How to Calculate Accrued Leave Pay upon Termination (Article 111)

Q: What legal article guarantees the payment for unused annual leave upon termination?

**Article 111** of the **Saudi Labor Law** guarantees the worker’s right to receive wages for any **accrued and unused leave days** upon leaving employment.

Q: Which specific wage figure is used as the basis for calculating accrued leave pay?

The calculation is based on the worker’s **Actual Wage** (Basic Wage **plus all due increments and allowances**) as defined in **Article 2** of the Saudi Labor Law.

Q: What is the minimum annual paid leave entitlement for a worker during the first five years of service?

A worker is entitled to **not less than twenty-one (21) days** of **paid annual leave** for each of the **first five years** of service.

Q: When does the minimum annual leave entitlement increase to 30 days?

The entitlement increases to **thirty (30) days** per year once the worker completes **five consecutive years** of service with the same employer.

Q: How is the daily wage calculated for the purpose of leave encashment?

The **daily wage** is calculated by dividing the **Actual Monthly Wage** by **30 days**, as this is the standard definition of a ‘month’ under the Saudi Labor Law.

Q: Is compensation due for partial years of service when calculating accrued leave?

Yes. The worker is entitled to payment for **unused leave** corresponding to **partial years of service**, calculated **proportionally** to the period worked.

Q: What is the maximum deadline for the employer to pay the accrued leave wages?

Accrued leave pay forms part of the **final settlement under Article 88**, which must be paid within: **One week (7 days)** if the **employer** terminates the contract. **Two weeks (14 days)** if the **worker resigns**.

The payment for unused annual leave, commonly called leave encashment, is a mandatory financial component of every final settlement in Saudi Arabia.
This right is guaranteed by Article 111 of the Saudi Labor Law (SLL), which requires employers to compensate workers for all unused leave upon termination of employment.
The calculation follows the statutory leave accrual rates in Article 109 and must use the worker’s Actual Wage as defined by law.

The Legal Mandate: Article 111 and the 21/30-Day Rule

The SLL ensures that annual leave cannot be forfeited at the end of service. The value of payment depends on two core provisions:

1. Payment Mandate (Article 111)

If a worker leaves employment without using their accrued leave, the employer must pay the equivalent wage for those unused days.
This applies to both full unused leave entitlements and proportional accruals for incomplete service years.

2. Leave Accrual Rates (Article 109)

Service Period	Minimum Annual Paid Leave Days Accrued
First five consecutive years	21 days per year of service
After five consecutive years	30 days per year of service

These statutory rates form the foundation for calculating the final encashment value.

Defining the Wage and Step-by-Step Calculation

Accrued leave pay is based on the worker’s Actual Wage, which includes the Basic Wage and all fixed, regular allowances (as defined in Article 2).

Step 1: Determine the Daily Wage

To compute the daily rate, divide the monthly Actual Wage by 30 days (the SLL standard month):

\text{Daily Wage} = \frac{\text{Actual Monthly Wage}}{30}

👉 Understand what fixed allowances are included in the Actual Wage →

Step 2: Calculate Total Accrued Leave Days (Proportionality)

Account for full years of service plus proportional leave for any partial year.
The SLL uses a 360-day year (12 months × 30 days) as the calculation base:

\text{Leave Days (Partial Year)} = \frac{\text{Days Worked in Partial Year}}{360} \times \text{Annual Entitlement (21 or 30)}

Step 3: Calculate Final Payout

\text{Accrued Leave Pay} = \text{Total Accrued Days} \times \text{Daily Wage}

Calculation Example: Service with Proportional Years

Parameter	Detail	Calculation	Value (SAR)
Actual Monthly Wage	SAR 10,000	–	–
Daily Wage	$10,000 ÷ 30$	–	≈ 333.33
Leave Rate	21 days/year (service < 5 years)	–	–
Leave Days (3 Full Years)	$3 × 21$ days	–	63.00 days
Leave Days (8 Partial Months)	$\frac{8}{12} × 21$ days	–	14.00 days
Total Accrued Days	$63 + 14.00$	–	77.00 days
Final Accrued Pay	$77 × 333.33$	–	≈ SAR 25,666.41

In this example, the worker’s unused leave pay entitlement is approximately SAR 25,666.41.

Mandatory Payment of Final Dues

Accrued leave pay forms part of the final settlement regulated under Article 88 of the SLL.

Payment Deadline: Employers must settle all final dues within
- 1 week (if the employer terminates the contract), or
- 2 weeks (if the worker resigns).
  👉 Review the 1–2 Week Payment Deadline Rule →
Priority of Payment: This amount is treated as a privileged debt, ranking above most other obligations in case of employer insolvency or liquidation.

Conclusion

Accrued leave pay is a legally protected, non-negotiable right for every worker in Saudi Arabia. Employers must calculate and pay for all unused leave days based on the worker’s actual wage rate, including proportional time for partial years of service.
Timely payment within the Article 88 deadlines is essential to avoid penalties and ensure compliance with Saudi labor standards.

Any unresolved disputes or questions must be formally directed to the relevant Saudi authorities for official clarification and binding decisions.

Frequently Asked Questions

What legal article guarantees the payment for unused annual leave upon termination?

**Article 111** of the **Saudi Labor Law** guarantees the worker’s right to receive wages for any **accrued and unused leave days** upon leaving employment.

Which specific wage figure is used as the basis for calculating accrued leave pay?

The calculation is based on the worker’s **Actual Wage** (Basic Wage **plus all due increments and allowances**) as defined in **Article 2** of the Saudi Labor Law.

What is the minimum annual paid leave entitlement for a worker during the first five years of service?

A worker is entitled to **not less than twenty-one (21) days** of **paid annual leave** for each of the **first five years** of service.

When does the minimum annual leave entitlement increase to 30 days?

The entitlement increases to **thirty (30) days** per year once the worker completes **five consecutive years** of service with the same employer.

How is the daily wage calculated for the purpose of leave encashment?