How does the contract type (Limited vs. Unlimited) affect gratuity?
Under Limited contracts, employees receive full gratuity regardless of resignation or termination (if minimum service is met). Under Unlimited contracts (being phased out), resignation significantly reduced gratuity in early years, with full entitlement only after 5 years of service.
Contract type significantly affects gratuity calculation, though Unlimited contracts are being phased out:
Limited Contracts (Current Standard)
- Full gratuity entitlement regardless of leaving reason
- 21 days' basic salary per year for first 5 years
- 30 days' basic salary per year after 5 years
- Same calculation for resignation, termination, or contract end
Unlimited Contracts (Being Phased Out)
- Termination by Employer: Full gratuity as per calculation
- Resignation by Employee:
- 1-3 years: 1/3 of calculated gratuity
- 3-5 years: 2/3 of calculated gratuity
- 5+ years: Full gratuity
Legal Changes (2022-2023)
- All unlimited contracts must be converted to limited
- Conversion deadline was February 2022
- New labor law favors limited contract structure
- Enhanced employee protections under new system
Practical Implications
- Limited contracts provide more certainty
- Employees have better mobility between jobs
- Employers have clearer cost calculations
- Reduced disputes over gratuity calculations
