What Is Leave Encashment?
UAE Leave Encashment Calculator, Leave encashment is the cash payment your employer must make for annual leave days you accrued but did not use before your employment ended. It is a legal entitlement separate from gratuity, and must be included in your final settlement within 14 days of your last working day.
Need to calculate gratuity? Use our free calculator
Many UAE employees focus entirely on gratuity when leaving a job and overlook this second payment — which can amount to thousands of dirhams, especially if you have been with the same employer for several years.
The Leave Encashment Formula
Under Federal Decree-Law No. 33 of 2021, unused annual leave is paid at your basic daily salary rate:
Leave Encashment = (Basic Monthly Salary ÷ 30) × Unused Leave Days
Leave encashment is calculated on basic salary only — just like gratuity. Housing allowance, transport, and other allowances are excluded.
Worked Example
Priya resigns after 3 years with a basic salary of AED 10,000 and 22 unused leave days.
- Daily rate: 10,000 ÷ 30 = AED 333.33
- Leave encashment: 333.33 × 22 = AED 7,333
This is paid in addition to her gratuity — not instead of it.
How Annual Leave Accrues
Under UAE Labour Law, private sector employees accrue annual leave at 2.5 days per month of service. After one full year, this equals 30 days. Leave begins accruing from your very first day of employment, including during probation.
| Months Worked | Leave Accrued (Days) |
|---|---|
| 3 months | 7.5 days |
| 6 months | 15 days |
| 12 months (1 year) | 30 days |
| 24 months (2 years) | 60 days |
| 36 months (3 years) | 90 days |
Annual Leave vs Privilege Leave: Is There a Difference?
No. In UAE Federal Labour Law, there is a single statutory annual leave entitlement of 30 days per year. The term “privilege leave” is used by some companies following South Asian HR conventions but refers to the same entitlement. The encashment formula is identical regardless of what your HR department calls it.
Who Is Eligible for Leave Encashment?
Any private sector employee in the UAE who leaves employment with unused annual leave days is entitled to encashment, regardless of:
- Whether they resigned or were terminated
- Whether they have completed one year of service (leave accrues from day one)
- Contract type (limited or unlimited)
Unlike gratuity, there is no minimum service period for leave encashment. If you worked 4 months and have 10 unused leave days, your employer must pay you for those 10 days.
Leave Encashment vs Gratuity: Key Differences
| Leave Encashment | Gratuity | |
|---|---|---|
| What it covers | Unused annual leave days | Years of service |
| Minimum service | None (accrues from day 1) | 1 full year |
| Formula | (Basic ÷ 30) × unused days | 21/30 days per year |
| Affected by resignation? | No | Yes (unlimited contracts only) |
| Payment deadline | 14 days from last working day | 14 days from last working day |
Can Your Employer Force You to Take Leave Instead of Paying?
Employers can schedule annual leave during the notice period to reduce the number of unused days at exit. However, they cannot retroactively change past leave records or refuse to pay for days that were genuinely unused. If your employer claims you used all your leave but you have no record of this, request a leave balance statement in writing.
What If Your Employer Refuses to Pay?
Non-payment of leave encashment is illegal. Steps to take:
- Request a written breakdown of your final settlement from HR
- Cross-check with your leave balance records
- Send a written demand citing Federal Decree-Law No. 33 of 2021
- File a complaint with MOHRE (call 800 60 or use the online portal)
- MOHRE will mediate; unresolved cases go to the labour court
Calculate Your Leave Encashment
Use our free UAE Leave Encashment Calculator to get an instant figure based on your basic salary and unused days. No sign-up required.
To calculate your gratuity as well, use our UAE Gratuity Calculator. Both payments together make up the bulk of your final settlement.
Frequently Asked Questions
Does leave encashment count as income for tax purposes?
The UAE has no personal income tax, so leave encashment is received in full with no deductions.
If I take 15 days of leave in my final month, does that reduce my encashment?
Yes. Encashment is based on unused days at the time you leave. Leave taken during your notice period reduces the remaining unused balance and therefore the encashment amount.
Can I negotiate a lump sum instead of taking leave?
In principle, employees should take their annual leave during employment. However, if you and your employer agree to settle unused leave in cash at the end of employment, this is the norm in practice and fully legal.
Based on Federal Decree-Law No. 33 of 2021. This article is for informational purposes only and does not constitute legal advice. For disputes, contact MOHRE or a qualified UAE employment lawyer.