In the UAE, leave salary is the payment you receive during your entitled leave period. Governed by the UAE labour law, it ensures employees get their rightful salary for their legal time off. That’s why the UAE labour law mandates clear rules for calculating leave salary. Here, the calculation is done based on the basic salary and allowance. However, the calculation varies as UAE labour law entitles different types of leaves. It includes sick leave, annual leave, maternity leave, and so on.Â
Some of those leaves are fully paid, some are half paid, and some are not at all. Additionally, when there is resignation, contract termination, or completion, any unused accrued leave must be compensated in accordance with the law.Â
Where the leave salary calculation is complex, and precision is a must for compliance, modern HR software can make it all simple. You just need to get the idea of how leave salary is calculated and apply the correct tools to ensure accurate payments.
What Is Leave Salary in the UAE Labour Law?
In the UAE, leave salary is the payment an employee receives during their entitled period of leave. It is generally calculated based on the UAE labour law. UAE labour law allows employees different types of paid and unpaid leave. It includes annual leave, sick leave, maternity leave, paternity leave, parental leave, hajj leave, and so on.
Employees can get the benefits of full paid leave upon the completion of one year of service, and half paid or unpaid leave otherwise. Ultimately, the UAE provides strong labour protection through its legal rules. Where the LMRA governs employment rights, MOHRE regulates leave salary under the UAE Labour Law.
How to Calculate Leave Salary in UAE (Step by Step)
In the UAE, leave salary is calculated based on three things:
- Basic salary
- Fixed allowanceÂ
- Leave accrual based on tenure
Here is a step-by-step guide for leave salary calculation :
Step 1: Determine the Basic Monthly Salary
Leave salary in the UAE is calculated based on the basic monthly salary. It is your fixed monthly salary specified in your employment contract. It does not include any bonuses or variable pay.
Step 2: Include Allowances
Apart from the basic salary, your employment contract may also state a fixed amount of allowance, like housing allowance or transport allowance. If you are also getting an allowance, include that in the calculation.
Step 3: Calculate Leave Accrual Based on Tenure
Leave accrual means how much paid leave you have earned based on your job tenure. In the UAE, here is the rule for leave accrual based on tenure:Â
- Tenure less than 6 months: No paid leaveÂ
- Tenure 6 to 12 months: 2 days paid leave per monthÂ
- Tenure 1 year or more: 30 days of paid leave in one year.Â
According to it, calculate how many leave accruals you can get based on your tenure.
Step 4: Compute Daily Salary Based on UAE Labour Law
Now, compute your daily salary using the following formula:Â
Daily Salary = (Basic Monthly Salary + Allowances) ÷ 30
It is the 30-Day Month Approach for daily salary calculation. The method assumes each month has 30 days and is widely used in UAE payroll operations such as calculating paid leave.Â
Step 5: Apply the Leave Salary Formula
Next, apply the leave salary formula. It can be calculated as follows.Â
Leave Salary = Daily Salary × Accrued Leave Days
                      = (Basic Salary + Allowances ÷ 30) x Number of Leave Days
Step 6: Account for Worked Days During Leave
If you work during official holidays or approved leave, Article 28 of the UAE Labour Law says you must be compensated. You will be entitled to have:Â
- Another rest day for each day on which you have worked during the holiday, orÂ
- You will get a regular daily wage plus at least 50% extra based on your basic salary for that day.
Step 7: Calculate Total Leave Salary Payment
At last, add all the components like leave pay or overtime pay. In case your basic salary is revised before the leave, use the revised salary while calculating leave salary.
Sick Leave Salary Calculation in UAE
As an employee in the UAE, you are entitled to have 90 days of sick leave after the probation period. Sick leave is also calculated based on basic salary. As per UAE Labour Law, sick leave salary is paid as follows:
- Full pay for the first 15 days
- Half pay for the next 30 days
- No pay for the remaining 45 days
Maternity Leave Salary Calculation in UAE
Female employees in the UAE are entitled to have 60 days of paid maternity leave. Among which she will be fully paid for the first 45 days and half paid for the remaining 15 days. She must have worked for the employer for at least one year. If not, the leave will be unpaid.Â
For example, let’s say a female employee has an AED 9,000 basic salary and has taken 60 days of maternity leave.
