Leave encashment in UAE

An employee may be allowed to include leave encashment as an element of their remuneration package under the tax laws. In most cases, leave encashment consists of an additional payment made by the company in place of accrued but unused leave time. These should be liable for taxation if any of them turn into wages.

The entire sum of a leave encashment received by an employee while they are still working qualifies as taxable income and counts in their earnings from salary. This means that, if they are still working for the company, this leave encashment counts as part of the wage and it will be taxed.

On the other hand, the leave encashment can be received at the time of termination. Depending on the employee's category, the taxes of leave encashment paid after retirement or resignation may vary. For instance, government workers’ leave encashment is exempt from tax. However, for non-government workers, encashment is partly taxable.

The employee's income and the amount of leftover leave days are typically taken into account when determining how much leave can be redeemed under the policy. The maximum amount of days that may be redeemable under the policy is frequently set by the employer and can depend on elements like managing resources and the workforce and making sure that the company continues to operate effectively. The employer decides if a worker qualifies for leave encashment.