Understanding Leave Entitlements in UAE

The UAE Labour Law grants employees various types of leave to ensure work-life balance and compliance with legal standards. These leave entitlements differ based on factors such as length of service, type of employment contract, and specific circumstances. Employers must adhere to these provisions to avoid penalties and maintain a fair workplace.

Employees in the UAE are entitled to annual leave, sick leave, maternity and paternity leave, bereavement leave, and public holidays. Each type of leave comes with specific salary implications, including full pay, partial pay, or unpaid status. Understanding these rules helps employees plan their finances and ensures employers remain compliant with labour regulations.

The leave salary calculation depends on multiple factors, such as the employee’s basic salary, benefits, and contract terms. Failure to properly calculate leave salary can lead to disputes, legal issues, and financial losses for both employers and employees. Therefore, knowing how leave salary works under UAE law is essential for smooth payroll processing and workforce management.

Overview of Employee Leave Rights Under UAE Labour Law

The UAE Labour Law provides clear guidelines on employee leave entitlements to ensure fair treatment in the workplace. These regulations apply to both private-sector employees under the UAE Labour Law (Federal Decree-Law No. 33 of 2021) and free zone employees, depending on the specific free zone authority's rules.

Employees are entitled to a minimum of 30 days of paid annual leave after completing one year of service. For those with less than a year but more than six months of service, leave is granted on a pro-rata basis. Sick leave of up to 90 days is allowed per year, with varying levels of salary entitlement—full pay for the first 15 days, half pay for the next 30 days, and unpaid leave for the remaining period.

Maternity leave has been set at 60 days, with the first 45 days fully paid and the remaining 15 days at half pay. Paternity leave allows male employees up to five days of paid leave, which can be taken within six months of childbirth. Bereavement leave entitlements depend on the relationship with the deceased, ranging from three to five days of paid leave.

Public holidays are also mandated, and employees must receive full pay for official UAE holidays as per government announcements. Employers must comply with these leave policies, and failure to do so may result in penalties and legal disputes.

Why Understanding Leave Salary Calculation is Important?

Accurate leave salary calculation is crucial for both employees and employers in the UAE. It directly impacts financial planning, payroll accuracy, and legal compliance under UAE Labour Law. Miscalculations can lead to disputes, regulatory penalties, and employee dissatisfaction.

For employees, understanding leave salary ensures they receive the correct compensation when taking time off. Whether it's annual leave, sick leave, or maternity leave, salary entitlements vary based on factors such as contract type, length of service, and basic salary components. Knowing these details allows employees to plan their finances effectively and avoid unexpected deductions.

For employers, proper leave salary calculations help maintain compliance with UAE labour regulations and avoid fines. Errors in salary payments can result in legal claims, audits, or reputational damage. Additionally, businesses that follow accurate payroll practices can foster employee trust and improve retention.

Leave salary calculations also influence payroll management, especially when dealing with resignations, terminations, and encashment of unused leave. By ensuring precise calculations, companies can streamline HR operations and prevent unnecessary financial liabilities.

Types of Leave in UAE and Their Salary Impact

The UAE Labour Law defines various types of leave, each with specific salary entitlements and conditions. Employers must ensure compliance when calculating payments, as incorrect salary deductions or unpaid leave classifications can lead to legal disputes.

Annual Leave

Employees are entitled to 30 days of paid annual leave after completing one year of service. If the employee has worked for more than six months but less than a year, leave is calculated on a pro-rata basis. During annual leave, employees must receive their full salary, including basic pay and allowances. If unused leave is not carried forward, it may be encashed based on the basic salary.

Sick Leave

Employees are entitled to up to 90 days of sick leave per year, provided they submit medical documentation. The salary entitlement depends on the duration:

• First 15 days: Full pay
• Next 30 days: Half pay
• Remaining 45 days: Unpaid leave

If an employee fails to provide valid medical documentation, the employer has the right to mark the absence as unpaid leave.

