Unused annual leave: how the encashment is calculated

After the gratuity, unused leave is usually the largest line in a final settlement — and the one most often settled on a number nobody has checked. Article 29 sets the rules, and they are more generous than many leave policies suggest.

The entitlement

Article 29(1) of Federal Decree-Law No. 33 of 2021 gives a worker annual leave on full wage of not less than:

• 30 days for each year of service, once service passes a year
• 2 days for each month where service is more than six months and less than a year
• leave for parts of the last year, where service ends before the leave balance has been used

Part-time workers earn leave in proportion to their actual working hours, with the period set out in the contract (Article 29(2)). Public holidays that fall within a period of annual leave count as part of the leave unless the contract or company rules are more generous (Article 29(7)).

What happens to unused leave when you leave

Three points in that sentence matter. Accrued leave is paid out however long the balance. Part of a leave year is paid in proportion. And the payment is on the basic wage, not the full package — even though leave taken during employment is paid at full wage under Article 29(1).

The calculation

Daily basic wage × untaken days. The decree-law counts a month as 30 days (Article 67), so the daily basic is the monthly basic divided by 30 — the same daily figure used for the gratuity.

Example 1 — a simple balance

Monthly basic 8,000 AED; 12 days untaken at the end of the employment.

• Daily basic: 8,000 ÷ 30 = 266.67 AED
• 12 × 266.67 = 3,200 AED

Example 2 — part of the final leave year

Same basic. The leave year runs from each work anniversary, 1 January. Employment ends on 1 May, four months into the new leave year, with none of that year's leave taken. Five days were also carried forward from the previous year with the employer's approval.

• Current year, pro rata: 30 × 4 ÷ 12 = 10 days
• Carried forward: 5 days
• Total 15 days × 266.67 = 4,000 AED

Example 3 — the first year

Employment ends after nine months, with no leave taken. Service is more than six months and less than a year, so Article 29(1)(b) applies: 9 months × 2 days = 18 days. At a 6,000 AED basic, 18 × 200 = 3,600 AED. No gratuity is due at nine months, but the leave is.

Carry-over: where the arguments are

The decree-law expects leave to be taken in the year it is earned (Article 29(4)) and allows it to be carried forward only "with the approval of his employer and in accordance with the applicable regulations at the establishment" (Article 29(5)). It also says the employer "may not prevent the worker from benefiting from his annual leave accrued for more than two years", unless the worker chooses to carry it forward or take a cash allowance under the establishment's rules and the executive regulations (Article 29(8)).

That produces the classic exit dispute: the employee has a large balance; the employer says leave not taken in time was forfeited under company policy. Article 29(9) points strongly towards payment of accrued leave on exit "regardless of the leave duration". Where it gets genuinely contested is leave the employer can show it offered and the employee declined, or a written policy the employee accepted. If you are carrying a large balance, the best time to deal with it is while you are still employed: ask in writing to take it, or to have the balance confirmed.

Leave and probation

An employer may agree to let a worker take leave from their balance during probation. If the worker then does not pass probation, Article 29(3) preserves their right to be compensated for the remainder of their balance. Paid sick leave, by contrast, does not arise during probation (Article 31(2)).

Leave and the notice period

Two interactions are worth knowing:

• If notice is given while the worker is on leave, Article 35 says the notice period does not start until the day after the scheduled return, unless both parties agree otherwise.
• Taking leave during the notice period is a matter for agreement. If leave is taken, those days are paid at full wage as leave and reduce the balance to be encashed.

Beyond the federal law

• Domestic workers are paid cash in lieu of unused leave on their last remuneration, not on a basic wage (Decree-Law No. 9 of 2022, Article 10(5)). See domestic workers.
• DIFC and ADGM have their own leave rules and their own regulations on payment in lieu at termination.
• Contracts may be more generous than Article 29 — encashment on full wage, more days, more carry-over. The statute is the floor.

Questions

Related

• Every line you are owedLeave is one line of several
• Leaving before one yearWhere leave is worth almost as much as the gratuity would have been
• What counts as basic salaryThe wage leave pay is calculated on

Published 2026-10-18 and reviewed against Federal Decree-Law No. 33 of 2021. General guidance, not legal advice — see the disclaimer.