A Comprehensive Guide on Limited VS. Unlimited Contracts in the UAE

Tired of feeling trapped in a toxic work environment? The UAE’s labor laws, particularly the distinction between limited and unlimited contracts in UAE, can be a source of confusion and frustration for many employees.

With stories of unfair termination fees, forced labor, and mental torture, it’s essential to understand your rights and options.

In this article, we’ll delve into the complexities of limited and unlimited contracts in the UAE, providing you with expert advice.

Whether you’re facing an impending termination, considering a job change, or simply want to protect yourself from exploitation, the information in this article will guide you to make informed decisions and understand the intricacies of the UAE labor market.

Here we go!

What is an Employee Contract in the UAE?

An employee contract in the UAE is a legal necessity that outlines the terms and conditions of your employment relationship. Simply put, it’s a legal agreement between you and your company or employer that protects your rights and responsibilities.

Here are some of the elements your employee contract must include:

Your job title and responsibilities to define your role and duties
The compensation package includes base salary, allowances, and other benefits
Your designated working hours and overtime arrangements
Leave entitlements, including vacation, sick leave, and other leave allowances

What are the Types of Employment Contracts in UAE?

The job market in the UAE is so full of exciting opportunities, making it important for both employees and employers to understand the country’s labor laws, including employment practices and different contract types, namely; limited contract and unlimited contract UAE.

Each contract type has different benefits, features, and suitability. Therefore, in this section, we’ll dive deeper into the specifics of the limited and unlimited contracts in the UAE.

limited contract and unlimited contract uae

What is a Limited Contract in the UAE?

Limited contracts in the UAE are temporary employment agreements with a set end date.

They offer:

A fixed duration ranging from a few months to several years
Renewal and termination of your contract, depending on the nature of your job
End-of-service benefits or gratuities based on the length of service

Limited contracts in the UAE offer several advantages for both; employers and employees.

For employers, they are ideal to fill temporary positions or fill in project-based teams
For employees, they are great as part-time job opportunities with a defined timeframe without a long-term commitment

When to Consider a Limited Contract?

Limited contracts should be considered in projects that demand temporary staffing or seasonal work. For example, tourism or retail business.

Also, companies should consider limited contracts in the UAE for trial periods to assess an employee’s suitability before hiring them long-term.

Procedures for Limited Contract Termination

The contract termination process for limited contracts depends on two things; whether the contract is expiring or being terminated early.

If the contract is expiring naturally, things go as planned. However, for early termination by the employer, it’s important to provide the required notice period and pay compensation.

In case of early termination by an employee, they may be subject to penalties as mentioned in the contract.

How to Renew a Limited Contract?

Limited contracts can be renewed upon mutual agreement. The renewal process is as follows:

Firstly, both parties must agree to contract renewal
If needed, you can also negotiate the terms and conditions, salary benefits, and other job benefits
Upon agreement, a new contract with all the amendments to the existing contract is executed

Early Termination of the Limited Contract by the Employer

If the employer terminates the limited contract, they should provide a notice period as mentioned in the contract or as per the UAE labor laws.

Furthermore, the employer is also responsible for paying compensation to the employee based on the circumstances.

Early Termination of Limited Contract by the Employee

If an employee resigns from a limited contract before its expiration is due, they should serve the notice period before leaving. Also, they may be asked to pay compensation to the employer, especially if they are resigning early due to personal reasons.

Notice Periods and Their Impact on Limited Contracts

For limited contracts in the UAE, the notice period is usually shorter than the limited contract. The specific notice period is mentioned in the contract based on the job type and circumstances.

However, if an employee fails to comply with the notice period, they may face penalties or salary deductions.

How Employers Calculate Gratuity for Terminated Limited Contracts?

Overall, gratuity is a mandatory end-of-service benefit in the UAE. However, for limited contracts, its calculation depends on the basic salary and duration of an employee’s service.

The basic formula for calculating gratuity is:

Gratuity Calculation = (Basic Salary / 30) * Number of Years of Service of an employee

How to Calculate Gratuity When an Employee Resigns from a Limited Term Contract?

If the employee resigns from a limited contract, the gratuity calculation remains the same.

However, if the employee resigns before completing the full-term contract, it may be reduced or forfeited depending on the terms and conditions of the contract.

Checklist for a Limited Contract

Consider this checklist for a limited-time contract:

Note the contract duration with the start and end dates
Review the conditions for contract renewal and changes in the terms
Review the termination clauses, including notice periods and compensation guidelines
Verify the gratuity calculation and review the potential deductions for forfeitures
Confirm other benefits, including annual leave, medical insurance, and allowances

What is an Unlimited Contract in the UAE?

Unlimited contracts in the UAE are open-ended employment opportunities with no specified expiration dates. They offer a long-term employment relationship until the employee or employer decides to terminate.

