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.

Termination under Limited contract
    Service period Less than 1 year One to Less than 5 years 5 Years and Above
    Hire date 14/08/2019 12/05/2018 10/02/2014
    Basic Salary 10,000.00 10,000.00 10,000.00
    Last working day 31/01/2020 31/01/2020 31/01/2020
    Number of days in service 171 630 2,182
    Number of years in service 0.47 1.73 5.98
One day Basic salary(= Basic salary/30)        333.33            333.33        333.33
    For the first five years (21 days per year) 36.25 105.00
    Five years and above (30 days per Year) N/A N/A 29.34
    Total Gratuity Days 36.25 134.34
    Gratuity Amount No gratuity is paid 12,083.33 44,780

Check out part 1 and part 3 of UAE gratuity law of the following topics:

Part 1 – Understanding the basics of Gratuity (click on the link)

Part 3 – Type of Contract – Unlimited Contract (Resignation or Termination) (click on the link)

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