So, her total maternity leave salary is,
- Daily salary = AED 9,000 ÷ 30 = AED 300
- Full pay (45 days) = 300 × 45 = AED 13,500
- Half pay (15 days) = 150 × 15 = AED 2,250
Total maternity leave salaryÂ
= AED 13,500 + AED 2,250Â
= AED 15,750
Additionally, 5 days of fully paid parental leave are available in the UAE for both parents. This leave is usable within six months of the baby’s birth.
Leave Salary Calculation for Domestic Workers in UAE
Domestic workers in the UAE are entitled to 30 days of paid annual leave after completing one year of service. They will get 2 days of paid leave per month for 6 to 12 months of service.Â
The employer must pay the leave salary before the leave starts. It will be based on the last received basic wage of the worker. If the worker has worked in their leave days, the employer has to pay them their Wages plus a leave allowance equal to their Wages for the days they worked during that period.
Leave Salary Calculation in UAE in Excel
You can simplify the leave salary calculation with the help of Excel. It helps ensure compliance with UAE labour laws and avoids payroll errors.
Is Leave Salary Taxable or Subject to Deductions in the UAE?
Generally, leave salary in the UAE is not taxable. That is because the UAE does not levy a personal income tax on salaries or wages. So, it does not matter whether you’re a local or an expatriate; your personal income from employment is not subject to federal or emirate-level personal income tax. As the UAE payroll is not subject to income tax, there are no mandatory tax deductions.
Which Types of Leave Are Fully Paid vs. Unpaid in the UAE?
The UAE labour law entitles employees to different types of paid and unpaid leave. Check out the table below to have a quick understanding of the types of leave that are fully paid vs. unpaid.
| Leave Type | Paid or Unpaid | Description |
|---|---|---|
| Annual Leave | Paid |
|
| Sick Leave | Paid |
|
| Maternity Leave | Paid |
|
| Parental Leave | Paid | 5 working days of fully paid leave within 6 months of childbirth |
| Hajj | Unpaid | 30 days of unpaid leave, granted only once during the employment |
| Umrah Leave | Depends | It is up to the employer. It can be either a deduction from the annual leave or unpaid leave. |
| Study Leave | Paid | Paid leave for 10 days per year |
| Bereavement Leave | Paid |
|
| Sabbatical Leave | Paid | Paid sabbatical leave (extended break from work) |
| Official Leaves and Vacations | Paid | Paid leave on public holidays |
What Is the Difference Between Annual Leave Pay and Leave Encashment?
Annual leave pay is the payment you get for taking leave during your employment. As for the leave encashment, it is the process of converting unused but accrued leave into a cash payment. But it is done during job transitions or retirement. It is a cash compensation when the leave is not taken at the end of their employment or at another agreed-upon time.
What Is the Policy for Annual Leave During and After Probation in the UAE?
You are entitled to have Paid Leave after completing probation. Thus, it will usually be unpaid if you take leave during probation in the UAE.
How Do Extended Leaves Impact Salary and Benefits in the UAE?
Extended leaves in the UAE can affect your salary and benefits. However, that depends on whether it is paid leave or unpaid leave.Â
- Extended Paid Leave: Extended paid leave does not affect the salary of the employee. He will receive his full salary during the approved leave of absence.Â
- Extended Unpaid Leave: MOHRE has stated that unpaid leave days will no longer be included in the gratuity pay calculation. That means if you have taken unpaid leave, the number of days you have taken will not be added to your length of service. Moreover, your last basic salary will not be adjusted to include the days of unpaid leave.Â
Leave Salary Rules for Resignation, Termination, and Final Settlements
In the UAE, an employee is entitled to receive payment for their accrued and unpaid leave for termination or resignation from employment. Generally, it is calculated based on the basic salary only.Â
The final settlement calculates all payable dues. According to Federal Decree-Law No. 33, the employer must provide all payable dues to their employee within 14 days after the contract has ended.
