When your employment ends in the UAE — whether through resignation, termination, or the expiry of a limited contract — your employer is required by law to pay you for any annual leave days you have accrued but not used. This payment is called leave encashment. It is separate from gratuity and must be paid alongside your final salary settlement.
Leave Encashment Calculator
Step 2: Leave encashment = Daily rate × Unused leave days
UAE law: Leave accrues at 2.5 days/month. After 1 year, full entitlement is 30 calendar days per year.
Based on UAE Federal Decree-Law No. 33 of 2021. Results are indicative. Gratuity is separate — use our gratuity calculator.
Leave Encashment Formula Under UAE Labour Law
The formula used to calculate leave encashment in the UAE is straightforward:
Leave Encashment = (Basic Monthly Salary ÷ 30) × Unused Leave Days
This is based on your basic salary only — it does not include housing allowance, transport allowance, or any other benefits, unless your employment contract explicitly states otherwise.
Worked Example
Basic salary AED 10,000/month, 18 unused leave days:
- Daily rate: AED 10,000 ÷ 30 = AED 333.33
- Leave encashment: AED 333.33 × 18 = AED 6,000
Privilege Leave Encashment Calculation
Privilege leave (also called earned leave) is a term used primarily by companies following an Indian or South Asian payroll tradition, or by firms in specific free zones. Under UAE Federal Labour Law, there is no legal distinction between annual leave and privilege leave — both refer to the same 30-day entitlement per year. The encashment formula is identical:
Privilege Leave Encashment = (Basic Salary ÷ 30) × Unused Privilege Leave Days
Annual Leave Entitlement Under UAE Labour Law
| Service Period | Leave Entitlement |
|---|---|
| Less than 1 year | Pro-rata basis (2.5 days/month) |
| 1 year or more | 30 calendar days per year |
Who Is Eligible for Leave Encashment?
- Employees on unlimited contracts who resign or are terminated
- Employees on limited contracts at the end of the contract period
- Employees terminated without cause
- Employees who resign
Domestic workers are governed by Federal Law No. 10 of 2017 and have separate entitlements.
Leave Encashment vs Gratuity: Key Differences
| Leave Encashment | Gratuity | |
|---|---|---|
| What it covers | Unused annual leave days | Years of service reward |
| Formula | (Salary ÷ 30) × unused days | 21 days' salary/year (first 5 years) |
| Minimum service | Accrues from day one | 1 year continuous service |
| Affected by resignation? | No — always payable | May be reduced |
You are entitled to both after one year of service. Use our Gratuity Calculator to calculate your gratuity separately.
When Must Your Employer Pay?
Your employer must settle all outstanding payments — including leave encashment — within 14 days of contract termination. If delayed, file a complaint with MOHRE via the MOHRE app, mohre.gov.ae, or calling 800-60.
Frequently Asked Questions
Can I encash annual leave while still employed?
In some cases, yes. With mutual agreement and in writing, employees can encash a portion of unused leave while still employed.
Is leave encashment taxable in UAE?
No. The UAE has no personal income tax, so leave encashment is not taxed.
What happens to unused leave if I resign?
Your employer is legally required to pay for all accrued, unused annual leave when you resign — regardless of notice period.
What is the difference between annual leave and privilege leave?
Under UAE Federal Labour Law, there is no legal distinction. "Privilege leave" is a term used by companies following Indian HR conventions or those in free zones.
Can my employer refuse to pay leave encashment?
No. It is a statutory right. If your employer refuses, file a labour complaint with MOHRE.
Does housing or transport allowance count?
Standard UAE Labour Law calculates encashment on basic salary only. If your contract explicitly includes allowances, that term applies.
Key Points to Remember
- Leave encashment = (Basic salary ÷ 30) × unused leave days
- Separate from — and in addition to — gratuity
- 30 calendar days/year after 1 year of service
- Under 1 year: pro-rata encashment applies
- Employers must settle within 14 days of contract end
- No income tax in UAE
Last updated: 2025. Based on UAE Federal Decree-Law No. 33 of 2021. This guide is for informational purposes only and does not constitute legal advice.
Related: UAE Gratuity Calculator | Limited vs Unlimited Contract Guide