UAE annual leave — accrual, carry-forward and encashment explained

Annual leave looks like the simplest thing HR administers and produces more disputes than almost anything except gratuity. The rules themselves are short. The trouble is that a leave balance is a running total kept over years, and a running total is only as good as the entries behind it.

What accrues, and when

Under Federal Decree-Law No. 33 of 2021, Article 29:

• 30 calendar days a year once an employee has completed one year of service.
• Two days per month for an employee with more than six months and less than a year.
• Below six months, there is no statutory entitlement.

Two details in that do most of the damage.

It is calendar days, not working days. A fortnight off starting on a Monday consumes 14 days of entitlement, not 10. Weekends and public holidays falling inside the leave are part of it. Systems configured for working-day leave — which is what most off-the-shelf templates assume — quietly over-credit every employee, every year.

The free zones are different. DIFC and ADGM state annual leave in working days, and fewer of them: 20 working days rather than 30 calendar. That is not a smaller version of the same rule, it is a different unit. On a five-day week, 20 working days is four calendar weeks — so the two are closer than the numbers suggest, and an entity that applies the mainland figure inside a free zone is wrong in both directions depending on how the leave falls.

If you run a group with entities in more than one of these, the rule has to follow the entity rather than the company. That is why Core HR attaches the leave policy to the legal entity and not to the employer as a whole.

What it is paid at

Annual leave is paid at the full wage — the whole package, not the basic component.

This catches people out because gratuity works the other way: end-of-service is calculated on basic salary under Article 51. Same employee, same month, two different wage bases, and nothing on a payslip announces which one is being used. It is the single most common error in UAE payroll, and it is worth its own article — see basic salary versus full wage.

Carry-forward and payment in lieu

The law allows leave to be carried into the following year, or paid in cash instead of taken, by agreement — it is not automatic in either direction. What matters practically is that your policy says which, with what ceiling, and by when an untaken balance expires or converts.

Write it down and apply it the same way for everybody. An unwritten carry-forward rule becomes a per-employee negotiation, and then a leaver arrives with three years of accumulated days nobody agreed to. Check the current text of Article 29 and your own free-zone regulations before you fix the numbers in a policy document — this is the part that gets amended.

On termination, untaken annual leave is paid out. That figure comes from the leave ledger, which brings us to the actual problem.

The two places a balance goes wrong

The ledger was rebuilt. Almost every company that has moved off a spreadsheet has, at some point, typed opening balances into a new sheet. From that moment the balance is an assertion rather than a calculation, and nobody can reconstruct it. When a long-serving employee leaves and disputes their encashment, there is nothing to show them.

Accrual stopped matching service. Unpaid leave, secondments and mid-year transfers between entities all change what should have accrued. If accrual runs off a flat "30 days each January" rather than off the service record, it drifts — slowly, invisibly, and always in the same direction.

Both are fixed the same way: accrue from the employee's own service dates, keep every entry, and never let the balance be a number somebody typed. A leave ledger that goes back to the joining date is the only version of this that survives a dispute.

Sources

• Ministry of Human Resources and Emiratisation — the current text of the labour law and its ministerial resolutions.
• Awareness guide for private sector companies (MOHRE).

This is a summary written for HR and payroll teams, not legal advice. Where a figure decides a payment, confirm it against the current law and your entity's jurisdiction.