Leave Salary Calculation After Resignation in UAE
When you resign from your job in the UAE, you will still be paid for your leave. However, it will be calculated based on your basic pay only, without any allowances.Â
To calculate unused leave salary, you have to take your basic income, divide it by 30, and multiply the result by the number of unused leave days. Here is the formula:Â
Unused Leave Salary = (Basic Monthly Salary ÷ 30) × Unused Leave Days
Leave Salary Calculation for Limited vs. Unlimited Contracts
Actually, the contract type does not affect the leave salary calculation. UAE labour law does not specifically differentiate leave salary based on the limited or unlimited contract.
Leave Salary on Contract Termination or Completion
In the UAE, the employee is entitled to get paid for any accrued but unused leave either on contract termination or contract completion.Â
Leave salary calculation in UAE in case of termination: The Employee will be paid for any unused leave and any other payable dues within 14 days after the contract ends.
Leave salary calculation in the UAE in case of a finished contract: Here, they can carry forward their annual leave from that year into the next year. However, the employer must not prevent the employee from using his accrued annual leave for more than two years.
How Employers Should Manage Leave Salary Obligations?
As an employer in the UAE, you should handle the leave salary obligations with accuracy and transparency. Here is how you can do so. Â
- Maintain Clear Leave Policies: You should maintain clear rules on how leave is earned and how leave is paid. It will keep your team informed about the leave policies and help to avoid confusion.Â
- Use Accurate Calculations/Tools: Leave salary calculation in the UAE is not an easy feat. On top of that, it has a legal aspect. So, you should use reliable payroll software or calculation tools to avoid miscalculating the payouts.Â
- Communicate and Plan Leave Schedules: You should encourage your employees to apply for leave in advance. It will allow you to plan for the workflows. Moreover, you will be able to maintain accurate calculations without last-minute pressure.Â
- Budget for Leave Salary: It is wise to set aside a budget for leave salary. It will prevent financial strains when the contract ends or the employee resigns.Â
- Track Leave Accrual and Usage: You should always keep an updated record of how many leaves the employee has earned and how many they have used. Thus, you can ensure fast and dispute-free payroll calculation.Â
- Legal Compliance and Updates:You should always stay informed about the changes to stay compliant with the UAE labour law. You should make necessary changes to your policies according to the law updates.Â
- Consultation for Complex Cases: In case you are unsure about the leave salary calculation, consult legal HR experts. They will offer you the best suggestions to avoid penalties.
- Encourage Timely Leave Usage to Minimize Liability: Last but not least, try to encourage your employees to use their leaves regularly instead of hoarding them. It reduces the large payouts during final settlements.
How HR Software Can Help Automate Leave Salary Calculation?
HR software makes the leave salary calculation easier through automating calculations and reducing errors, and so on. Check out how automated HR software like Huduri can help you in this case.Â
- Employee attendance management allows to automatically track paid and unpaid leaves.Â
- Efficiently keeps records of the employee leave balances.Â
- Calculates the entitlements accurately.Â
- Adjust the payouts based on the UAE labour law.Â
- Accurate leave accrual in resignation and termination.Â
- Easy report generation for payroll and audits.Â
- Ultimately, it helps you to stay compliant and manage costs efficiently.
Final Thoughts
All in all, you can ensure fair pay and legal compliance around leave salary through clearly understanding the calculations. True, it may feel a little complex to manage the leave salary in the UAE.Â
However, you can simplify the process by implementing modern HR & payroll software. Efficient HR software like Huduri helps you ensure error-free leave salary calculations and saves time. At last, always stay informed to make leave salary management transparent.
FAQs
Is leave salary calculated differently for part-time employees?
Yes, the leave salary for the part-time employees in the UAE is calculated on a pro rata basis. First full-time entitlements are calculated, and then a pro rata calculation is applied based on their working pattern.
How is leave salary calculated if the salary was revised mid-year?
Leave salary is generally calculated based on the last drawn salary. If your basic salary is revised before the leave, you have to use the revised salary while calculating leave salary.
Is leave salary encashment allowed while still employed (not terminated or resigned)?
In general, leave salary encashment is allowed during job transitions or retirement. If you are still employed, not terminated or resigned, leave salary encashment may not be possible.
What Is the Difference Between Leave Salary Calculation and Service Gratuity Calculation in the UAE?
Simply put, leave salary is the payment you get for unused annual leave. On the other hand, End of Service Gratuity is a lump sum you receive when you leave the job.Â
