Holiday pay calculations in the United Arab Emirates
Reviewed by Mellow Editorial Team, HR & payroll content team
Holiday pay in the UAE is straightforward by design: employees receive their normal basic wage (plus any fixed allowances, depending on how the employment contract is written) for every day of annual leave they take. There is no separate "holiday pay rate" that differs from regular pay.
Who is entitled to annual leave
Under Federal Decree-Law No. 33/2021, every employee who has completed one year of continuous service is entitled to 30 calendar days of paid annual leave per year. Employees who have not yet reached the one-year mark accrue leave on a pro-rata basis — two and a half days for each completed month of service.
Part-time employees also accrue annual leave, calculated in proportion to the hours they work relative to a comparable full-time role. The same law covers domestic workers under a separate implementing resolution, so the entitlement is broad.
What counts as "holiday pay"
The UAE Labour Law does not use the phrase "holiday pay" in the way some other jurisdictions do. What the law guarantees is that during annual leave, the employee continues to receive their wage — they are not on unpaid leave.
In practice, what gets paid out depends on how the contract is structured:
- Basic wage only: Some contracts define leave pay as the basic wage alone, excluding allowances such as housing, transport or food.
- Total wage: Other contracts — and some internal HR policies — pay the full package including allowances during leave. Where the contract specifies this, it is binding.
- Lump-sum advance: An employer may pay leave salary in advance before the employee travels, which is common practice in the UAE and is not prohibited by law.
The law sets the floor: at minimum, the employee must receive at least their basic wage for each day of leave. Any contractual term that improves on that minimum is enforceable.
Public holidays and how they interact with annual leave
The UAE observes a set of national and Islamic public holidays each year. These are separate from the 30-day annual leave entitlement — a public holiday falling during a period of annual leave does not consume one of those 30 days, and should be added on or treated as an additional paid day off, depending on how the employer structures the leave period.
If an employee is required to work on a public holiday, they are entitled to a substitute rest day or additional pay, as stipulated in the employment contract or company policy. The specific rate for public holiday work is typically set out in the contract; where it is not, the employer and employee should agree in writing before the work takes place.
Paying out unused leave
When employment ends, any accrued but untaken annual leave must be paid out as a cash settlement. The calculation uses the basic wage (or total wage, if the contract specifies that) at the rate applicable on the last day of employment — not the rate at the time the leave was accrued. This leave encashment is paid alongside the end-of-service gratuity and final salary.
It is worth noting that annual leave pay and end-of-service gratuity are calculated on different bases. Gratuity uses basic wage only, at 21 days per year for the first five years of service and 30 days per year after that, capped at two years' total basic pay. Leave encashment follows whatever wage definition the contract uses for leave purposes. Running these two calculations separately avoids common errors in final settlement processing.
Practical points for payroll
A few things that trip up payroll teams in the UAE:
WPS compliance: Leave salary — whether paid in advance or as part of the regular cycle — must pass through the Wage Protection System. A lump-sum advance payment for leave still needs to be recorded and transmitted correctly through WPS to avoid a compliance flag.
Islamic holiday dates: Public holidays tied to the Islamic calendar shift each year and are confirmed by official announcement, sometimes with short notice. Build flexibility into payroll schedules so late-confirmed holiday dates do not delay processing.
Calculating daily rate: When you need to express pay as a daily figure — for leave encashment or pro-rata calculations — divide the monthly wage by 30. The UAE Labour Law uses a 30-day month as the standard divisor, regardless of how many calendar days are in the actual month.
Multi-country teams: If you manage employees in the UAE alongside staff in other jurisdictions, leave and holiday pay rules differ significantly across borders. A consistent payroll process that accounts for local rules in each country reduces the risk of underpayment. How Mellow runs payroll across six countries covers how that works in practice.
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