Understanding Leave Encashment in UAE
When you leave your job in UAE, you get TWO separate payments: gratuity AND leave encashment. This guide explains how to calculate your unused leave money.
Need to calculate gratuity? Use our free calculator
What is Leave Encashment?
Leave encashment means getting paid cash for your unused annual leave days when you finish employment.
UAE Annual Leave Rules:
- Employees working 1+ years: 30 days paid leave per year
- Employees working 6-12 months: 2 days leave per month
- Employees working under 6 months: Zero paid leave
Leave Encashment Calculation Formula
Encashment = (Basic Salary ÷ 30) × Number of Unused Leave Days
Important: Like gratuity, encashment is based on BASIC SALARY only, not total salary.
Real Example 1: Simple Case
Omar works 3 full years. Basic salary: AED 12,000.
He took 20 days leave each year. When he resigns, he has:
Year 1: 30 – 20 = 10 unused days
Year 2: 30 – 20 = 10 unused days
Year 3: 30 – 20 = 10 unused days
Total unused: 30 days
Encashment:
(12,000 ÷ 30) × 30 = AED 12,000
Gratuity (separate calculation):
(12,000 ÷ 30) × 21 × 3 = AED 25,200
Total Omar Receives:
Gratuity AED 25,200 + Encashment AED 12,000 = AED 37,200
Can You Carry Forward Leave?
Yes, but with limits:
- Maximum carry forward: 30 days to next year
- Any leave beyond 30 days from previous year expires
- Exception: If employer refused your leave request (must be in writing)
Example 2: Carry Forward Scenario
Fatima works 2 years. Basic salary: AED 10,000.
Year 1: She didn’t take any leave = 30 days unused
Year 2: She took 15 days = 15 days unused from Year 2
At end of Year 2, what can she en-cash?
30 days (Year 1) + 15 days (Year 2) = 45 days total
BUT maximum encashment at end of service = only what accumulated, so:
45 days can be en-cashed
Encashment:
(10,000 ÷ 30) × 45 = AED 15,000
What If You Used More Leave Than Entitled?
If you took advance leave and leave before completing the year:
Example:
You work 8 months. You took 20 days leave.
Your entitlement: 8 months × 2 days = 16 days
You took 4 extra days
Employer can deduct:
(Basic Salary ÷ 30) × 4 days from your final settlement
Public Holidays Don’t Count
Important: UAE public holidays (Islamic New Year, Eid, National Day etc..) are separate from annual leave. These don’t reduce your 30 days entitlement.
Sick Leave is NOT En-cashed
Unused sick leave days are NOT paid when you leave. Only annual leave is en-cashed.
UAE sick leave entitlement:
- First 15 days: Full pay
- Next 30 days: Half pay
- After 45 days: No pay
Leave Encashment for Limited vs Unlimited Contracts
Rules are SAME for both contract types. Leave encashment doesn’t depend on who ended the contract.
Can You Take All Leave Before Resigning?
Legally, no. Employer can refuse leave during notice period. Better to:
- Negotiate with employer to take some leave during notice
- Get remaining leave as cash encashment
Many employers prefer paying encashment rather than having employees on leave during notice period.
How to Calculate Your Leave Balance
Step 1: Calculate total leave earned
Years worked × 30 days per year
Step 2: Count days you actually took
Check your leave records/HR system
Step 3: Subtract
Total earned – Days taken = Days to en-cash
Step 4: Calculate money
(Basic Salary ÷ 30) × Unused Days
Complete Settlement Example
Hassan resigns after 4 years. Basic salary: AED 15,000.
He has 25 unused leave days. Unlimited contract.
Leave Encashment:
(15,000 ÷ 30) × 25 = AED 12,500
Gratuity (worked 5+ years, so full):
(15,000 ÷ 30) × 21 × 4 = AED 42,000
Total Settlement:
AED 12,500 + AED 42,000 = AED 54,500
Your Rights
- Employer MUST pay leave encashment
- Payment within 14 days of last working day
- Based on basic salary (like gratuity)
- Cannot be reduced or refused
Calculate Both Payments
Our UAE calculator shows your gratuity. For leave encashment, use this formula: (Basic Salary ÷ 30) × Unused Days.
Always request a full settlement breakdown from HR showing gratuity and leave encashment separately.