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Unused annual leave encashment under new UAE Labour law: what you need to know

Federal Decree-Law No. 33 of 2021 on the Regulation of Labor Relations, which will take effect on 2 February 2022 and replace the Old Law, was released on 15 November 2021. The New Law is the first significant revision to the UAE’s federal employment and labor law in forty years. Except for those headquartered in the financial free zones, the DIFC and ADGM, the New UAE Labour Law has the same scope of application as the Old Law and applies to employers and workers in the private sector in the UAE (which have their own employment laws).

The goal of this New Law, according to the Ministry of Human Resources and Emiratization (MHRE), is to promote workers’ rights and unite the labor force. However, the New Law significantly increases the duty on companies to amend not just their employment contracts, rules, or handbooks, but also their work practices.

Provision relating to Unused Annual Leave Encashment under New UAE Labour Law

Is it possible for a worker who hasn’t utilized all of their annual leave to request for the unused annual leave encashment of those remaining days? The new UAE Labour Law and subsequent decrees issued by the Ministry of Human Resources and Emiratization (MOHRE) set out certain requirements that must be satisfied in order for an employee to take advantage of this option.

Employees having accumulated yearly leave may apply to be “paid in lieu of leave according to the Establishment bylaws and as provided by the Executive Regulations of this Decree-Law,” according to Federal Decree Law No. 33 of 2021, Article 29(8) of the new UAE Labor Law.

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Here is a full explanation of what Clauses 8 and 9 of Article 29 say:

Annual Leave- Clauses 8 and 9 of Article 29 of the UAE Labor Law

Unless the employee requests to carry over or be compensated in place of leave in accordance with the Establishment bylaws and as stated by the Executive Regulations of this Decree-Law, the employer may not restrict the employee from utilizing his accumulated annual leave for more than two years.

No matter how long it is, a worker is entitled to payment for the days of leave he did not use if he quits the job before using it. The employee is entitled to leave pay for the fractions of the year in accordance to the duration of service, and the same is computed on the basis of the basic salary. An employee has the right to 30 calendar days of annual leave each year in the UAE. This complies with Article 29(1) (a) of UAE Labour Law.

For unused annual leaves, an employee can be eligible for “cash in lieu.” This computation is based on the employee’s base monthly compensation. If the employee decides not to use the yearly leave, they might jointly decide on receiving compensation from the company in its place.

According to Article 19(1) of Cabinet Resolution No. 1 of 2022, an employee may carry over a maximum of half of his annual leave to the following year or agree with his employer to be paid in lieu of it based on his wage at the time of annual leave entitlement, subject to the provisions of Article 29(8) and (9).

A worker is also permitted to carry over half of their yearly leave to the next year.

An employee cannot work for an employer for two years in a row without receiving an annual leave. According to Article 29(8) of the Employment Law, “The Employer may not prevent the Employee from using his accrued annual leave for more than (2) two years, unless the Employee wants to carry it over or be paid in lieu of leave in accordance with the Establishment bylaws and as specified by the Executive Regulations of this Decree-Law,” this is true.

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Provision under Cabinet Resolution No. (1) Of 2022 regarding unused Annual Leave encashment

In addition to this law, MOHRE also released Cabinet Resolution No. (1) Of 2022, which states that a worker “may carry forward not more than half of the annual leave to the following year, or he may agree with the employer to receive a cash allowance thereof, according to the wage he receives at the time of his entitlement to the leave.”

Therefore, if your company’s regulations permit it or if you and your employer have an arrangement for getting cash in place of accrued annual leave, you may profit by taking this action. Here is a thorough breakdown of the provisions made in this respect by the Cabinet Resolution:

Carrying forward annual leaves or receiving cash compensation therefor: CABINET RESOLUTION NO. (1) OF 2022, ARTICLE (19).

According to Article (19) of the Cabinet Resolution No. 1 of 2022, which addresses the carrying over of annual leaves or the receipt of cash compensation therefor:

  1. The employee may carry over no more than half of his or her annual leave to the next year, or he or she may agree with the employer to receive a cash allowance in lieu of the leave, based on the wage the employee was earning at the time of the leave’s eligibility.
  2. Upon termination of employment, the employee will receive a cash allowance equal to the basic wage for the remaining time he is legally entitled to take off for yearly leave.


According to the aforementioned legal restrictions, an employee may be eligible for the unused Annual Leave Encashment if both the employee and employer agree to it. Additionally, the cash in lieu entitlements will be determined by the employee’s basic wage as of the date the applicable annual leave is due if they have not taken any annual leaves for a number of years or more.

For any query pertaining to Unused Annual Leave Encashment under New UAE Labour Law, don’t hesitate to contact our labour lawyers at HHS Lawyers and Legal Consultants.

Hazim Darwish

Hazim Darwish, is a Senior Partner of HHS Lawyers in UAE. Practicing law for almost a decade, he has in-depth knowledge on UAE legislation with particular expertise on legal drafting, contract drafting, labor disputes, family law, and regulatory compliance for business organizations. Hazim Darwish also provides counsel on legal rights and obligations in the UAE to clients, including individuals and businesses subject to investigation or prosecution under Criminal Law by major regulators.