Difference between limited and unlimited contract Everything You Need to Know

difference between limited and unlimited contract

The difference between limited and unlimited contract must be carefully evaluated based on your hiring needs, regulations and the prevailing conditions in the UAE labor market, since it is necessary to have a valid employment contract, you must understand the difference between a limited and unlimited contract.

In this article, you will learn about limited and unlimited contract UAE difference, the main differences, what function of duration both contracts have, the appropriate scenarios for each type of contract and the rights that must be fulfilled.

Difference between limited and unlimited contract regarding termination

difference between limited and unlimited contract

Limited contract and unlimited contract have major distinctions and, as an employer or employee, it is important to know. The main difference between these is flexibility. But, when we want to know the difference between limited and unlimited contract at the time of termination. We have to consider the following aspects:

  • Termination by the employer in both contracts. 21 days of basic salary for the first five years of service and 30 days for each additional year. The employee must complete one year or more of service to receive payment.
  • Termination by the employee on a limited contract. If the employee has less than 5 years of service. He or she does not receive a bonus.
  • Termination by the employee in an unlimited contract. Between 1 and 3 years the employee receives ⅓ of 21 days of gratuity for each year. Between 3 and 5 years of service, an employee receives ⅔ of 21 days’ bonus pay for each year. The employee with 5 or more years of service receives full 21 days’ tip payment each year.

How to terminate a limited contract

An employer or employee may decide to terminate a limited contract. Still, the hand is entitled to early termination compensation, If the employer wants to terminate the contract. This means that the employee must receive three months of compensation, including salary and benefits.

On the other hand, if the employee wants to terminate a limited contract early, he may face consequences. He must pay the employer six weeks of salary. But, if he is attacked by the employer, or if the employer fails to comply with the obligations set forth in the contract; the employee will not have to pay this fine.

How to terminate a unlimited contract

The difference between limited and unlimited contract is, in unlimited contract, will depend on different factors such as. Why the employee decided to resign or why the employer decided to terminate employment. However, an unlimited contract is more flexible when it comes to terminating it.

If either party agrees to terminate the contract at any time. They must comply with the notice period obligations and provide a valid (work-related) reason. This is the reason why most of the employees in UAE prefer unlimited contract over limited contract.

What is unlimited contract in UAE

Unlimited contract in UAE is, as its name suggests, a contract that does not have a specific duration. Therefore, it is an indefinite contract, that is, there is no established end date. However, the employer or employee may decide to terminate the contract for various reasons; provided they are subject to the UAE Labor Law.

Simply put, it has a defined start date but no fixed end date. Making it more flexible for both employer and employee. In this type of contract, the terms and conditions will remain in effect until one or both parties decide to terminate the contract. Or if both parties sign an agreement.

Which items are included in an unlimited contract

Whenever you hire an employee, you must provide them with an employment contract. And, if it is an unlimited contract, you must specify the following according to the UAE Labor Law:

  • The start date: it is important to place the beginning of the employment relationship
  • Nature of the work: you must specify in which area the work is carried out position of the employee
  • Place of work: company address, country or contact numbers
  • The amount of compensation: you must specify how much the stipulated amount of salary that the employee will earn is.

What is limited contract in UAE

A limited contract is also known as a fixed-term contract because it have a specific duration. Normally, when an expat applies for a residence visa in the UAE. It will be for the same duration as the limited contract.

Therefore, the contract can be valid for two or three years, since that is the most common term. If both parties want to continue the employment relationship, then they have to agree to renew the contract. But, if the employee does not want to continue. You must submit a letter of non-renewal from the employee to the employer.

This will let the employer know that it is not necessary to proceed with the renewal. So, as you can see. he main difference between a limited and unlimited contract in the UAE is that one has a fixed term while the other is flexible.

Duration and Renewal in limited contract

The duration of the contract is always approximately two years. The employer and the employee may renew the limited contract by mutual agreement. If they renew the contract, they will consider the new term as an extension of the original term and add it to the calculation of the employee’s total period of service.

However, the contract does not have to be automatically renewed in the event that one of the parties does not want to renew it. However, they must have a valid reason to terminate it. That is one of the multiple difference between limited and unlimited contract.

Rights and Obligations in limited contracts

It is important to understand in difference between limited and unlimited contract your rights and obligations under the labor law when considering a limited contract. You should also ensure that the contract is clear and precise. Here are some of the obligations and rights to take into consideration into the difference between limited and unlimited contract:

  • Has the right to take time off with full pay on holidays. In case working conditions require it to work during holidays, the employer must provide an additional day off for each day worked or compensate the employee with his daily salary regular.
  • You have the right to receive all payments, wages and other rights described in the contract within 14 days from the end date of the contract term.
  • You are legally entitled to receive fully paid annual leave of not less than 30 days for each year of service 2 days/month if the length of service is more than 6 months and less than 1 year.

Regarding obligations:

  • As an employee, you must respect normal working hours, which are 8 hours a day or 48 hours a week.
  • You must perform the work assigned to you and not subcontract to any outside party.
  • In the event that the work assigned to you gives you access to the employer’s clients or visibility of any confidential information about their work, you must not work on any competing project in the same sector for 2 years from the end of the contract.

Learn how to extend an unlimited or limited contract in the UAE

difference between limited and unlimited contract

Another difference between limited and unlimited contracts is when it is necessary to renew them. To extend a contract, whether limited or unlimited, requires mutual consent from both the employee and the employer.

It is important to obtain the acceptance of both labor parties and to reach a clear and comfortable agreement. It is not necessary to automatically renew the contract if one of the parties does not wish to renew it. However, there must be a valid reason for termination.

In addition, perpetual contracts do not have an end date, so they do not need to be renewed as they do not have a specified end date.

If you want to know more UAE limited vs unlimited contract and more articles of interest, you can check our website now.  Or, if you wish to hire our services, you can contact us.

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