UAE Annual Leave: The Employer's Guide to Entitlement, Accrual and Leave Salary

An employee resigns after two years and eight months. On their last day they ask to be paid for the leave they never took. Your HR spreadsheet says eleven days. They say nineteen. Neither of you can prove it, because the spreadsheet has been rebuilt twice, one of the rebuilds started the balance at zero, and the approvals live in a WhatsApp thread that scrolled away months ago.

That gap, eight days, is worth real money. It is also the kind of disagreement that ends up at MOHRE, where the burden of proof sits with you rather than with the employee.

Annual leave looks like the simplest part of UAE employment law. Thirty days, everybody knows that. In practice it is where small businesses lose the most money to poor records, because leave is not a number you store. It is a running balance that accrues every month, gets consumed in fragments, changes when somebody joins mid-year, and has to be reconstructible years later.

This guide covers what Federal Decree-Law No. 33 of 2021 actually requires, how to calculate a balance and a leave salary in AED, where the law leaves the answer to your contract, and the records that decide a dispute.

The short answer

Under Article 29 of Federal Decree-Law No. 33 of 2021, a private-sector employee in the UAE is entitled to:

Two details in that table cause most of the confusion.

Thirty days is calendar days, not working days. A thirty-day entitlement is not six working weeks. It spans weekends. An employee taking their full annual leave is away for roughly a calendar month, not a month and a half.

The six-month band is an entitlement, not a waiting period that erases what came before. An employee at nine months has earned eighteen days under the two-days-per-month rule. They do not wait until month twelve and then jump to thirty.

Everything else in this guide follows from those two lines.

How the balance actually accrues

The number that matters day to day is not the annual entitlement. It is the balance on a given date: earned, minus taken, as of today.

For an employee past their first year, thirty days a year works out to 2.5 days per month. That is the figure to accrue with.

Accrual runs from the hire date, not from January. This is the single most common modelling error in UAE SME payroll. A company that resets everyone's leave year on 1 January is calculating something the law does not describe.

Take an employee hired on 1 October. By 31 December they have three months of service, which is below the six-month band, so their statutory entitlement is zero. They do not receive a fresh thirty days on 1 January. Their first entitlement appears at the end of March, when six months of service earns them 12 days, and the 30-day figure only applies once they complete a full year the following October.

If your contract or policy defines a common leave year for administrative convenience, that is permitted, but the underlying statutory entitlement is still measured against each employee's own service. The policy sits on top of the law. It does not replace it.

Leave is a ledger, not a number

The reliable way to hold this is as an append-only ledger: one row per event, never an overwritten total.

Storing a single "leave_balance" field and editing it in place is what produces the resignation-day argument in the opening of this guide. When the number is wrong you have no way to find out where it went wrong. When it is a ledger you can point at the row.

A worked example in AED

Fatima joined a Dubai trading company on 1 September 2024. Her monthly package is:

She takes 12 days of leave in July 2025 and resigns effective 30 April 2026.

Step 1: total service. 1 September 2024 to 30 April 2026 is 20 months.

Step 2: leave earned. The first 12 months earn 30 days. The remaining 8 months earn 8 x 2.5 = 20 days.

Step 3: leave taken. 12 days in July 2025.

Step 4: the daily rate for encashment. Unused leave paid on termination is calculated on basic salary. Fatima's basic is AED 9,000 a month.

Step 5: the payment.

Now the comparison that matters. Had the company paid out on her total package rather than basic salary:

The difference is AED 6,967 on one employee. Multiply that by a team of fifteen and an incorrect basis is a five-figure annual error, in either direction. Overpaying is expensive. Underpaying is a MOHRE claim.

A second case: the employee who has not reached a year

The first example is a leaver. The more frequent question is the one from an employee still inside their first year.

Omar joined an Abu Dhabi consultancy on 1 June 2025. His basic salary is AED 7,500 and his total package is AED 12,000. In March 2026 he asks for ten days off. Does he have them?

Step 1: service completed. 1 June 2025 to 1 March 2026 is 9 months.

Step 2: which band applies. He is past six months and short of twelve, so the two-days-per-month rule applies.

He has 18 days. Ten days is comfortably within his balance, and refusing on the grounds that he "has not completed a year" would be wrong.

Step 3: what he is paid. He remains employed, so this is leave taken in service, not encashment. He receives his normal salary for the period, based on the full package of AED 12,000 rather than basic alone.

The trap in this case is arithmetic rather than law. If Omar takes his ten days and then stays past his first anniversary on 1 June 2026, his entitlement becomes 30 days for that completed year. The ten days he already used come out of the same running balance. They are not a separate pre-anniversary allowance that resets. Systems that model the first year as a distinct bucket, then start a fresh 30 at the anniversary, quietly hand the employee ten extra days.

Leave during the notice period

This question arrives with almost every resignation, and the answer is more settled than employers expect.

Annual leave continues to accrue during the notice period, because the employment relationship is still live. An employee serving a 30-day notice keeps earning at the same rate until the last day.

Whether they can take leave during notice is a different question, and it is usually governed by the contract. Many UAE employers require that notice is served working rather than on leave, on the reasonable ground that the purpose of notice is handover. If your contracts are silent on this, add a clause: it removes an argument at the exact moment relationships are most brittle.

