Leave salary in the UAE is calculated by dividing the employee's monthly wage by 30 to get the daily rate, then multiplying that rate by the number of leave days. Formula: Daily Wage = Monthly Salary ÷ 30. Leave Salary = Daily Wage x Number of Leave Days. The calculation typically uses the full wage, meaning basic salary plus fixed allowances.
Quick Summary
- Leave salary in the UAE is calculated using the formula: Daily Wage = Monthly Salary ÷ 30, then Leave Salary = Daily Wage x Number of Leave Days.
- Salary components included: Basic salary plus fixed allowances such as housing and transport.
- Variable pay such as bonuses, commissions, and overtime is excluded from the calculation.
- UAE Labour Law reference: Article 29, Federal Decree-Law No. 33 of 2021.
- Leave salary is typically paid before leave begins or on the regular payroll cycle.
- Leave encashment uses the same formula — daily wage multiplied by unused leave days — paid at resignation, termination, or retirement.
- Public holidays falling within approved leave are generally not counted as leave days.
- Common mistakes include using gross salary instead of full fixed wage and applying incorrect day counts.
Leave Salary at a Glance
| Factor | Details |
|---|---|
| Who is eligible | Employees taking approved annual leave or receiving leave encashment |
| Formula | (Monthly Salary ÷ 30) x Number of Leave Days |
| Salary components | Basic salary plus fixed allowances |
| When it is paid | Before leave starts, or as part of final settlement |
| Applicable UAE Labour Law | Article 29, Federal Decree-Law No. 33 of 2021 |
| Common mistakes | Excluding allowances, using gross salary instead of full wage, wrong day count |
What Is Leave Salary?
Definition
Leave salary is the amount an employee is paid for their annual leave days, calculated using their daily wage rate.
Why Leave Salary Matters
Getting this calculation right ensures employees are paid correctly during their leave and at the time of resignation or termination, avoiding disputes and compliance issues.
Leave Salary Under UAE Labour Law
Employee Rights
Employees have the right to receive their full leave salary either before their leave begins or on the usual payday, depending on company policy and mutual agreement.
Employer Responsibilities
Employers must calculate leave salary accurately using the correct wage components and pay it on time.
Private Sector Rules
These rules apply uniformly to private sector employees under Federal Decree-Law No. 33 of 2021, excluding free zones with separate regulations like DIFC and ADGM.
Who Is Eligible for Leave Salary?
Full-Time Employees
All full-time employees who have completed the required service period for annual leave are eligible.
Part-Time Employees
Part-time employees receive leave salary on a pro-rata basis relative to their working hours.
Limited & Unlimited Contracts
The calculation method is the same regardless of contract type. What matters is the accrued leave balance and the applicable wage rate.
How to Calculate Leave Salary
Leave Salary Formula
Daily Wage = Monthly Salary ÷ 30
Leave Salary = Daily Wage x Number of Leave Days
Daily Wage Calculation
Take the employee's full monthly wage and divide it by 30, regardless of the actual number of days in that month, since UAE payroll practice standardizes on a 30-day month for these calculations.
Salary Components Included
Basic salary and fixed allowances, such as housing or transport allowances that are part of the regular contractual wage, are typically included.
Components Excluded
Variable pay such as bonuses, commissions, overtime, and reimbursements are generally excluded from the leave salary calculation.
Leave Salary Calculation Examples
Example 1 – Monthly Salary AED 5,000
Daily wage = 5,000 ÷ 30 = AED 166.67
Leave salary for 10 days = 166.67 x 10 = AED 1,666.70
Example 2 – Monthly Salary AED 10,000
Daily wage = 10,000 ÷ 30 = AED 333.33
Leave salary for 30 days = 333.33 x 30 = AED 10,000
Example 3 – Partial Leave
An employee with a monthly salary of AED 8,000 takes 5 days of leave.
Daily wage = 8,000 ÷ 30 = AED 266.67
Leave salary = 266.67 x 5 = AED 1,333.35
Example 4 – Leave Encashment
An employee resigns with 12 unused leave days and a monthly salary of AED 7,500.
Daily wage = 7,500 ÷ 30 = AED 250
Leave encashment = 250 x 12 = AED 3,000, added to the final settlement.
Leave Salary During
Annual Leave
Paid at the full daily wage rate for each approved leave day.
Resignation
Any unused leave balance is calculated using the same formula and paid as part of the final settlement.
Notice Period
Leave salary calculations remain the same, whether the employee is serving notice or not, as long as the leave days are accrued and unused.
Termination
The same formula applies regardless of whether the employee resigned or was terminated.
Leave Encashment
Leave encashment uses the identical formula, daily wage multiplied by unused leave days, paid out as a lump sum.
Common Leave Salary Scenarios
Employee Resigns Before Leave
An employee resigns without using their approved annual leave. The unused days are calculated and paid as encashment in the final settlement.
Unused Leave Balance
Employees who do not use their full leave balance in a year may carry it forward, subject to company policy, or have it encashed at the end of service.
Public Holidays During Leave
Public holidays that fall within an approved annual leave period are usually excluded from the leave day count for payment purposes.
Unpaid Leave Impact
Periods of unpaid leave do not generate any leave salary, since no wage is earned during that time.
Leave Salary vs Leave Encashment
Key Differences
Leave salary is paid for leave the employee actually takes, usually while still employed. Leave encashment is paid for leave the employee did not take, usually at the end of employment.
| Factor | Leave Salary | Leave Encashment |
|---|---|---|
| When paid | Before or during approved leave | At resignation, termination, or retirement |
| Purpose | Compensates for time taken off | Compensates for unused leave days |
| Formula | Daily wage x leave days taken | Daily wage x unused leave days |
Common Mistakes in Leave Salary Calculation
Common errors include using gross salary with variable pay included, forgetting to exclude public holidays from the leave day count, and applying an incorrect number of days in the month for the daily rate calculation.
Frequently Asked Questions
How is leave salary calculated in the UAE?
By dividing the monthly salary by 30 to get the daily rate, then multiplying it by the number of leave days.
What is the formula for calculating leave salary?
Daily Wage = Monthly Salary ÷ 30. Leave Salary = Daily Wage x Number of Leave Days.
What salary components are included in leave salary?
Basic salary and fixed contractual allowances such as housing or transport, but not variable pay like bonuses or commissions.
Is leave salary based on basic salary or gross salary?
It is typically based on the full fixed wage, meaning basic salary plus fixed allowances, not the entire gross salary including variable components.
How is leave salary calculated for unused annual leave?
The same formula applies: daily wage rate multiplied by the number of unused leave days, paid as leave encashment.
Is leave salary paid before or after annual leave?
It is commonly paid before the leave begins, though some companies pay it on the regular payroll cycle instead.
How is leave salary calculated during resignation?
Any unused leave balance is calculated using the daily wage formula and included in the final settlement.
What is the difference between leave salary and leave encashment?
Leave salary is for leave actually taken. Leave encashment is a payout for leave that was earned but never used.
Are allowances included in leave salary in the UAE?
Yes, fixed allowances that form part of the regular contractual wage are included, while variable pay is excluded.
Can employers deduct leave salary under UAE Labour Law?
No, employers cannot deduct or withhold correctly calculated leave salary, since it is a statutory entitlement tied to approved annual leave.
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