The UAE is one of the most structured markets when it comes to labour laws, and leave salary is a key part of employee compensation.
Organizations operating in the UAE must follow specific rules when calculating and paying leave salary, whether for annual leave or final settlements. You have to get it right to stay compliant, avoid penalties, and ensure employee satisfaction.
This article explains everything you need to know about leave salary calculation in the UAE, updated for 2026. It’s designed to help HR professionals, finance teams, and employers manage this process with clarity.
At Yomly, we offer automated and cloud-based payroll software built for enterprise businesses in the UAE, GCC, MENA region, and global markets. You can book a free demo to see how we make leave salary and payroll management easier.
What Is a Leave Salary?
Leave salary is the amount an employee receives when they take their entitled annual leave. It ensures that employees continue to earn during their time off, as required by UAE labour law. For eligible employees, this payment must be made before or at the start of their leave period.
Components of Leave Salary:
- Basic Salary: This is the minimum component that the employee must be paid during leave.
- Allowances: Some companies also include fixed allowances such as housing or transport if stated in the contract or company policy.
- Unpaid Leave Deductions: If the employee has taken unpaid leave earlier, this may reduce the total payable amount.
Why It Matters:
Calculating leave salary correctly is important for legal compliance and financial accuracy. Mistakes can lead to employee dissatisfaction, legal disputes, or penalties during audits.
By understanding what makes up leave salary and when it must be paid, businesses can ensure they follow UAE labour law and maintain trust within their workforce.
Legal Leave Entitlements in UAE (2026)
For every full-time employee working in the UAE, the Labour Law has outlined specific rules on how much paid leave they are entitled to each year. These entitlements vary based on the employee’s length of service and contract type.
Here are the updated leave entitlements as per the UAE Labour Law, which every employer must follow to remain compliant and avoid disputes.
| Length of Service | Annual Paid Leave Entitlement |
|---|---|
| < 6 months | 0 days (not mandatory by law) |
| 6-12 months | 2 days per month (pro-rata) |
| 12+ months | 30 calendar days per year |
| Part-time/Flexible | Pro-rated based on hours worked |
1. Annual Leave After 12 Months of Service
Employees who have completed 12 months of continuous service are entitled to 30 calendar days of paid annual leave each year.
This leave must be fully paid based on the employee’s basic salary, and in some cases, regular allowances if stated in the employment contract. Employers must allow employees to take this leave every year and cannot carry it forward without mutual agreement.
2. Leave Between 6 to 12 Months of Service
Employees who have completed at least 6 months but less than 1 year of continuous service are entitled to 2 days of paid leave per month. This applies only to full-time employees and must be calculated in proportion to the number of months completed. These leave days can be accumulated if not used.
3. Less Than 6 Months of Service
Employees with less than 6 months of service are not entitled to paid annual leave. However, some companies may choose to offer paid or unpaid leave during this period as part of internal policies or employment contracts. This is not mandatory under UAE law but can be considered as part of retention practices.
4. Part-Time or Flexible Workers
For employees working part-time or under flexible contracts, leave entitlements are calculated on a pro-rata basis.
The number of days depends on the number of hours worked compared to a full-time schedule. Employers must apply the same legal framework proportionally, and the calculation must be clearly defined in the employment agreement.
These entitlements apply to private sector employees under the UAE Labour Law and must be followed carefully to ensure compliance. Leave policies that offer better benefits than the law are allowed, but not less.
Updates To The Articles As of 2026:
- Employers cannot deduct salary during annual leave (full pay is required) except in very limited legally-specified cases.
- Commissions and bonuses are generally excluded unless the contract expressly includes them.
How to Calculate Leave Salary
Here is the basic approach to calculating leave salary as per UAE Labour Law. The calculation depends on whether the employee is entitled to just the basic salary or the basic salary plus fixed allowances, depending on what is stated in their employment contract.
Formula A: Based on Basic Salary Only
Leave Salary = (Basic Salary ÷ 30) × Number of Leave Days
This is the most commonly used formula. It applies when only the basic salary is considered for paid leave.
Formula B: Based on Basic Salary + Fixed Allowances
Leave Salary = ((Basic Salary + Eligible Allowances) ÷ 30) × Number of Leave Days
This formula is used if the employment contract or company policy specifies that fixed allowances (like housing or transport) are part of the leave salary calculation.
Here are the steps to calculate the leave salary for your employees:
1. Confirm Leave Eligibility and Duration
Start by checking if the employee is eligible for paid leave under UAE Labour Law. Employees who have completed 12 months of service are entitled to 30 calendar days of paid annual leave. If the employee has worked between 6 to 12 months, calculate 2 days of leave per month.
For part-time staff, use a pro-rata calculation based on hours worked. Always verify the leave request dates and ensure the leave balance is available before proceeding.
2. Identify Salary Components Included in Calculation
Check the employment contract or internal HR policy to see if the leave salary should be calculated based on basic salary alone or include fixed allowances. Common allowances include housing, transport, or other contractual benefits.
Do not include performance bonuses, commissions, or variable pay unless specifically mentioned in the contract. This clarity ensures you follow legal and contractual obligations and avoid disputes.
3. Apply the Appropriate Leave Salary Formula
Once eligibility and components are confirmed, apply the correct formula:
- Use Formula A if only basic salary is counted.
- Use Formula B if fixed allowances are included.
Manually calculating these values for each employee can become time-consuming and error-prone, especially across teams or locations. Yomly’s payroll software automates this process by applying the right formula based on contract terms, leave type, and salary structure. This saves time and improves accuracy across HR and finance teams.
