How to Handle Leave Salary Calculation in the UAE

Understanding leave salary calculation in the UAE is crucial to maintaining a good relationship with your employees.

An important part of a healthy employer-employee relationship is rewarding employees’ hard work with paid time off. In the specific context of leave, this means allocating employees with a set number of vacation days (and payment, where it applies) that they are entitled to by law. 

Mishandling leave salary calculation can lead to strained relationships and unwanted (plus expensive) litigations. Also, giving employees leave days beyond what they are entitled to (without any justification) can lead to a loss of productivity in the company. 

Therefore, to maintain a good relationship with your workforce and avoid the two situations above, you and your HR department need to understand what the law says about leave and how to best handle leave salary calculation in the UAE. 

In this article, we’ll consider: 

1. Introduction to leave in the UAE
2. Understanding leave salary calculation in the UAE
3. Other types of leave in the UAE labour law
4. The best way to manage employee data

In the last section, we’ll introduce you to a smart payroll solution that will give you complete visibility of your workforce data so that you can easily manage leave compensation. 

1. Introduction to leave in the UAE

Leave is official permission that you as an employer grant to your employees to miss work for a set, pre-agreed number of days. This leave can be a paid one (such as annual leave) or an unpaid one (such as the Hajj leave). 

In the UAE, leave days are currently regulated by Federal Law No. 33 of 2021, which took effect on Feb. 2, 2022 and has repealed the UAE Federal Law No. 8 of 1980. Based on this law, the leave available to UAE workers include: annual leave, sick leave, maternity leave, parental leave, disability leave, compassionate leave, study leave, compensatory leave, Hajj leave. 

Whilst leave might, on the surface, seem unproductive from the employer’s side of things, it actually “promotes good physical and mental health in the workplace and improves people’s work-life balance, which reduces stress and unscheduled days off,” according to Hello Monday, an HR management firm. The culmination of these advantages is higher, not less, productivity. 

Therefore, to stimulate more productivity, to adhere to labour laws, maintain good relationships with employees, and avoid litigation, it’s important your HR team understands and judiciously applies relevant laws regarding leave.

Having understood what leave is, let’s now look at how to calculate leave salary in the UAE. We’ll start with the most important one: the annual leave. 

2. Understanding leave salary calculation in the UAE

Annual leave salary calculation in the UAE can be complicated but we’ll simplify it below. 

To start with, if a full-time employee has worked for a year in your company, he’s/she’s eligible for 30 days paid annual leave. 

However, if the full-time employee has only worked for six months, he or she is entitled to only 2 days leave per month until they have worked for a year.

For part-time employees, you will calculate annual leave based on what’s specified in their employee contract. The UAE Labour Law does not have a prescribed number of days as it does for full-time workers. Nevertheless, in dealing with part-time workers, you must adhere to the Executive Regulations of the Labour Law and calculate annual leave based on working hours. 

How is annual leave salary calculated in the UAE?

There are certain rules guiding annual salary leave calculation that you must be aware of: 

1. You must pay the employee full salary for work done immediately before the leave kicks off. 
2. Also, you must pay the employee for the annual leave before the leave begins.
3. The annual leave calculation in the UAE must be based on full salary: the employee’s basic salary plus housing allowance plus any other normal allowance applicable in the normal working month. In essence, the last salary received by the employee. 

In addition to annual leave calculation, you must also be aware of some rules that apply on the administrative side of things:  

1. The employee can decide when to begin his or her leave, but he must give at least a 10-day notice.
2. For reasons relating to the demands of work, the employer can change the date the annual leave begins or divide it (e.g.,15 days this month and 15 days next month). 
3. If the employer sets the date when annual leave begins, he or she must give a month’s notice to the employee.
4. An employee can carry over annual leave for a year into another year provided there is an agreement with the employer.
5. However, the employer must not prevent the employee from using his or her accrued annual leave for more than two years (the annual leave of 2015, for example, must be used within the next two years, 2016-2017.)
6. If any accrued leave exists at the termination of the employee’s contract, he or she must receive payment for them based only on basic salary (rather than full salary, which includes allowances).
7. No termination of contract can occur during annual leave.
8. Public holidays occurring during the annual leave are also part of the leave (no extra days beyond the 30 days). 
9. Likewise, if an employee falls sick during annual leave, there won’t be extra leave days. Nevertheless, the company must take care of the employee provided they are notified.
10. If the employee delays coming back to work after the annual leave, there will be no payment for those extra days.
11. If you require your employee to work during annual leave, you must pay him/her for that work (in addition to the salary already paid for the annual leave).          

