When your job ends in the UAE, you’re entitled to more than just gratuity. If you have unused annual leave days, your employer must pay you for every single one — in cash. This is called Leave Encashment in UAE, and it’s a statutory right under UAE Labour Law.
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Many employees either don’t claim it, underestimate it, or don’t know it exists separately from gratuity. This guide covers everything you need to know.
What Is Leave Encashment?
Leave encashment is the cash payment you receive for annual leave days you accrued but did not use before your employment ended. It applies whether you resigned, were terminated, or your fixed-term contract expired.
It is governed by UAE Federal Decree-Law No. 33 of 2021, which entitles every employee to 30 calendar days of paid annual leave per year (after completing one year of service).
📋 Official source: MOHRE – Annual Leave Rights
Who Is Eligible?
You are entitled to leave encashment if you:
- Work in the UAE private sector
- Have accrued but unused annual leave days at the time your employment ends
- Are under 1 year of service — pro-rata leave still applies and must be encashed
Unlike gratuity, there is no minimum service period for leave encashment. Even if you leave before completing one year, your employer must pay for any leave days you accrued.
📋 Official source: UAE Government Portal – Annual Leave
Leave Encashment Formula
The formula is straightforward and fixed under UAE law:
Leave Encashment = (Basic Monthly Salary ÷ 30) × Unused Leave Days
It is calculated on basic salary only — housing, transport, and other allowances are excluded unless your contract states otherwise.
Worked Example
Basic salary: AED 12,000/month | Unused leave: 22 days
| Step | Calculation | Result |
|---|---|---|
| Daily rate | AED 12,000 ÷ 30 | AED 400/day |
| Leave encashment | AED 400 × 22 days | AED 8,800 |
Annual Leave Entitlement Under UAE Law
| Service Period | Leave Entitlement |
|---|---|
| Less than 6 months | No entitlement |
| 6 months to 1 year | Pro-rata (2.5 days/month) |
| 1 year or more | 30 calendar days/year |
⚠️ Leave accrues at 2.5 days per month. After 12 months, the full 30-day entitlement applies.
Privilege Leave Encashment
“Privilege leave” is a term used by companies following South Asian payroll traditions or those in specific free zones. Under UAE Federal Labour Law, there is no legal distinction between annual leave and privilege leave — the entitlement and formula are identical.
Privilege Leave Encashment = (Basic Salary ÷ 30) × Unused Privilege Leave Days
If your contract specifies a different privilege leave policy, the more generous term applies.
Leave Encashment vs Gratuity
These are two separate, independent entitlements. You can receive both at the end of your service.
| Leave Encashment | Gratuity | |
|---|---|---|
| What it covers | Unused annual leave days | Years of service reward |
| Minimum service | None (pro-rata from day one) | 1 full year |
| Formula | (Salary ÷ 30) × unused days | 21 days/year (first 5 yrs) |
| Affected by resignation? | No — always payable in full | No (under 2022 law) |
| Capped? | No | Yes — 2 years’ total salary |
Use our UAE Gratuity Calculator to calculate your gratuity separately.
Can You Encash Leave While Still Employed?
Yes — in limited circumstances. Under Article 24 of Federal Decree-Law No. 33 of 2021, an employer and employee can agree in writing to encash a portion of annual leave while employment continues. However:
- The employee must take at least 2 consecutive weeks of actual leave per year
- Encashment of the remaining days can be agreed upon mutually
- This must be documented in writing
📋 Official source: Federal Decree-Law No. 33 of 2021 – Article 24
What Happens to Leave Accrued During Notice Period?
If you work your full notice period, those days count toward your service and leave continues to accrue. Any unused days at the end of the notice period must be encashed. If your employer asks you to take your remaining leave during the notice period, that is legally permissible — but they cannot force you to forfeit it.
When Must Your Employer Pay?
Your employer must settle all end-of-service payments — including leave encashment — within 14 days of the contract termination date.
If they refuse or delay:
- File a complaint on the MOHRE app or at mohre.gov.ae
- Call MOHRE on 800-60
- Visit the nearest Tasheel centre or MOHRE office
- Escalate to the labour court if not resolved within 14 days of complaint
📋 Official source: MOHRE – Labour Complaints
Free Zone Employees
Employees in DIFC and ADGM are subject to their own employment laws, which largely mirror UAE mainland law on leave entitlements but may differ in specific provisions.
📋 Official sources: DIFC Employment Law | ADGM Employment Regulations
FAQs
Is leave encashment calculated on basic salary or gross salary?
Basic salary only under UAE Federal Law. If your contract explicitly includes allowances, that term governs.
Can my employer deduct anything from my leave encashment?
Only legally permitted deductions apply — such as salary advances agreed in writing. General deductions are not allowed.
My employer says I forfeited leave because I didn’t use it in time — is that legal?
No. Under UAE law, unused annual leave cannot be forfeited. It must either be carried over or encashed.
I worked for 8 months and was terminated — do I get leave encashment?
Yes. At 2.5 days/month, you’d have accrued 20 days. Your employer must pay for all of them.
Is leave encashment taxable in the UAE?
No. There is no personal income tax in the UAE.
Key Takeaways
- Leave encashment = (Basic salary ÷ 30) × unused leave days
- No minimum service period — accrues from day one (2.5 days/month)
- Completely separate from — and in addition to — gratuity
- Cannot be forfeited — must be paid or carried over
- Employer must settle within 14 days of contract end
- Applies on resignation, termination, or contract expiry
Official Government Resources
| Authority | Link |
|---|---|
| MOHRE – Labour Laws | mohre.gov.ae |
| UAE Government Portal – Annual Leave | u.ae |
| MOHRE – Labour Complaints | mohre.gov.ae/complaints |
| DIFC Employment Law | difc.ae |
| ADGM Employment Regulations | adgm.com |
Already know your unused days? Try our free Leave Encashment Calculator — instant results based on UAE Labour Law 2022.