Maternity Leave

Female employees are entitled to 60 days of maternity leave:

• 45 days with full pay
• 15 days with half pay

Additionally, employees can take 45 more days of unpaid leave if they need extra recovery time. Employers cannot terminate an employee for taking maternity leave, and new mothers are entitled to two daily nursing breaks for six months after returning to work.

Paternity Leave

Male employees are entitled to five days of paid paternity leave, which can be taken within six months of the child's birth.

Bereavement Leave

Employees receive three to five days of paid leave depending on their relationship with the deceased:

• Five days for the death of a spouse
• Three days for the death of a parent, child, sibling, or grandparent

Public Holidays

Employees are entitled to full pay on UAE public holidays as per government announcements. If an employee is required to work on a public holiday, they must receive compensatory leave or additional pay as per UAE Labour Law.

How to Calculate Leave Salary in UAE Under Labour Law

Leave salary calculation in the UAE depends on multiple factors, including the type of leave, length of service, and salary components. Employers must ensure accuracy to remain compliant with UAE Labour Law and avoid payroll disputes.

Key Factors Affecting Leave Salary Calculation

1. Basic Salary vs. Gross Salary – Leave salary is usually based on the employee’s basic salary, but some allowances may also be included depending on the employer’s policy.
2. Length of Service – Employees with more than one year of service are entitled to full annual leave benefits, while those with six months to one year receive a pro-rata calculation.
3. Contract Type – Whether an employee is on a limited or unlimited contract can impact leave encashment and end-of-service benefits.
4. Leave Balance – Any unused leave may either be carried forward or encashed based on the basic salary.
5. Deductions – Employers can deduct leave salary for unpaid absences or unapproved leave.

Each type of leave (annual, sick, maternity, or other statutory leave) follows different salary entitlements. Employers must apply the correct formulas to ensure employees receive their rightful compensation based on the UAE Labour Law provisions.

Leave Salary Formula in UAE

The UAE Labour Law provides a structured framework for calculating leave salary, ensuring fair compensation for employees. The calculation varies depending on whether the leave is annual, sick, maternity, or another type of statutory leave.

Basic Pay vs. Gross Salary: What is Included?

• Basic Salary: Leave salary is generally calculated based on the basic salary, excluding allowances such as housing, transport, or commissions, unless otherwise stated in the employment contract.
• Gross Salary: Some employers may include allowances in leave salary calculations, but this is not a legal requirement unless specified in the contract.

Standard Formula for Leave Salary Calculation

For annual leave, the general formula is:

Leave Salary=(Basic Monthly Salary÷30)×Number of Leave Days\text{Leave Salary} = (\text{Basic Monthly Salary} \div 30) \times \text{Number of Leave Days}Leave Salary=(Basic Monthly Salary÷30)×Number of Leave Days

Example Calculation:

• Basic monthly salary: AED 10,000
• Leave taken: 15 days
• Daily salary: 10,000 ÷ 30 = AED 333.33
• Leave salary: 333.33 × 15 = AED 5,000

If an employee is entitled to leave encashment for unused leave, the same formula applies, but only the basic salary component is considered.

For sick leave, maternity leave, and other leave types, the salary entitlement varies based on UAE Labour Law provisions. Employers must ensure correct calculations to comply with regulations and avoid payroll discrepancies.

Leave Salary Calculation in Case of Termination

When an employee’s contract is terminated, their leave salary entitlements change based on the type of contract and the reason for termination. Employers must ensure compliance with UAE Labour Law to avoid disputes or penalties.

How Entitlements Change Based on the Contract Type

1. Limited Contract:

• If an employee is terminated before completing the contract, they are entitled to payment for any unused annual leave based on their basic salary.
• If the contract is completed, they receive payment for any accrued but unused leave.

2. Unlimited Contract:

• If terminated with notice, employees are entitled to compensation for unused leave based on their basic salary.
• If terminated without notice (except in cases of gross misconduct), employees may claim leave salary for unused leave plus end-of-service benefits.

Scenarios for Early Termination vs. Contract Completion

• Termination Before One Year of Service: Employees are not entitled to annual leave salary unless they have worked for at least six months.
• Termination After One Year of Service: Employees must be paid for any accrued and unused leave.
• Termination with Immediate Effect (Article 44 Cases): Employees dismissed for disciplinary reasons lose entitlement to compensation for unused leave.

