Carrying over and buying leave in the United Arab Emirates
Reviewed by Mellow Editorial Team, HR & payroll content team
Employers in the UAE can carry over unused annual leave or pay it out in lieu, but neither is automatic — both depend on what the employment contract or company policy says, within limits set by Federal Decree-Law No. 33/2021.
What the law actually guarantees
Every employee who has completed one year of service is entitled to 30 calendar days of paid annual leave per year. For employees who have not yet completed a year, leave accrues on a pro-rata basis from day one.
The law does not set a maximum carry-over figure, nor does it mandate a specific "use it or lose it" policy. That space is deliberately left to the employer and employee to agree on — either in the contract or in a written company policy.
Carrying over unused leave
An employee can carry unused leave into the following year if the employer agrees. In practice, most companies document this in an HR policy that sets a cap — commonly 30 days — on what can be rolled over. Anything above that cap is either forfeited or paid out, depending on what the policy says.
Carry-over arrangements need to be handled carefully for two reasons.
First, accumulating large leave balances creates a growing liability on your books. Each day of accrued leave sits on the balance sheet as a payable, calculated at the employee's current basic wage rate. If salaries rise between accrual and payment, the liability grows accordingly.
Second, if an employee resigns or is terminated with a significant leave balance outstanding, you are legally required to pay it all out. That can produce an unexpectedly large final settlement.
A practical approach is to set a carry-over cap in writing, require employees to take carry-over leave within the first quarter of the following year, and flag large balances in your regular payroll review.
Buying out leave (payment in lieu)
UAE law permits an employer to pay an employee for unused annual leave instead of granting the time off, but only if the employee agrees and the arrangement is documented. You cannot unilaterally substitute cash for leave without the employee's consent.
The payment is calculated on the employee's basic wage for the number of days being bought out. It does not include housing allowance, transport allowance or other supplements unless your contract explicitly defines "basic wage" more broadly — which is worth checking before you process any payment.
One important nuance: an employee cannot waive their right to take leave entirely. The law is designed to ensure rest is actually taken. Buying out leave should be an exception, not a systematic substitute for actual time off. Relying on it routinely as a scheduling fix exposes you to potential claims and creates a culture that discourages employees from taking the leave they are entitled to.
For WPS purposes, any leave payment in lieu is processed through the Wage Protection System in the same payroll cycle as the agreement is made, or on final settlement if the employee is leaving.
Leave during the notice period
When an employee resigns or is terminated, any accrued and unused leave must be settled in the final pay. The employer can either require the employee to take the leave during the notice period — thereby using up accrued days — or pay it out as a lump sum. Both options are lawful; the choice normally sits with the employer unless the contract specifies otherwise.
If the employee is terminated without notice (or with payment in lieu of notice), the leave balance is paid out alongside the end-of-service gratuity, the final month's salary, and any other entitlements.
What a sound leave policy should cover
Given how much flexibility the law leaves to employers, having a written policy is not optional in any meaningful sense. A workable policy should set out:
- Accrual rate — how leave builds up monthly or annually
- Carry-over cap — the maximum days that roll into the next year
- Carry-over deadline — when rolled-over leave must be taken by
- Approval process — how leave requests are submitted and authorised
- Buyout conditions — the limited circumstances under which cash in lieu will be paid
- Final settlement calculation — how outstanding leave is valued on exit
Consistency matters. If your policy treats employees differently without a documented reason, you create grounds for a complaint to the Ministry of Human Resources and Emiratisation. Keep records of leave taken, carry-over balances and any buyout agreements for a minimum of five years, which aligns with standard document-retention practice in the UAE.
For companies managing leave across multiple countries, the administrative complexity compounds quickly — how Mellow runs payroll across six countries on one platform explains how a centralised approach can reduce that burden without losing local compliance.
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