A transport allowance that forms part of a contractual wage cannot be withheld during annual leave under Federal Decree-Law No. 33 of 2021, the UAE’s principal employment law, because the law defines the wage an employee is owed during leave to include both basic salary and all contractual allowances.
The question arises frequently when employers split a headline salary figure into a basic component and several allowances, including a transport allowance. Some employees accept such offers without realising the structure can affect entitlements beyond the monthly pay cheque.
What UAE law says about transport allowance annual leave pay
Article 29(1)(a) of the law entitles an employee to 30 days of paid annual leave for each completed year of service. Article 29(6) states plainly: ‘The employee shall be entitled to the wage for the period of his annual leave.’
The definition of ‘wage’ in Article 1 of the same law is broad. It covers ‘the Basic Wage plus allowances, whether in cash or in kind, prescribed for the Employee under the Employment Contract or this Decree-Law,’ and expressly includes allowances given for effort exerted, hazards encountered, cost of living, and other reasons.
‘Basic Wage’, by contrast, is defined separately as the wage specified in the employment contract paid in return for work, and does not include any other allowances or benefits in kind. The two terms are not interchangeable, and the UAE Legislation portal’s text of the Decree-Law makes clear that leave pay is calculated on the full wage, not the basic wage alone.
A transport allowance set out in the employment contract therefore forms part of the contractual wage and must be included in annual leave pay. An employer cannot argue that the allowance covers only the cost of commuting and so lapses when the employee is not travelling to work: the law’s definition of wage does not permit such a carve-out where the allowance is prescribed in the contract.
Where the calculation does change: leaving a job with unused leave
There is one scenario where allowances drop out of the calculation entirely. Under Article 29(9) of the Decree-Law and Article 19(2) of Cabinet Resolution No. 1 of 2022, the executive regulation of the employment law, any cash equivalent paid for unused annual leave days upon termination or resignation is calculated on the basic wage only, not the full wage.
That distinction matters for anyone negotiating a salary structure with a large allowance component: while the allowance counts during leave taken within employment, it does not count towards the encashment value of leave days not taken before departure.
The law also specifies the grounds on which deductions from wages are lawful. According to WageIndicator’s summary of UAE deductions rules, permitted deductions under Article 25 cover items such as loan repayments, overpayment recovery, pension contributions, disciplinary fines, and court-ordered amounts. Withholding an allowance because an employee is on annual leave does not fall within any of those categories.
For employees reviewing a new offer letter, the practical test is whether each allowance appears in the employment contract as part of the wage. If it does, it travels with the employee on leave. If a contract is structured so that certain payments are discretionary or conditional on attendance, the position may differ, and specific legal advice would be needed before signing.
The Ministry of Human Resources and Emiratisation handles complaints related to wage non-payment. Employees who believe an allowance has been improperly withheld during leave can file a claim through the ministry’s labour dispute resolution process before any case proceeds to court.
