Differences Between Limited and Unlimited Contract UAE
Selecting the right contract at the start of any employment relationship is critical. You must ask yourself, do you understand the various contract kinds and their key differences? Employers can issue two types of employment contracts to employees under UAE Labour Law No. 8 of 1980, which relates to all employers in the UAE (excluding those established in the Dubai International Financial Centre (“DIFC”), these are limited and unlimited contracts.
In this article, we will explain the main differences between limited and unlimited contracts. There are several variations between the limited and unlimited contract. Including how statutory end-of-service gratuity entitlement and termination repercussions have their own resolutions. Let us see:
- Learn everything about limited contracts
- All you need to know about unlimited contracts
- Conclusion about limited and unlimited contracts in UAE
- Why you should choose EOR Middle East?
1. Learn everything about limited contracts
1.1 What is a limited-term contract in UAE?
A limited-term contract is a fixed-term contract that is usually tied to the length of the UAE resident visa (two or three years, depending on the location of the employer).
It will automatically cease at the end of the term unless one party terminates it earlier or both parties renew it.
1.2 When should a limited term contract be used?
Limited term contracts are beneficial when a company has to hire people for certain projects whose durations are visible in advance.
1.3 How does a limited term contract end?
Limited term contracts typically do not require notice and simply expire at the end of the period or on the date indicated in the contract (unless it is finished earlier by either party).
Summary dismissal by the employer is legal under Articles 88 and 120 of the UAE Labour Code on the basis of one of the 11 exhaustive grounds. Under the terms of Article 121 of the legislation, an employee may legitimately quit prior to the expiration of the contract.
1.4 Is it possible to renew a limited term contract?
A limited term contract may have a renewal with the approval of both parties, or alternatively, at the conclusion of the contract, both parties can agree to change the contract to an unlimited one.
1.5 What if the employer wishes to end the contract early?
If an employer seeks to terminate the contract before the end of the limited term, an employee must have an “early termination compensation” of at least three months’ remuneration, including salary certifications and allowances, (or the remainder of the term of the contract if the period remaining is less than three months) under UAE Labour Law.
1.6 What happens if an employee wishes to end the contract early?
Unless otherwise specified in the employment contract, if the employee decides to quit the limited term contract before the term expires, he must pay the employer “early termination compensation” equal to half of three months’ wages, plus interest and salaries, or half of the remuneration in case the contract has less than three months to run.
1.7 What if the limited term contract includes a notice period?
If a limited term contract provides the notice period, this must be completed to the other party in addition to any early termination compensation owed.
1.8 How is the end-of-service gratuity computed in the event that the employer terminates the contract?
Employees with one year or more of continuous service are eligible for an end-of-service bonus computed as follows:
- Each year of the first five years of employment, you will get 21 calendar days of basic pay.
- For each additional year, the base salary has an increase of 30 calendar days.
- As long as the overall payment does not exceed two years’ wages.
An employee will not have an end of service gratuity when they have finished his contract for grave misconduct pursuant to the rules of the UAE Labour Law.
1.9 How is the end-of-service gratuity computed in the event that an employee resigns from a limited term contract?
If an employee resigns with less than 5 years of service, they will not have an end-of-service gratuity. They must have the same end-of-service gratuity if they have more than 5 years of service as if they quit on a no-limit contract.
1.10 Checklist for a short-term contract
According to the UAE Labour Law, a short term employment contract must, at a minimum specify:
- The date on which it will be complete and the date on which the contract will begin.
- The type of labor, the workplace, the amount of the compensation, and the length.
2. All you need to know about unlimited contracts
2.1 When should an unlimited term contract be used?
Unlimited contracts are more flexible and user-friendly than short term contracts. As a result, in the UAE, an unlimited duration contract is more common than a short-period contract. It is appropriate for personnel who will be permanent and are not involved in project work (where the length of the project is visible in advance).
