employer may calculate the end-of-service benefit in accordance with the provisions of the undefined-term employment contract stated in Federal Law No. 8 of 1980. The word is may: the clause is permissive, and on its face it does not spell out whether the option is confined to the portion of service completed before conversion or reaches the whole period. Many summaries state confidently that it applies only to the pre-conversion portion. That is a reading, not the text.

Two provisions pull against a wide reading. Article 65(1) makes the rights in the Decree-Law the minimum for workers, without prejudice to more useful rights under any other legislation, agreement or contract. Article 65(3) voids any contradicting provision, even one existing before the law came into force, unless it is more beneficial to the worker.

The practical consequence for anyone whose service straddles 2 February 2022 is that the settlement should be run both ways — wholly under Article 51, and on the two-part basis — with the more beneficial outcome taken and the tension stated rather than resolved silently. This is a point to take advice on rather than to settle from a web page.

One related trap: Article 65(5) bars an employer from reviewing the terms of a pre-2022 employment contract in order to apply the Decree-Law, unless the amendment gives the worker a greater benefit. Read that with Article 51(5), which fixes the benefit on the last basic wage: a mid-service restructure that moves pay out of basic and into allowances reduces every year already accrued, and that is exactly the kind of amendment Article 65(5) exists to catch.

Article 65(6) also keeps a transitional notice ladder alive for undefined-term contracts concluded before the Decree-Law: not less than 30 days where service is under five years, 60 days where it exceeds five, and 90 days where it exceeds ten.

The English text of Article 8(3) published through the UAE Government Portal reads that the contract is concluded for a specific term not exceeding three years, extendable or renewable by agreement.

That cap has since been the subject of amendment. Federal Decree-Law No. 14 of 2022 and Federal Decree-Law No. 20 of 2023 both amend provisions of Federal Decree-Law No. 33 of 2021, and MoHRE publishes a consolidated version of the Labour Law "and its amendments". Consistently with the cap having been lifted, the UAE Government Portal's own page on employment contract duration no longer states any maximum: it says only that the term may be extended or renewed for a similar or shorter duration.

We attempted to read the consolidated text at MoHRE on 21 August 2026 and the site did not respond. Because we could not open the amending instrument in the primary text, we do not state a maximum contract term on this page — neither three years nor none. If the length of your term is what matters to you, check the current contract form in the Ministry's own system rather than relying on any published summary, including this one.

For the gratuity question it changes nothing. Whatever the maximum term is, Article 8(4) adds each renewal to continuous service and Article 51 accrues on that total, so the length of any individual term does not alter the benefit.