Understanding When Limited Contracts Are Suitable

In unlimited contracts, both the employer and employee can enjoy several benefits, such as:

If an employer is seeking a stable, steady, and long-term workforce, unlimited contracts offer a sense of security and continuity for both parties.
For employees, unlimited contracts in the UAE offer job security and the opportunity for long-term career growth within an organization. This also adds to your work experience and provides a sense of stability and commitment.

How Employers Can Terminate Unlimited Term Contracts?

The process of unlimited contract termination is usually a straightforward process. However, both employers and employees should provide a notice period in compliance with the UAE’s labor laws.

How Employees Can Terminate Unlimited Term Contracts?

If the employee wants to resign before the contract’s end, they are not generally required to pay compensation. Similarly, as per the UAE’s labor laws, employers can terminate employees with notice or payment instead of notice.

How Employers Calculate Gratuity for Terminated Unlimited Term Contracts?

The end-of-service benefits or gratuity payment is calculated the same as for an employee who resigns. The formula of gratuity for unlimited contract termination is:

Gratuity = (Basic Salary / 30) * Number of Years of Service

How to Calculate Gratuity When an Employee Resigns from an Unlimited Term Contract?

If an employee resigns from an unlimited contract in the UAE, the UAE labor laws follow the same formula for gratuity calculation as for limited contracts.

Gratuity = (Basic Salary / 30) * Number of Years of Service

However, please note that an employee must have completed at least one year of service in an organization to be eligible for gratuity.

Also see: Gratuity Calculator Dubai

Checklist of Items to Include in an Unlimited Contract

When signing an unlimited contract in the UAE, please use the following checklist for your ease and convenience.

Review full name and credentials on the contract of both parties
Verify the job title and description of the employee’s responsibilities and duties
Review the base salary, allowances, medical insurance, and other added benefits
Briefly review the required notice periods in case of termination

Difference Between Limited and Unlimited Contracts in the UAE

The main differences between limited and unlimited contracts are:

Type of Job

The limited contracts are short-term, temporary, project-based roles. While unlimited contracts offer long-term, fixed, and stable positions

Contract Duration

Limited contracts are fixed contracts with a specified duration. As for the unlimited contracts, they have no fixed date and continue indefinitely until and unless the employer or employee terminates the contract.

Process of Renewal The Contract

In limited contracts, the employer has the option to renew the contract with notice and modified terms. Unlimited contracts do not typically require renewal.

Procedure for Termination Of Contract

In limited contracts, the employee or employer can terminate the contract but with notice and potential compensation. However, with unlimited contracts, after termination, the compensation requirements are subject to labor laws in the UAE.

Provision of Compensation

Limited contracts may require employees to pay compensation for early termination. Whereas, in unlimited contracts, the employees are not required to pay compensation and the employer can terminate the contract with notice or payment.

End-of-Service Benefits (Gratuity)

Employees in limited contracts are entitled to gratuity based on their service duration. However, employees in unlimited contracts are entitled to gratuity based on service duration, but the calculation of gratuity may vary.

Perspective of the Employer

Limited contracts are great for temporary needs and to fill in project-based teams. While unlimited contracts are ideal for long-term workforce and stability.

The Perspective of the Employee

Limited contracts provide flexibility and part-time opportunities; ideal for students, daily wagers, and single parents. However, long-term, unlimited contracts offer job security and career growth potential.

Legal Structure

Both the contracts; limited and unlimited are governed by the labor laws in the UAE and follow the same terms outlined in the contract.

Conclusion

Seeking employment in the UAE? Understanding the UAE labor contracts can get challenging if you’re new to the market. Therefore, this article explains the key features, differences, benefits, and challenges associated with each contract type in the UAE.

Whatever employment type you choose, make sure the contract is crystal clear with no loopholes, outlining the essential terms and conditions. Furthermore, familiarize yourself with the rights and protections that the labor laws in UAE provide to protect yourself from potential exploitation.

Remember: The information in this article is for educational purposes only. For further clarification and queries, please consult your HR department or a legal professional, specializing in the labor laws of the UAE.

FAQs

To determine if you have a limited or unlimited contract in the UAE, look for the duration of the contract; if it’s fixed, you’re likely to have a limited contract.

However, the best way to know your contract type is to contact the HR department or a legal professional.

It depends on the specific terms of your contract. Some contracts may include clauses that demand compensation for early resignation.

Limited contracts offer many benefits for both employers and employees in the UAE, including flexibility, cost-efficiency, experience gain, and temporary employment.

The gratuity for limited and unlimited contracts in the UAE is generally the same. However, some specific terms and conditions may affect the calculation.

No, there is no ban on limited contracts in the UAE.