Formula for Leave Salary Upon Termination

Unused Leave Salary=(Basic Monthly Salary÷30)×Unused Leave Days\text{Unused Leave Salary} = (\text{Basic Monthly Salary} \div 30) \times \text{Unused Leave Days}Unused Leave Salary=(Basic Monthly Salary÷30)×Unused Leave Days

Employers must settle all dues, including leave salary, within 14 days of termination as per UAE Labour Law.

Leave Salary Calculation in Case of Resignation

When an employee resigns, their leave salary is calculated based on their accrued but unused leave days. The method of calculation depends on their length of service, contract type, and resignation notice period.

Pro-Rata Calculations Based on Tenure

• Less Than 6 Months of Service: Employees are not entitled to paid annual leave upon resignation.
• Between 6 Months and 1 Year of Service: Employees are entitled to a pro-rata annual leave calculation based on the number of months worked.
• More Than 1 Year of Service: Employees are entitled to full annual leave salary for any unused leave balance.

Notice Period Considerations

• The standard notice period under UAE Labour Law is 30 to 90 days, depending on the contract terms.
• If an employee serves their notice period, they remain entitled to their leave salary.
• If an employee resigns without serving the full notice period, the employer may deduct compensation from their final settlement, including any leave salary owed.

Formula for Leave Salary Upon Resignation

Unused Leave Salary=(Basic Monthly Salary÷30)×Unused Leave Days\text{Unused Leave Salary} = (\text{Basic Monthly Salary} \div 30) \times \text{Unused Leave Days}Unused Leave Salary=(Basic Monthly Salary÷30)×Unused Leave Days

If an employee has unused leave days at the time of resignation, they are entitled to encashment based on their basic salary. Employers must settle all payments, including leave salary, within 14 days after the employee’s last working day.

Additional Considerations for Unused Leave & Deductions

Unused leave is a critical aspect of leave salary calculation in the UAE. Employees may be eligible for leave encashment or, in some cases, deductions depending on company policies and UAE Labour Law regulations.

When Employees Can Encash Unused Leave

• If an employee resigns or is terminated, they are entitled to payment for any accrued but unused annual leave based on their basic salary.
• If an employer does not allow employees to take their leave within the specified period, they must compensate for it unless the leave is carried forward.
• Employers may allow unused leave to be carried forward, but this depends on internal HR policies.

Employer Rights to Deduct from Leave Salary

• If an employee takes more leave than their entitlement, the employer can deduct excess leavedays from the final salary or settlement.
• If an employee resigns without serving the full notice period, employers may deduct the remaining notice period salary from any leave encashment due.
• Unapproved absences or unpaid leave days are not included in leave salary calculations and can lead to salary deductions.

Employers must handle leave encashment and deductions transparently to maintain compliance with UAE Labour Law and avoid legal disputes.

Tips on Leave Salary Calculation for Employers in UAE

Accurately calculating leave salary is essential for compliance with UAE Labour Law and maintaining a fair work environment. Employers should implement best practices to avoid errors, disputes, and legal consequences.

Common Mistakes to Avoid

1. Incorrect Salary Basis: Leave salary should be calculated based on the basic salary, excluding allowances unless specified in the contract.
2. Failing to Compensate for Unused Leave: Employees must receive payment for any accrued but unused leave upon resignation or termination.
3. Misclassification of Leave Types: Differentiating between paid, unpaid, and partially paid leave is crucial to prevent payroll discrepancies.
4. Non-Compliance with Payment Deadlines: UAE Labour Law requires all dues, including leave salary, to be settled within 14 days of the employee’s last working day.
5. Overlooking Pro-Rata Leave Entitlement: Employees who have worked between 6 months and 1 year are entitled to a pro-rata leave calculation.

Best Practices for Leave Management

• Use Automated Payroll Systems to ensure accurate leave salary calculations.
• Maintain Clear HR Policies on leave encashment, deductions, and carry-forward rules.
• Document Leave Requests Properly to track balances and avoid salary disputes.
• Educate Employees on Leave Policies to prevent misunderstandings.

