We are often asked by employers if an employee can carry unused annual leave to the following year or if he has the possibility to get untaken annual leave encashed. To answer this question, it is needed to study the work contract, the company police (if any), the free zone regulations (if any) and the UAE Labor Law.
1. Carrying annual leave to the following year
Can an employee take unused annual leave to the next year?
If situations arise that the employee is unable to take his annual leave (for example important work needs to be done), the annual leave that cannot be taken in one year, can be taken forward to the next year. Nevertheless Art. 78 UAE Labor Law says that the worker may not be required to work during the annual leave for more than once within two consecutive years. That means also that annual leave cannot be carried forward for more than two years. After this period of two years, any unused annual leave expires.
However, the annual leave carried forward will be the first to be used when leave is taken in the next year. There are no regulations in the UAE Labor Law saying that for example unused annual leave must be taken during the first quarter of the following year. But keep in mind that the regulations of your work contract or the company police can determine this differently.
Art. 78 UAE Labor Law: The worker shall receive a basic wage and a housing allowance, if any, for the days of the annual leave. Should the work circumstances require that the worker work during his total annual leave or a part thereof, and should the leave during which the worker worked is not carried forward to the next year, the employer must pay the worker the wage thereof, in addition to a leave allowance for the days of work, equal to his basic wage. In all cases, the worker may not be required to work during the annual leave for more than once within two consecutive years.
2. Encashment of unused annual leave during the employment
How is the encashment of unused annual leave calculated during the employment?
Art. 78 UAE Labor Law also makes it clear, that if the employee needs to work during his annual leave (cannot take annual leave), the employer has to pay him his unused leave days during his employment with the rate of his basic salary. Therefore, the encashment of the unused leave days is calculated by the basic salary only without any allowances like transport, housing etc.
3. Paying of unused annual leave after termination
How is unused annual leave calculated after termination?
If the employment contract has been terminated, following the notice period, the calculation of the unused annual leave is different. Art. 79 UAE Labor Law explains that unused annual leave will be calculated based on the employee’s salary at the end of his period of service. This includes also the allowances for transport, housing etc. Therefore, the calculation of unused annual leave after termination will be on full salary including allowances.
Art.79 UAE Labor Law: The worker shall be entitled to receive the any sums for accrued annual leave days should he be dismissed or should he leave work after the duly determined notice period. Such payment shall be calculated on the basis of the wages paid to the worker at the time of such leave.
The employee can take forward his annual leave up to two years. The annual leave carried forward will be the first to be used when leave is taken in the next year.
The difference between the calculation of payment of an employee's encashed annual leave and the payment of unused annual leave at the end of service is in the basic of the calculation. Encashed annual leave is calculated on the basic salary only. Unused annual leave at the end of service is paid at a rate of full salary including all allowances.
A plausible reason could be that it makes a difference if an employee volunteers not to take his annual leave and get it encashed or if he has no opportunity and is unable to take his annual leave because of a termination. Another reason for calculating the encashment of unused annual leave during the employment with the basic salary only is that the employee should not encash his annual leave in general but uses the annual leave days for relaxation.
Please keep in mind that according to Art. 76 UAE Labor Law the employer can determine the commencement of the annual leave. Therefore, after a termination and during the notice period an employer can require that the employee takes his unused annual leave during the notice period.
Art. 76 UAE Labor Law: The employer may determine the date of the commencement of the annual leave, and may divide it if necessary to two or more periods. The division provision shall not apply to the leave of youths.