A limited contract in UAE is a fixed employment contract with a pre-defined end-of-service date and limited time. Usually, limited employment contracts consist of two or three years. This will automatically end on the expiry date for the end-of-service. It can be renewed by the mutual agreement of the employer and employee with specific terms and conditions according to the law.
In this article, we learn what a limited contract is in the UAE, its benefits, and its detailed overview. Let’s explore.
What is a Limited Contract in the UAE?
The limited contract in the UAE is a short-term or fixed contract with a pre-defined date for the end-of-service. This contract is project-based employment for a limited period and usually continues for two years. These limited contracts automatically expire on a pre-specified date mentioned in the contract. It can be renewed and extended with the agreement of both parties.
Differences from Unlimited Contracts
The unlimited employment contracts have no specific time for expiry. However, limited contracts are typically two or three-year fixed-term contracts of employment and automatically expire at a specific date. The employer and employee can extend limited contracts with mutual understanding.
What is the notice period for limited contracts in the UAE? Unlimited employment contracts are open-ended contracts that provide flexibility and require a minimum thirty-day notice period for resignation or termination from both parties. This type of employment provides end-of-service benefits, gratuity funds, and other perks. These contracts are based on a specific duration, and unlimited contracts consider the full employment period.
Before the 2021 labour law update, employers could issue either limited or unlimited contracts. However, now all contracts in the UAE are limited-term by default. Still, understanding their differences helps explain how the law evolved.
| Feature | Limited Contract | Unlimited Contract |
|---|---|---|
| Duration | 1–3 years fixed term | No fixed duration |
| Termination | Ends automatically on expiry | Requires notice from either party |
| Renewal | Needs mutual agreement | Automatically continues |
| Notice Period | Usually 30 days | Usually 30–90 days |
| Gratuity | Based on the service period | Based on full tenure |
| Current Status (2025) | Legally active and mandatory | Phased out |
Benefits and Considerations of Limited Contracts
The benefits of limited contracts in UAE provide flexibility for companies with temporary work requirements and allow employees to practice a new role. However, employment security and other perks like end-of-service compensation and gratuity funds may be less than unlimited contracts.
Advantages for Employers
Limited employment contracts provide several benefits for companies to fulfill their temporary requirements. Companies and organizations can hire staff for temporary needs, specific projects, or seasonal work requirements without long-term employment benefits and commitments.
Limited contracts also have specific dates for the end of employment and don’t require any notice period for end-of-service. Employers may benefit from cost savings on gratuity funds, based on the contract duration, and usually offered for full employment.
Advantages for Employees
Limited contracts are beneficial for employees seeking particular career goals. They can get an opportunity to work in new fields and multiple industries without a long-term contract. It can be beneficial for students and fresh graduates who are transitioning careers. These contracts offer higher salaries, bonuses, and more attractive packages, appealing to employees for limited employment. Students can leverage the limited contracts for flexibility and start further education after the end of employment.
Important Considerations
The important considerations in the new labor law for limited contracts in the UAE are;
- The limited contract renewal depends on the understanding and agreement of both parties.
- The limited contracts provide lower benefits at the end of employment.
- The limited contract in the UAE needs to be cautious about the terms and conditions.
- This type of contract has few limitations for a job, and employees require a No Objection Certificate to switch jobs in the UAE.
Legalities and Regulations Surrounding Limited Contracts
Limited contracts in the UAE have such regulations.
- These contracts will renew at the expiry date with the employer and employee’s agreement to extend the term of employment for a certain period.
- Employers provide a minimum of three months’ compensation in case of early termination, and employees who quit the job early may receive the last month’s salary.
- Limited contracts have a maximum duration of three years of employment.
- The end-of-service benefits are lower than unlimited contracts based on employment terms and duration.
- The probation period of three to six months may apply to limited contracts.
Recent Changes in UAE Labour Law
Limited contracts are now popular for flexibility. Employee benefits are improved for extended leave allowances, such as sick leave, bereavement, and studies. A flexible work schedule and short time span are attractive for employees. These recent changes offer a more balanced work-life and enhanced employee rights in the UAE labor law. Key updates include:
- All private sector employees must be on limited contracts registered with MOHRE (Ministry of Human Resources and Emiratisation).
- The probation period cannot exceed six months.
- In case of early termination, compensation must equal three months of salary or the remaining contract period — whichever is shorter.
- Employees are entitled to gratuity, vacation pay, and final settlement as per Article 51.
- Renewal must be agreed upon before the expiry date and recorded with MOHRE.
Contract Duration and Renewals
Limited contracts are usually for one, two, or a maximum of three years, aligned with the residency and work visa. Short-term employment provides flexibility in project-based work requirements for employers.
The limited contracts automatically end on a specified expiry date until both parties agree to extend the contract for a certain period. The renewal of the contracts may have the same duration or extended terms of employment. However, if the employers terminate the employees before the expiry date, they must provide three months of compensation.
Resignation or Early Termination in Limited Contracts
If the Employer Terminates Early
- The employer must pay three months’ full salary or the remaining contract period’s wage, whichever is shorter.
- All dues, including gratuity and unused leave, must be settled.
If the Employee Resigns Early
- The employee may need to compensate the employer up to 45 days of basic wage unless otherwise agreed.
- If resignation occurs after one year, the employee still receives gratuity benefits.
Example:
If an employee resigns 6 months before the end of a 2-year limited contract, they may need to pay up to 45 days’ basic salary as compensation.
Conclusion
The UAE has an evolving labor market, and the limited contract is a flexible option for employees seeking short-term employment. It’s beneficial to have project-based work and hiring short-term staff with no long-term commitments. The students and new learners can work for the short term and gain experience with flexible hours and passive income.
Employers and employees must know the legal obligations for the fixed terms of service, renewal of limited contracts, upcoming challenges, end-of-service or expiry dates, gratuity funds, and other rules according to the contract. You can ensure a smooth experience by considering these aspects and benefits according to the UAE labor law. For more info, contact us..
FAQs on Limited Contract in UAE
1. Can I resign from a limited contract before it ends?
Yes, but you may have to pay compensation (up to 45 days of basic salary) unless mutually agreed with your employer.
2. What happens if my employer terminates my limited contract early?
They must pay up to three months’ salary or the remainder of the contract term, whichever is shorter.
3. How is gratuity calculated under a limited contract?
21 days of basic wage per year for the first five years, and 30 days thereafter.
4. Can my contract be renewed automatically?
No, both parties must sign a new agreement and register it with MOHRE before the expiry date.
5. What is the maximum duration of a limited contract in UAE?
Three years, as per UAE Labour Law 2021 and subsequent 2025 updates.
6. Are limited contracts mandatory in 2025?
Yes. Since 2022, all UAE employment contracts must be limited-term.
