UAE Gratuity – Type of Contract – Limited Contract
The following blog is part 2 of the UAE Gratuity topic. You can find the links to other topics in UAE Gratuity:Part 1 – Understanding basics of Gratuity
Part 2 – Type of Contract – Limited Contract (Resignation or Termination)Part 3 – Type of Contract – Unlimited Contract (Resignation or Termination)
Now when we have understood the basics of gratuity in UAE in the part 1 of UAE Gratuity topic, we shall now move towards types of contracts provisioned in the UAE labor law affecting gratuity payout and understand limited contract in detail:
The amount of gratuity payout is determined by various factors among them:
Type of contract – Limited and Unlimited Contracts
Type of separation – Resignation or Termination
The above two types of contracts affect the gratuity payout as we explain further below.
Limited Contract
Calculation of gratuity is as follows under limited contracts when the separation type is resignation.
If the service period is less than one year, no gratuity is paid.
If the service period is more than one year, but is less than five years, no gratuity is paid.
If employee resigns at the end of contract period, fully accrued amount is paid.
If the service period is more than five years, the gratuity pay is based on 21 days per year for the first five years and 30 days per year for each additional year. See below table breakdown of the number of days qualifying for each slab of service period.
Type of contract: Limited Contract
Separation type:Resignation
Period of service
Number of days used to calculate gratuity.
Less than one year
No gratuity
Resignation at end of contract period
Full Accrued amount
One to Less than 5 years
No gratuity
Year 5 and above
Full Accrued amount
Please see below sample showing gratuity calculation for resignation under limited contract.
Resignation under Limited contract
Service period
Less than 1 year
Resignation at end of contract
One to Less than 5 years
5 Years and Above
Hire date
14/08/2019
01/02/2018
12/05/2018
10/02/2014
Basic Salary
10,000.00
10,000.00
10,000.00
10,000.00
Last working day
31/01/2020
31/01/2020
31/01/2020
31/01/2020
Number of days in service
171
730
630
2,182
Number of years in service
0.47
2
1.73
5.98
One day Basic salary(= Basic salary/30)
333.33
333.33
333.33
333.33
For the first five years (21 days per year)
–
42
–
105
Five years and above (30 days per Year)
N/A
N/A
–
29.34
Total Gratuity Days
134.34
Gratuity Amount
No gratuity is paid
14,000.00
No gratuity is paid
44,780.00
If the separation type is termination under the limited contract, then the calculation of payout accrued is as follows.
If the service period is less than one year, no gratuity is paid.
If the service period is more than one year but less than five years, accrual is at 21 days per year.
If the service period is more than five years, accrual is at 21 days per year for the first five years and at 30 days per year for each additional year.
As shown below
Type of contract: Limited Contract
Separation type:Termination
Period of service
Number of days used to calculate gratuity.
Less than one year
No gratuity
One to Less than 5 years
21 days per year.
Year 5 and above
30 days per year.
The following sample calculates the accrual for a termination case under the limited contract.
Jan 15, 2021 
VAT