2.2 How may an employer cancel an unlimited duration contract?
There are two basic ways for an employer to properly terminate an unlimited contract under UAE Labour Law:
For a ‘legitimate’ (performance-related) cause on notice (the UAE Labour Code requires at least 30 calendar days’ notice). Nevertheless, the parties may agree in the contract to lengthier notice periods; or summarily (without notice and end of service gratuity) for one of the 11 comprehensive misconduct reasons specified in Articles 88 and 120 of the UAE Labour Code.
2.3 How may an employee cancel an unlimited duration contract?
An employee may quit by giving his or her employer the contractual notice time (which must be a minimum of 30 calendar days, or longer, as per the contract of employment). Conversely, the employee may quit without cause in accordance with Article 121 of the legislation.
2.4 How is the end-of-service gratuity computed in the event that the employer terminates the contract?
Employees with one year or more of continuous employment must have an end-of-service gratuity computed as follows:
- Each year of the first five years of employment, you will get 21 calendar days of basic pay.
- For each additional year, the base salary has an increase of 30 calendar days.
- As long as the overall payment does not exceed two years’ wages.
You should know that an employee has no obligation to an end-of-service gratuity if he is terminated summarily for grave misconduct in accordance with the rules of the UAE Labour Law.
2.5. How is the end-of-service gratuity computed in the event that an employee resigns from an unlimited term contract?
When an employee resigns from an unlimited term contract, he must have an end-of-service gratuity based on the sliding scale below:
Periods of duty ranging from one to three years have a reduction of two-thirds; periods of service ranging from three to five years has a reduction of one-third. There is no diminution if the deal time surpasses five years.
2.6. Checklist of elements to include in a contract with an infinite length.
An unlimited term employment contract in the UAE must, at a minimum, specify:
- The date on which it will begin.
- The type of employment.
- The workplace.
- The quantity of the compensation and more.
3. Conclusion: Limited vs unlimited contract in UAE
In the information below, we will summarize the differences between limited and unlimited contracts:
3.1 Contract for a limited time (fixed-term)
Limited term contracts often include the start and end dates of the work duration. When a contract expires, it must be cancelled, unless it gets renewed. These contracts are utilized if an employer has to hire staff for specific projects or a certain length. Due to recent labor market reforms in the UAE, limited term contracts are now limited to two years rather than four. A termination notice must also be included in the contract.
3.2 Contracts with an indefinite duration
An unlimited contract UAE is more flexible, and you can widely see it in the UAE. It can have its dissolution by mutual agreement or by giving 1 to 3 months’ notice. Within the notice period, the parties must fulfill their duties.
As a result, when either the employer or the employee ends the work connection without following legally necessary processes, the employment relationship has a judgement to end without due process. In this instance, the victim may seek legal redress and compensation.
4. Why you should choose EOR Middle East?
In this post, you had all the information about UAE limited and unlimited contracts.
Labor regulations in the Middle East are rigorous. Having a group of professionals to help you understand local labor laws is critical. As a result, they can assist businesses in meeting all standards. Therefore, establishing standard employment contracts is one of the most effective ways to safeguard the company and its employees. As a result, EOR Middle East is your best option.
Employers must include this information in labor contracts, especially with unlimited and limited contracts in UAE since all businesses must recruit staff. And, in order to comply with this fundamental condition in the establishment of a firm in UAE, you must be aware of all of your rights and duties as an employer, as well as those that you must enforce with your prospective employees.
One answer for the entire recruiting procedure is for you to call a firm in Dubai that handles these and other business problems. EOR Middle East is the finest firm to contact. We provide both in-person and remote staff recruiting services. You may reach us by telephone at +971 43 316 688. You may also reach us by email at [email protected].
If you wish to work for one of an organization that is seeking employees in the UAE, you need to visit thetalentpoint.com. There, you can enter your resume and find all the job opportunities there are according to your skills and experience. If you wish to learn more about what The Talent Point has to offer, send an email to [email protected].
