The UAE has introduced Federal Decree-Law No. 33 of 2021 on the Regulation of Labor Relations, which will replace the previous law and take effect on 2 February 2022. This new law, the first significant revision in forty years, aims to enhance workers’ rights and promote unity in the labor force. However, it imposes increased responsibilities on companies, including changes to employment contracts, rules, handbooks, and work practices.

Under the new UAE Labour Law, there is a provision regarding the encashment of unused annual leave:

The new UAE Labor Law allows employees with accumulated annual leave to be paid in lieu of leave, subject to certain conditions. These conditions are set out in Clauses 8 and 9 of Article 29 of the Labor Law.

Restrictions on Utilizing Accumulated Annual Leave:

Employers cannot restrict employees from utilizing their accumulated annual leave for more than two years, unless the employee chooses to carry it over or be compensated instead, in accordance with the Establishment bylaws and Executive Regulations of the Decree-Law.

Payment for Unused Annual Leave:

If an employee leaves the job without utilizing all their accrued leave, they are entitled to be paid for the remaining unused days. The payment is calculated based on the duration of service and the employee’s basic salary. According to UAE Labour Law, employees have the right to 30 calendar days of annual leave each year.

Cash in Lieu of Unused Annual Leave:

For unused annual leave, employees may be eligible for “cash in lieu” based on their monthly base compensation. If they decide not to use their yearly leave, they can mutually agree with the company to receive compensation instead.

Carrying Over Annual Leave and Cash Compensation:

Employees can carry over up to half of their annual leave to the following year, or they can agree with their employer to be compensated for unused leave. The amount of compensation is based on the employee’s wage at the time they are entitled to the leave. This is in accordance with Article 29(8) and (9) of Cabinet Resolution No. 1 of 2022.

Two-Year Limit on Annual Leave:

Furthermore, the law mandates that employees cannot work for an employer for two consecutive years without receiving annual leave.

Cabinet Resolution No. (1) Of 2022:

To clarify the provisions regarding unused annual leave encashment, MOHRE released Cabinet Resolution No. 1 of 2022, which permits carrying forward half of the annual leave to the next year or receiving a cash allowance based on the wage at the time of entitlement.

Additional Information: 

  • How to calculate the amount of cash compensation: The amount of cash compensation for unused annual leave is calculated based on the employee’s basic wage and the number of unused days. The basic wage is the employee’s regular salary, excluding any overtime pay, bonuses, or commissions. The number of unused days is the number of days of annual leave that the employee has not taken, up to a maximum of two years.
  • When can employees encash their unused annual leave?: Employees can encash their unused annual leave at any time, but they must have the consent of their employer. The employer may not unreasonably withhold consent.
  • What are the benefits of encashing unused annual leave?: There are several benefits to encashing unused annual leave. For example, it can provide employees with much-needed financial relief, it can help employees save for retirement, and it can free up time for employees to pursue other interests.
  • What are the risks of encashing unused annual leave?: There are also some risks associated with encashing unused annual leave. For example, employees may lose out on the opportunity to relax and recharge, they may miss out on the chance to bond with their colleagues, and they may not be able to take advantage of any benefits that are linked to taking annual leave, such as travel insurance or health insurance.

Conclusion:

In conclusion, employees may be eligible for encashment of unused annual leave if both the employee and employer agree to it. The amount of cash compensation will be determined by the employee’s basic wage at the time the annual leave is due, particularly if the employee has not taken any annual leaves for several years or more.

For any inquiries regarding the encashment of unused annual leave under the new UAE Labour Law, you can reach out to our labor lawyers at Sara Advocates and Legal Consultancy.