Leave Accruals

What is meant by annual leave entitlements?

Annual leave entitlements are defined as the monetary amounts an employee is entitled to in exchange for unused annual leave days. The Saudi Labor Law guarantees employees the right to paid annual leave. When an employee’s employment ends and they are unable to take this leave, they are entitled to a cash payment in lieu of it.

Why is it important to provide a cash payment for accrued annual leave upon termination of employment?

Settling the annual leave balance upon the employee’s termination of service and providing a cash allowance for it is of great importance to both the employee and the employer, as it offers the following benefits:

• Motivating Employees and Increasing Productivity: The financial compensation provides employees with an additional incentive to work hard and diligently, knowing that their rights are protected and safeguarded. Furthermore, the prospect of receiving a monetary payment equivalent to the value of unused annual leave enhances their sense of security, which positively impacts their productivity.
• Protecting Rights and Ensuring Legal Compliance: Settling leave entitlements ensures that employees receive what they are owed upon termination of their employment contract, which reinforces their sense of fairness and respect. It also ensures the company’s compliance with laws and regulations, thereby preventing violations, lawsuits, and legal disputes.
• Building Trust: A fair settlement of an employee’s vacation entitlements fosters mutual trust between employees and the employer, and enhances the company’s reputation as a fair workplace that adheres to laws and regulations.

The Legal Framework for Annual Leave Entitlements

The Saudi Labor Law regulates an employee’s annual leave, how it may be deferred, and the conditions for receiving the corresponding benefits in Articles 109, 110, and 111 of the Law, which stipulate the following:

Duration of Annual Leave

According to Article 109, an employee is entitled annually to paid leave of no less than twenty-one days for the first five years of employment, increasing to thirty days for those who have completed five consecutive years of service.

Taking Leave

An employee must take his or her leave in the year it is earned; it may not be waived, nor may the employee receive a cash allowance in lieu of taking it during the course of employment. The employer must schedule these leave periods in accordance with the requirements of the business or grant them on a rotating basis to ensure the continuity and smooth operation of the business, and must notify the employee of the specific date for taking the leave at least thirty days in advance.

Article 110 provides that, with the employer’s consent, an employee may postpone annual leave—or part thereof—to the year following the year in which it is earned. Furthermore, management or the employer may postpone an employee’s leave beyond the end of the year in which it is earned for a period not exceeding ninety days if work circumstances and requirements so necessitate.

If the circumstances requiring the postponement of the leave continue beyond that period, the company must obtain the employee’s written consent for such a postponement; in any case, the postponement may not extend beyond the end of the year following the year in which the leave was earned.

Vacation Pay

Vacation pay is paid in full in advance before the employee begins his or her vacation, pursuant to Article 109 of the Labor Law.

Receipt of Cash Compensation for Vacation Days

Pursuant to Article 111, an employee is entitled to receive annual leave pay if he leaves employment before taking the annual leave to which he was entitled, for the period for which he did not take leave, or for portions of the year in proportion to the time he spent working during that period.

When Is a Worker Entitled to Annual Leave Benefits?

An employee is entitled to receive payment for unused annual leave in the following cases:

• Termination of the employment contract: Whether due to the expiration of the contract term, the employee’s resignation, or wrongful termination, without the employee having taken their annual leave or any portion thereof.
• Transfer of the employee from one company to another: Whether within the same group or to a new company, the employee’s annual leave balance at the previous company must be settled by determining the number of remaining days and paying the employee financial compensation for them, or transferring the remaining balance to the new company if possible.
• Death of the employee: After the employee’s death, the employee’s heirs are entitled to claim settlement of the employee’s annual leave balance as part of the death benefits settlement.

How to Calculate Annual Leave Entitlements?

Annual leave compensation is calculated by determining the number of leave days remaining to the employee at the end of their employment, then multiplying that number by the employee’s actual daily wage to obtain the amount due. This process ensures that the employee receives financial compensation for the leave days they did not take.