What you cannot do is treat the notice period as a way to burn down a balance the employee did not agree to use. Directing an employee to take accrued leave during notice, without a contractual right to do so, converts a cash entitlement into time off unilaterally. If the contract gives you that right, exercise it in writing. If it does not, pay the balance out.

The distinction that catches people out

There are two different payments and they use two different bases:

An employee on leave in June should see their normal June salary. An employee leaving with a balance is paid basic for those days. Getting these the same way round is the error worth checking your last payroll run for.

Carry-over and encashment

This is where the law hands the answer to your contract, and where most SME policies are silent.

The position under the Decree-Law and its Implementing Regulations:

• An employer may not prevent an employee from taking accrued annual leave for more than two consecutive years. Leave cannot be indefinitely deferred by refusing every request.
• Carry-over of unused days into the following year happens by agreement, according to the employment contract and company policy. There is no automatic statutory roll-forward of an unlimited balance.
• On termination, the employee is entitled to payment for unused annual leave regardless of how long the employment lasted.

The practical consequence: if your contract and handbook say nothing about carry-over, you have no documented position to point at when an employee claims four years of accumulated leave. Write the policy down. State the cap, state the deadline by which carried days must be used, and state what happens to days beyond it.

A workable policy for a UAE SME looks like this:

Have it reviewed against your specific contracts before you adopt it. The point is not this exact table. The point is that a written position exists.

Where the law defers to your contract

Some questions do not have a single statutory answer, and pretending otherwise is how employers end up confidently wrong.

Public holidays falling inside a leave period. Guidance differs on whether an official holiday inside an annual leave block is consumed as leave or added back to the balance. Practice varies and the employment contract or company policy generally governs. Decide your position, write it into the policy, and apply it consistently to everyone. Consistency is what a MOHRE inspector looks for.

Sick days during annual leave. Same category. Set the rule in writing.

Whether leave accrues during unpaid leave. Set the rule in writing.

For anything that touches a specific employee's contract, a specific free zone's employment regulations, or a termination that is already contentious, take advice from a UAE employment lawyer rather than a blog. Free zones including DIFC and ADGM operate their own employment regimes, and DIFC in particular differs from the onshore position in ways that matter.

What poor records actually cost

The financial exposure is not the leave itself. Leave is an earned benefit you were always going to pay. The exposure is being unable to prove what was taken.

In a MOHRE dispute over unpaid leave, the practical burden of evidence sits with the employer. If the employee says they took eight days and you say twenty, the question is what you can produce. A signed leave application, a dated approval, a payroll record consistent with both. A spreadsheet that anyone in HR could have edited last week is weak evidence.

Three ways SMEs lose this argument:

1. The balance was rebuilt. Someone migrated systems, or the spreadsheet corrupted, and the opening balance was entered as a guess.
2. Approvals were informal. Leave was agreed in a WhatsApp message or a corridor conversation and never recorded anywhere durable.
3. Nobody recorded partial days. Half days and single days went untracked, and over three years the drift is substantial.

Each is a record-keeping failure rather than a legal one, which is why the fix is a system rather than a lawyer.

Start free with SmallERP and keep the leave ledger where it cannot be quietly edited.

Common mistakes

Resetting everyone's leave year on 1 January. Statutory entitlement accrues from each employee's own hire date. A calendar-year policy can sit on top of that for administration, but the underlying accrual is per-employee.

Paying termination encashment on the full package. Unused leave on termination is calculated on basic salary. The worked example above showed a difference of AED 6,967 on a single mid-level employee.

Treating 30 days as 30 working days. It is 30 calendar days. Six working weeks is materially more leave than the law requires, and once you have granted it as custom and practice it is difficult to withdraw.

Ignoring the 6 to 12 month band. An employee at nine months has an entitlement of 18 days. Telling them they have none until their first anniversary is wrong, and it is the kind of error that turns a routine resignation into a claim.

Letting balances run unbounded. Without a written carry-over policy, an employee can arrive at termination with a balance covering several years. The law prevents you blocking leave for more than two consecutive years, so an unbounded balance is usually evidence that requests were being refused.

Storing a balance instead of a ledger. An overwritten total cannot be audited. When it is questioned you have nothing to show.

How SmallERP handles this

Leave in SmallERP is an append-only ledger rather than a number that gets edited. Every accrual, request, approval, and deduction is a row with a date and an actor, so the balance on any past date can be reconstructed. That is exactly the artefact a MOHRE dispute asks for.

Accrual runs from each employee's hire date, so the 6-to-12-month band and the post-anniversary 2.5 days per month are applied per person rather than by calendar year.

Requests and approvals live in the same record as the balance, so an approved day is evidenced by the approval that created it rather than by a message in a thread that has since scrolled away.

Because payroll and HR are the same system, leave salary uses the components you have already configured, and encashment on termination draws on basic salary rather than the full package by default, which is the distinction the worked example showed costing AED 6,967 on one employee.

None of this removes the need for a written leave policy. It removes the need to reconstruct history from a spreadsheet at the worst possible moment.

Start free with SmallERP