4. Process Payment Within the Legal Timeframe
UAE Labour Law requires employers to pay the leave salary before the employee starts their leave or within the regular payroll cycle. Failing to do so can lead to penalties or employee dissatisfaction.
Once the amount is calculated, initiate payment through a compliant payroll process, ideally through a WPS-supported system if operating in the UAE. Maintain proper records of the transaction for audits and internal reporting.
Updates On This Section As of 11th Jan 2026:
- Employers should provide reasonable notice and schedule leave in consultation with employees, even though the law doesn’t specify a formal notice period for annual leave.
- Unused leave can be carried forward with mutual consent (and in some interpretations, cash-compensated if not taken), but generally cannot accumulate indefinitely.
This is practice-oriented but aligns with how MOHRE and courts view annual leave disputes.
Leave Salary on Resignation or Termination
When an employee resigns or is terminated, they are entitled to payment for any unused annual leave they have accrued during their period of service. This payment is part of the final settlement and must follow the rules outlined in the UAE Labour Law.
Key Points to Consider:
Eligibility: The employee must have completed at least 6 months of continuous service to be eligible for paid leave. If they resign or are terminated after this period, the employer must compensate them for the unused leave days.
Calculation: The leave salary for unused days is calculated using the basic salary only, unless the contract specifically includes allowances.
The standard formula applies: Leave Salary = (Basic Salary ÷ 30) × Number of Unused Leave Days
Partial Year: If the employee worked less than a full year, calculate leave accrual based on the number of months completed. For example, if they worked for 9 months, they are entitled to 18 days of leave (2 days per month).
Final Settlement Timing: The leave salary must be paid along with other dues like end-of-service gratuity and any unpaid wages. This should happen at the time of the employee’s final exit, as required by UAE Labour Law.
Documentation: Maintain accurate leave balance records and ensure proper documentation of approval, leave encashment, and final settlement details.
Failing to settle unused leave salary correctly can lead to legal disputes or complaints filed with the Ministry of Human Resources and Emiratisation (MOHRE). Automating these calculations using a payroll system like Yomly can reduce risk and help ensure compliance.
Also Check Out: Gratuity Amount Calculation In UAE
Payment Timing and Compliance Rules
In the UAE, the timing of leave salary payments is clearly defined under Federal Decree-Law No. 33 of 2021 and must be strictly followed to remain compliant.
When Should Leave Salary Be Paid?
- Before the Leave Begins: Employers are required to pay the full leave salary before the employee starts their annual leave. This allows the employee to manage personal expenses during their time off.
- In Final Settlements: In case of resignation or termination, leave salary for any unused leave days must be paid as part of the employee’s final settlement, along with gratuity and any unpaid wages.
What Happens if Employers Delay Payment?
- Late payment or non-payment of leave salary is treated as a labour law violation. It can lead to employee complaints filed with the Ministry of Human Resources and Emiratisation (MOHRE).
- In severe cases, companies may face fines, WPS suspension, or labour permit restrictions.
Other Compliance Rules
- Leave salary must be based on calendar days, not working days.
- Employers must document all leave approvals, calculations, and payments.
- Any deductions from leave salary must be clearly justified and agreed upon in writing.
Properly managing these timelines and records is essential for staying compliant. Using a payroll platform like Yomly ensures leave salary is processed automatically and on time, reducing the risk of errors and penalties.
Important Note: There are no substantive legal changes for 2026 in the core leave salary calculation or entitlements for annual leave under UAE Labour Law. The legal framework and formulas remain the same as in 2025.
Frequently Asked Questions
1. What is the salary in the UAE?
Leave salary is the amount an employee receives as paid compensation when they take their annual leave. As per UAE Labour Law, employees are entitled to paid leave based on their length of service. This salary is usually calculated based on basic salary, and in some cases, fixed allowances like housing or transport. Employers must pay this amount before the employee begins their leave.
2. How is annual leave salary calculated under UAE Labour Law in 2026?
In 2025, the UAE Labour Law follows the standard calculation:
Leave Salary = (Basic Salary ÷ 30) × Number of Leave Days
If the employment contract allows, fixed allowances can be added to the basic salary before applying the formula. Employees who complete 12 months of service are entitled to 30 calendar days of paid annual leave.
3. Is leave salary calculated on basic salary or full salary?
By default, leave salary is calculated using only the basic salary. However, if the employment contract or company policy specifies that fixed allowances like housing or transport are to be included, then those are added to the basic salary. Variable elements like commissions or bonuses are usually excluded unless stated otherwise in the contract.
4. How many days of paid leave are employees entitled to in the UAE?
Employees are entitled to the following paid leave under UAE Labour Law:
- 30 calendar days per year after completing 12 months of service
- 2 days per month if service is between 6 to 12 months
- No paid annual leave if service is less than 6 months
- Part-time employees receive pro-rated leave based on hours worked.
5. What happens to unused leave when an employee exits?
If an employee resigns or is terminated and has unused leave, the employer must pay for those days as part of the final settlement. The calculation is based on the basic salary (unless otherwise agreed in the contract). Employers must ensure the amount is paid along with other dues like end-of-service benefits and any pending salary.
6. How can companies automate leave salary calculations in the UAE?
Companies can automate leave salary calculations by using payroll software that integrates with leave and attendance systems. Yomly offers a cloud-based payroll solution built for UAE compliance.
It automatically calculates leave salary based on contract terms, leave balances, and salary structure. It also handles WPS file generation, record-keeping, and audit logs, making payroll easier, faster, and error-free.
