How to Calculate UAE Gratuity for Unlimited Contracts Under Labour Law
If you're employed under what's known as an "unlimited contract" in the UAE, calculating your end-of-service gratuity involves understanding both the current rules and a bit of legal history. Unlimited contracts have changed significantly in recent years, and a transition rule in the current law means your payout may depend on how your employer applies it.
What Is an Unlimited Contract, and Does It Still Exist?
An unlimited contract was traditionally an open-ended employment agreement with no fixed end date, historically common across the UAE private sector under the old Federal Law No. 8 of 1980. The current law, Federal Decree-Law No. 33 of 2021, which took effect on 2 February 2022, requires employers to convert contracts of undefined term into fixed-term contracts within one year of its taking effect, and the Minister may extend that period. If you still hold documentation referring to an "unlimited contract," it's worth confirming with HR or MOHRE whether it has been formally converted.
Gratuity Calculation Based on Years of Service
Under the current law, your gratuity is calculated on your last basic salary. Allowances for housing or transport are not included. The payout rates are:
- 1 to 5 years of service: 21 days of basic salary for each year of service.
- More than 5 years of service: 30 days of basic salary for each year beyond the first five, up to a maximum of two years' wage in total.
Gratuity (5+ years) = ((Basic Salary / 30) × 21 × 5) + ((Basic Salary / 30) × 30 × (Total Years − 5))
Worked Example
Consider an employee with a basic salary of AED 9,000 who completes 7 years of continuous service:
Remaining 2 years: (9,000 / 30) × 30 × 2 = 300 × 30 × 2 = AED 18,000
Total Gratuity = AED 31,500 + AED 18,000 = AED 49,500
Does Resigning Under an Unlimited Contract Reduce Gratuity?
Under the old law, employees on unlimited contracts who resigned before completing five years of service received a reduced gratuity, commonly described as one-third for service between one and three years and two-thirds between three and five years. The current law contains no such reduction, and for fixed-term contracts the same formula applies whether you resign or are terminated. See our guide on how the 2021 reform changed the resignation penalty for the background.
The transition rule: Article 68 of the current law says that, subject to the conversion requirement, the employer may calculate end-of-service benefits under the provisions that applied to undefined-term contracts in the old law. So if your contract is a legacy unlimited contract, your employer may apply the old calculation, which can include the resignation reduction. Ask HR in writing which calculation is being used for you, and raise it with MOHRE if you disagree. Our guide on resignation vs termination covers the current-law position.
What Subtractions or Deductions Can Happen?
- Notice period requirements. If you choose to resign, you must serve your notice period. The current law sets a notice period of between 30 and 90 days. For undefined-term contracts concluded before the law took effect, it provides minimum notice of 30 days if your service is under five years, 60 days if over five years, and 90 days if over ten years. The party who doesn't serve the notice owes compensation equal to the wage for the notice period or the remaining part of it.
- Unpaid leave days. Unpaid days of absence are not counted in the service term, so extended unpaid leave reduces your qualifying service.
- Missing or miscalculated dates. Missing dates or miscalculating your exact basic wage can lead to errors in your final amount. This is one of the most common sources of disputes at the end of a contract.
How to Avoid Calculation Errors
To avoid any confusion, you can enter your joining date, last working day, and basic wage into our UAE Gratuity Calculator to get an instant estimate under the current-law formula. If your contract is a fixed-term agreement rather than a legacy unlimited one, our detailed guide on UAE Gratuity Calculation for Limited Contracts walks through the identical formula with additional worked examples.
Frequently Asked Questions
Do unlimited contracts still exist in the UAE?
The current law requires employers to convert undefined-term contracts into fixed-term contracts within one year of it taking effect on 2 February 2022, and the Minister may extend that period. If your paperwork still references an unlimited contract, it's worth confirming its status with HR or MOHRE.
Is the gratuity formula different for unlimited contracts?
Under the current law the formula is the same: 21 days of basic salary per year for the first 5 years, and 30 days per year beyond that, capped at two years' wage. However, Article 68 allows an employer to calculate under the old law's provisions for undefined-term contracts, so confirm with HR which calculation applies to you.
Does resigning under an unlimited contract still reduce my gratuity?
Under the current law, no. But for legacy unlimited contracts, Article 68 allows the employer to apply the old law's calculation, which reduced gratuity for resignation before five years of service. Ask HR in writing which calculation applies to you.
What happens if I don't serve my notice period?
The party who doesn't serve the notice period owes compensation equal to the wage for the full notice period or the remaining part of it.
Are allowances included in the gratuity calculation?
No. Gratuity is calculated on your last basic salary. Housing, transport, and other allowances are excluded.
Is there a limit on how much gratuity I can receive?
Yes. Total gratuity payable cannot exceed two years' wage, regardless of how many years you've actually worked.
Disclaimer: This article is for general informational purposes and reflects UAE Labour Law as of 2026. It is not legal advice. For large or disputed settlements, confirm current rules directly with MOHRE or a licensed UAE labour lawyer.
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