Employers who follow best practices can streamline payroll processes, enhance compliance, and foster a positive workplace environment.

How Payroll & HR Software Can Help with Leave Salary Management?

Managing leave salary calculations manually can lead to errors, compliance risks, and payroll disputes. Using payroll and HR software helps streamline the process, ensuring accuracy and efficiency in leave salary management.

Benefits of Automating Leave Calculations

1. Accuracy in Leave Salary Computation – Software automatically applies UAE Labour Law formulas, reducing human errors in calculations.
2. Compliance with UAE Regulations – Ensures that leave salary calculations align with the latest legal requirements, including entitlements for different types of leave.
3. Real-Time Leave Tracking – Tracks employee leave balances, preventing miscalculations or unauthorized leave encashment.
4. Automated Payroll Processing – Integrates leave salary calculations with payroll, ensuring employees receive correct payments without manual adjustments.
5. Employee Self-Service – Allows employees to check their leave balances, submit requests, and view salary breakdowns without HR intervention.

Key Features to Look for in Payroll Software

• Customizable Leave Policies – Software should allow businesses to configure leave rules according to their policies and UAE Labour Law.
• Integration with Payroll & Accounting Systems – Ensures seamless processing of leave salaries without the need for manual data entry.
• Compliance Updates – Automatic updates to reflect changes in UAE Labour Law related to leave entitlements and salary calculations.
• Reporting & Audit Trails – Generates reports on leave balances, encashments, and deductions for transparency and compliance.

By implementing payroll and HR software, businesses can enhance efficiency, ensure compliance, and reduce administrative workload in leave salary management.

FAQs about Leave Salary Calculation in UAE

How is leave salary calculated in the UAE?

Leave salary is calculated based on the employee’s basic salary. The standard formula for annual leave salary is:

Leave Salary=(Basic Monthly Salary÷30)×Number of Leave Days\text{Leave Salary} = (\text{Basic Monthly Salary} \div 30) \times \text{Number of Leave Days}Leave Salary=(Basic Monthly Salary÷30)×Number of Leave Days

If allowances are included in the contract, they may also be factored into the calculation.

Is leave salary based on basic salary or gross salary?

By default, leave salary is based on the basic salary. However, some employers may include allowances in the calculation if specified in the employment contract.

How many leave days are employees entitled to in the UAE?

• Annual Leave: 30 days after completing one year of service.
• Sick Leave: Up to 90 days (first 15 days at full pay, next 30 days at half pay, remaining 45 days unpaid).
• Maternity Leave: 60 days (45 days at full pay, 15 days at half pay).
• Paternity Leave: 5 days within 6 months of childbirth.
• Bereavement Leave: 3 to 5 days depending on the relationship with the deceased.
• Public Holidays: Employees are entitled to full pay on official UAE public holidays.

Can an employer refuse to pay for unused leave?

No. Under UAE Labour Law, employees must be compensated for any accrued but unused leave at the time of resignation or termination. Employers cannot deny payment unless the leave was not accrued.

What happens to leave salary in case of resignation?

Employees who resign are entitled to leave salary based on their unused leave days. If they have worked less than one year but more than six months, their leave salary is calculated on a pro-rata basis.

When must employers pay leave salary?

Employers must pay all dues, including leave salary, within 14 days of the employee’s last working day after resignation or termination.

Can an employer deduct salary for excess leave taken?

Yes. If an employee takes more leave than their entitlement, the employer can deduct the excess leave days from their salary or final settlement.

Do public holidays count as part of annual leave?

No. Public holidays announced by the UAE government are separate from annual leave and must be provided with full pay.

Can employees carry forward unused leave?

Employers may allow employees to carry forward unused leave to the next year, but this depends on company policy. If not carried forward, the leave must be encashed.

How does leave salary work for part-time employees?

Part-time employees receive pro-rata leave entitlements based on the number of hours worked compared to full-time employees. The leave salary is calculated accordingly.