Introduction
In every workplace, taking time off is essential. It helps employees recharge and maintain a healthy work-life balance. In the UAE, annual leave is not just a company benefit; it is a legal right protected under the UAE Labour Law (Federal Decree–Law No. 33 of 2021).
For employers, understanding how to calculate leave salary correctly is crucial. It is part of ensuring fair treatment, avoiding disputes, and staying compliant with the Ministry of Human Resources and Emiratisation (MOHRE). Let us walk through how UAE companies calculate leave salary, what to include, and what common mistakes to avoid.
What is Leave Salary?
Leave salary is the amount an employee receives while on approved annual leave. It ensures that even when employees take time off, their income remains consistent.
In most cases, it includes:
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Basic monthly salary
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Fixed allowances such as housing, transportation, or utilities (if mentioned in the contract)
However, bonuses, commissions, and performance incentives are usually not included unless specifically stated in the employment agreement.
Legal Framework under UAE Labour Law
Article 29 of the UAE Labour Law clearly defines annual leave rights:
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After one year of service, employees are entitled to 30 calendar days of paid annual leave.
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Employees who have completed six months but less than a year are entitled to two days of paid leave per month.
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Public holidays falling during the leave period are not counted as part of annual leave.
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The leave salary must be paid before the employee begins their leave.
This system ensures transparency and guarantees employees receive their pay on time.
Components of Leave Salary Calculation
When calculating leave salary in the UAE, HR teams must know which salary elements to include.
Included:
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Basic salary
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Fixed allowances (housing, transportation, utilities)
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Any regular, contractually agreed payments
Not included:
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Overtime pay
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Performance bonuses
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Sales commissions (unless fixed and recurring)
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End-of-service benefits
This separation makes the process fair and consistent across the organization.
Formula for Calculating Leave Salary
Provide clear step-by-step formulas:
A. For Monthly Paid Employees:
Leave Salary = (Monthly Salary ÷ 30) × No. of Leave Days
Example:
If monthly salary = AED 9,000, and the employee takes 10 days leave:
→ (9,000 ÷ 30) × 10 = AED 3,000
B. For Employees with Variable Pay:
Average Daily Wage (last 12 months) × No. of Leave Days
This applies when salary fluctuates due to commissions or variable components.
Encashment of Unused Leave
When an employee resigns or their contract ends, any unused leave days must be encashed based on their last drawn basic salary.
Formula:
(Last Drawn Basic Salary ÷ 30) × No. of Unused Leave Days
Example:
If basic salary is AED 7,500 and 12 days unused leave:
→ (7,500 ÷ 30) × 12 = AED 3,000
Mention that payment must be made at the end of the service period.
Leave Salary During Probation or Half-Year
If an employee has completed six months but less than a year, they earn two days of paid leave per month.
Example:
An employee working eight months with a monthly salary of AED 6,000 is entitled to:
(6,000 ÷ 30) × 4 = AED 800
Employees with less than six months of service typically do not receive paid leave, though some employers may offer it as goodwill.
When Should Leave Salary Be Paid?
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Employers must pay before the employee begins leave (as per UAE Labour Law).
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Helps employees manage expenses during travel or personal time.
Common Mistakes Companies Make in Leave Salary Calculation
Even experienced HR departments can make small missteps. Common issues include:
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Forgetting to include fixed allowances in calculations
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Using working days instead of calendar days
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Delaying payment until after the employee leaves
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Not updating payroll systems in line with new labour law changes
Using digital HR tools or outsourcing payroll can help reduce these errors.
Role of HR and Payroll Systems
Automated payroll systems make leave management much easier. They:
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Track leave balances automatically
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Ensure WPS-compliant salary disbursement
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Handle calculations as per the UAE Labour Law
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Reduce manual errors and administrative work
For growing businesses, this not only saves time but also strengthens compliance and employee trust.
How Connect Staff Helps Companies Manage Leave Salaries Efficiently
Handling payroll and leave calculations can be complicated, especially with evolving UAE labour regulations. Connect Staff simplifies the process through expert HR and payroll outsourcing solutions.
With our team’s support, your company gets:
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Accurate and law-compliant leave salary calculations
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On-time WPS payments
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Seamless end-of-service and leave encashment management
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Transparent record keeping and reporting
Whether you are running a small enterprise or a large organization, Connect Staff ensures smooth HR operations, compliance with MOHRE standards, and complete peace of mind.
FAQs: Leave Salary in the UAE
How to calculate annual leave in UAE?
The UAE Labor Law, which in turn governs the annual leave calculator in UAE; establishes that the payment of leave must be according to the days worked or according to the type of contract existing between both parties.
In this order of ideas, an employer must pay annual leave wage to its employee when:
- The employee worked for one full year at the company. According to the law, he must receive 30 days of vacation per year.
- If the employee worked for more than 6 months, but less than one year with the company; he/she must receive 2 days of vacation for each month he/she has worked.
To do a good annual leave salary calculation in UAE, is important to work hand in hand with people who know all the information regarding work visas, human resources, and payroll calculations, among others; all this in UAE.
What should the employee receive in leave salary?
The employee must receive, according to the law, the base salary and the housing allowance. However, some companies include more benefits in this payment, but this is at the discretion of each employer.
Who determines the beginning and duration of an employee’s vacation?
It is only the employer who can make this decision and can even decide if this period will split into two parts if necessary.
If that the employee needs to work during their vacation period, he/she will have to receive vacation compensation for the days they operate. However, under UAE labor laws, an employer cannot force an employee to work for two consecutive years.
Are public holidays included in an employee’s vacation period in the UAE?
Article 77 of the UAE Labor Law states that if a worker’s vacation period occurs on national holidays, it has to be included as part of his or her leave.
What should the employer do in case the employee does not show up after the end of the leave period?
Article 89 of the law states that; if a worker does not show up from the next day on which his leave period ends, the employer has the right not to pay him the corresponding salary while he was absent.
When must the employee receive this payment?
Article 80 of the UAE workers’ law, states that the employer must pay the leave in full to the worker. This must be before his last departure.
For this, the employer must use an annual leave salary calculator in UAE that allows you to calculate the full wage; plus the days of vacation that corresponds to the employee. Also, employers must be able to perform a leave salary calculation in UAE according to the law.
Is leave salary based on basic or full salary?
Mainly on basic salary plus fixed allowances (if mentioned in the contract).
When should leave salary be paid?
Before the employee starts their leave.
How is unused leave paid during resignation?
Based on the last drawn basic salary and number of unused leave days.
How can we help you to do a good leave salary calculation in UAE?
As a specialized agency, we guarantee you our best service from the hand of professionals in any field you need; so you can retain your employees and increase your workforce, keeping high-level workers in your team.
We have specialized personnel in any of the industries where your business is developed, and we guarantee you a specialized guide to carry out human resources tasks or payroll calculations for your employees.
If you want to know more information about the leave salary calculation or any type of leaves in UAE; do not hesitate to contact us at +971 43 316 688. We are Connect Staff and we are here to help you with everything you need. Please contact our agents at [email protected] for more information.
