Businesses and job seekers need to be aware of the distinctions between limited vs unlimited contracts in the UAE. This ensures you comply with the UAE labour law.
In this article, we discuss limited vs unlimited contracts. We also explain the differences between the two. We go over the types of employment contracts.
Understand What is employment Contract in the UAE
Employment contracts act as a foundation of the relationship between employees and employers. These are legally required agreements. The terms and conditions of employment are outlined in it. The main components of an employment contract consist of personal information, job title and description, salary and benefits, working hours, and termination clause.
The contract will have the name, address, and details of the employee and employer as part of the personal information included in it. The contract will specify and clearly define the specific job roles, responsibilities, and duties. Benefits of housing, transportation, and medical insurance are also mentioned along with the agreed-upon salary and allowances. Standard working hours in UAE, overtime regulations, and holidays are specified.
Types of employment contract in UAE
This is where the contrast between limited vs unlimited contracts in the UAE comes in.
The limited contract is a fixed start and a specified end date in this contract type. The purpose of a limited contract involves it being used for project-based work.
Unlimited contract is the second type of employment contract in UAE. There’s no fixed date or duration of this contract. It is used for permanent employment.
Limited contract in UAE
A limited contract in UAE is an employment agreement often used for temporary and project-based work. It has a fixed start and end date. It provides flexibility for employees and employers.
A limited contract’s characteristics in UAE include its fixed duration, temporary nature, and defined end date. The limited contracts have a specific timeframe. Intended for short-term and project-based assignments, limited contracts have specified dates.
The contract can however be renewed or even extended with mutual agreements. Limited contracts are common for trial periods, temporary positions, project-based tasks, and part-time jobs in retail and tourism requiring workforce during certain times of the year.
Unlimited contract in UAE
Used for permanent employment, unlimited contract in UAE have no fixed end date. This employment agreement offers stability and security to employers and employees alike. A stark difference between limited vs unlimited contracts in UAE is marked in the duration being indefinite for the unlimited contract type. Until either party terminates the employment relationship, the unlimited contract will continue.
The unlimited contract in UAE is intended for long-term and permanent employment. Employers and employees both are required to provide a specified notice period before terminating their indefinite contract.
Limited vs Unlimited Contracts in UAE: Differences for businesses
Knowing the differences between limited vs unlimited contracts in UAE is becomes important when you are operating a business in UAE. You need to ensure compliance with the local regulations and UAE labour law. These contract types have distinct implications for businesses. Especially in terms of their offered flexibility, incurring cost, and resulting legal obligations.
Limited Contracts provide businesses with a greater amount of flexibility in managing their workforce. They can be used for:
- Temporary projects
- Part-time work
- Trial periods
This allows companies to adjust their staffing needs as required. These are also more cost-effective than unlimited contracts. Shorter-term commitments are involved and may not require the same level of benefits or entitlements. Businesses can use limited contracts to evaluate the suitability of their new hires before committing to a permanent arrangement. This reduces the risk of bad hires.
Unlimited contracts provide businesses with a more stable workforce. As employees are generally committed to long-term employment, businesses need to invest more in training and development for employees on unlimited contracts. The staff members on unlimited contracts are more likely to remain with the company for an extended period. Unlimited contracts involve more legal obligations for businesses. This includes offering end-of-service gratuity and complying with labor laws related to termination and notice periods.
Contract Duration
Among limited vs unlimited contracts in UAE, contract duration is a major difference. The duration of the contract will impact the rights and obligations of employers. For a limited contract in UAE, there is a predetermined start and end date. Unlimited contracts do not have a fixed end date. These are used for permanent employment. A specified notice period in UAE is required before terminating an unlimited contract. The implications of contract duration involve unlimited contracts offering greater stability and security to employees.
Renewal Process
Another major difference in limited vs unlimited contracts in UAE lies in the renewal process. The limited contracts often have a built-in flexibility for renewal. Businesses are allowed to extend the employment relationship. Renewal is based on mutual agreement between the employer and employee.
Termination procedures
Termination occurs at the end of the contract term in limited contracts. If the contract is terminated early, the employer will provide compensation or severance pay. The required notice period for terminating a limited contract will vary with the terms of the contract and UAE labour laws.
Employers and employees are required to give a specified notice period before terminating an unlimited contract or giving a limited contract resignation in the UAE. The notice period varies with the employee’s length of service. Employers can terminate an unlimited contract for a just cause. This includes serious misconduct, negligence, and disobedience of lawful orders. In very particular circumstances, employers can terminate employees due to redundancy if the position is no longer necessary.
Compensation
Limited contracts typically involve a shorter duration of employment. This affects the level of compensation offered too. Compensation for limited contracts might be paid for the specific project or assignment rather than a fixed salary.
Unlimited contracts offer a more stable and long-term employment relationship. This results in higher compensation packages. Employees on unlimited contracts are typically entitled to a wider range of benefits. Unlimited contracts might even offer greater opportunities for career growth and advancement. This also contributes to higher compensation and a major point of difference in limited vs unlimited contract UAE.
End-of-Service Benefits (Gratuity)
Employees on limited contracts are going to have a shorter eligibility period for end-of-service gratuity. The calculation of gratuity for limited contracts will be different from unlimited contracts.
Employees on unlimited contracts are eligible for end-of-service gratuity after completing their one year of continuous service. The calculation of gratuity for unlimited contracts is impacted by the employee’s minimum wage and length of service.
Employee Rights & Benefits
Employees on limited contracts are going to have a more limited range of benefits compared to those on unlimited contracts. Their eligibility for certain benefits of annual leave and end-of-service gratuity will be subject to specific conditions and minimum service requirements.
Employees on unlimited contracts are typically entitled to a wider range of benefits. This includes their health insurance, housing allowances, annual leave, and end-of-service gratuity. The longer duration of unlimited contracts allows for greater investment in employee benefits and development.
Legal Structure
Limited contracts are typically viewed as a temporary arrangement. Their legal implications as a result are less complex than the unlimited contracts. The termination of a limited contract at the end of its term usually does not involve any major legal complexities.
Unlimited contracts represent a more significant legal commitment for the company and its employees. Terminating an unlimited contract may involve more legal considerations. Especially if the termination is disputed. Or if it involves issues such as redundancy or unfair dismissal. Unlimited contracts are subject to a wider range of UAE labour laws. These may have stricter requirements for notice periods, severance pay, and other aspects of the employment relationship.
How to check limited and unlimited contracts in UAE
There are certain ways of determining if the employment contract is limited or unlimited.
- The most reliable method is carefully examining your employment contract in UAE. Look for specific language in the document. See if it is indicating a fixed end date, a project-based nature, or an indefinite duration.
- Contact your company’s HR department for clarification. They will provide you with information about the type of contract you have.
- With an account on the Ministry of Human Resources and Emiratization portal, you may view your contract details and its type.
- Consult with an employment lawyer or your legal advisor for professional guidance on the matter.
How can RAAD recruitment help you with an employment contract?
RAAD Recruitment offers our services to support businesses in the UAE. We assist you in meeting your Emiratisation requirements set forth by the UAE’s government. It has made it compulsory for companies to hire a certain number of Emirati nationals in job roles matching their skills. Ensuring you are following the UAE labour law, we will help with the employment contract UAE making sure you are complying with the predetermined number of Emirati employees.
Our experienced recruiters will help you find suitable candidates for your team. Our recruitment services in UAE ensure your workforce matches the company’s values and vision. We match the business needs with individuals having the necessary skills and qualifications for the role. Our experts can review your existing employment contracts. Or draft new ones to ensure they comply with UAE labor laws and protect your business interests.
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