3. Other types of leave in the UAE Labour Law

In addition to annual leave, there are other types of leave that HR departments must understand when learning how to calculate leave salary. They include: 

Sick Leave 

During an employee’s probationary period, he or she is not eligible for any paid sick leave. Paid sick leave becomes operational three months after the probationary period.

The law currently caps sick leave at a total of 90 days per each year of service (the leave can be taken at once or spread across the year): 

• First 15 days: Full pay
• Next 30 days: Half pay
• Subsequent days: No pay

In this case (and others) where paid leave is less than or more than 30 days, you need to convert an employee’s salary to a daily wage (divide it by 30) and then multiply it by the number of days of the leave to arrive at the leave compensation.

For an employee whose monthly salary is AED 7,000, the daily wage is AED 233. Compensation for a 15 days’ leave will therefore be approximately AED 3,500 (AED 233 x 15).    

Maternity Leave  

The Federal Law No. 33 of 2021 has increased maternity leave from 45 days to 60 days:

• First 45 days: Full pay
• Next 15 days: Half pay

Also, employees will be entitled to maternity leave for stillborn babies and those that die after death. Likewise, mothers who suffer from pregnancy-related illnesses can take 45 days unpaid leave.

Parental Leave

Unlike maternity leave, parental leave applies to both the mother and the father. They are both entitled to five days paid leave in the six months following the childbirth. For the mother, parental leave is in addition to maternity leave.

Disability Leave

Mothers of babies with disabilities are entitled to an additional 30 days of paid leave and 30 days of unpaid leave (in addition to maternity leave).

Compassionate Leave

Employees are eligible for five days paid leave for the death of a spouse and three days paid leave for the death of a parent, child, sibling, grandchild, and grandparent. 

Study Leave

Employees with more than two years of active duty in a company can request for 10 days of study leave. However, the law is silent on whether the study leave is paid or not. It, therefore, depends on your company’s policies. 

Compensatory Leave

If you require some employees to work during public holidays, you have to compensate them. The compensation is calculated as compensatory leave (that is, additional time off) plus a bonus equal to 50% of remuneration, or a bonus equal to 150% of remuneration. 

Hajj Leave

Every employee interested in Hajj is allowed to take a 30 days unpaid leave. However, this leave is applicable only once during the employee’s entire period of service. 

Though leave salary calculation in the UAE can seem complicated, once you review and write down the above legal requirements into employee contracts and policies, it’ll be easy to apply. 

However, in addition to understanding these policies, you and your HR team will need an easy way to manage the payroll process, including tools to keep track of each employee to see if you are paying them the right amount at the right time for their paid leave. 

The only thing worse than refusing to give employees the leave they are eligible for is forgetting to pay them for it. 

4. The best way to manage employee data

To solve this problem, your HR and finance department will need complete visibility of your workforce data so you can monitor who’s going for leave, who’s on leave, and what leave they are entitled to. 

NOW Money allows you to manage and monitor all your employees’ salary payments from a single platform. Using this tool, you will have complete visibility of your workforce payroll data and can take crucial decisions relating to leave compensation. 

From the NOW Money Dashboard, you can upload your salary information files (SIF). 

Once uploaded, you can view every piece of data for each employee from the employees’ tab. 

From this tab, you can manage and monitor your employees’ payroll. 

Once you have uploaded money to your account through the “Load corporate account” tab, you can start creating payment orders for leave compensation (annual leave salary and other paid leave), regular salary, and bonuses, among other payments.

For WPS payments, NOW Money only charges AED 0.50 per record on uploaded SIF (irrespective of the frequency of payment), and non-WPS payments are free of charge. 

NOW Money helps your team to ensure that they pay all your employees smoothly, cheaply, and flexibly, thereby maximising benefits to both employers and employees.

We also provide bank accounts and WPS payroll cards for your employees. This is especially important for employees who don’t qualify for bank accounts in the GCC region. 

With NOW Money, you can pay your employees easily, as well as give them a new mobile bank account that’ll allow them to make convenient international payments home to friends and family.  

Takeaways

• Leave can improve the productivity of employees to the benefit of both employees and employers. 

• Full-time employees in the UAE are entitled to an annual 30 days’ paid leave. 

• Other types of leave applicable based on the UAE labour law include sick leave, maternity leave, parental leave, disability leave, among others. 

• To ensure you are compensating employees for leave (where it applies), you need a smart payroll solution where you can authorise payments.