How to Process Unpaid Leave and Salary Deductions in Saudi Arabia

Unpaid leave is a common HR requirement when an employee needs time away from work but does not have sufficient paid leave available or the absence is otherwise agreed as unpaid.

For payroll teams in Saudi Arabia, processing unpaid leave requires more than simply reducing an employee's salary. HR must document the leave, verify the applicable employment rules, update attendance records, calculate the appropriate salary adjustment, and ensure that deductions are lawful and properly recorded.

Saudi Labor Law also places limits on deductions from workers' wages. Article 92 generally prohibits deductions from wages except in circumstances permitted by law or with the worker's written consent, subject to the statutory limits.

A well-designed HR and payroll process can connect leave management, attendance, salary calculations, and payroll approvals so that unpaid leave is handled consistently.

What Is Unpaid Leave?

Unpaid leave is a period during which an employee is authorized to remain away from work without receiving normal wages for the applicable period.

It can arise when:

• The employee requests additional time off.
• Available annual leave has been exhausted.
• The employer approves a special unpaid absence.
• The employee requires an extended personal absence.
• Another applicable employment arrangement provides for unpaid leave.

Unpaid leave should be formally approved rather than treated as an ordinary absence.

The employee's contract, company policy, applicable Saudi labor requirements, and the circumstances of the leave should be reviewed before approval.

Is Unpaid Leave Allowed in Saudi Arabia?

Saudi Labor Law contains specific provisions concerning unpaid leave and the consequences of extended unpaid absence.

Article 116 provides that, with the employer's approval, a worker may obtain unpaid leave for a period agreed upon by the parties. The employment contract is considered suspended if the unpaid leave exceeds 20 days, unless the parties agree otherwise.

Because the consequences can depend on the duration and circumstances of the leave, HR should not automatically treat every unpaid absence in exactly the same way.

Unpaid Leave vs. Unauthorized Absence

These two situations should be separated in the HR system.

Approved Unpaid Leave

The employee has requested leave and the employer has approved it.

Unauthorized Absence

The employee does not attend work without approved leave or another valid reason.

The payroll treatment and disciplinary implications may differ.

For example:

Situation	HR Status
Approved unpaid leave	Unpaid leave
Approved annual leave	Paid leave
Approved sick leave	Sick leave
Unauthorized absence	Absence/disciplinary review
Public holiday	Holiday
Weekly rest day	Rest day

Correct classification is important because payroll should not automatically convert every missing attendance record into an unpaid salary deduction.

Step 1: Receive the Unpaid Leave Request

The employee should submit a formal request containing:

• Employee name/ID
• Department
• Leave start date
• Leave end date
• Number of days
• Reason, where company policy requires it
• Supporting documents, if applicable
• Employee approval
• Manager approval
• HR approval

A digital workflow makes it easier to maintain an audit trail.

Step 2: Check the Employee's Leave Balance

Before approving unpaid leave, HR should check whether the employee has available paid leave.

For example:

Annual leave balance: 3 days
Requested leave: 7 days

The company may approve:

• 3 days as annual leave
• 4 days as unpaid leave

The exact treatment depends on company policy and the employee's circumstances.

Step 3: Confirm the Applicable Dates

Payroll should verify the exact unpaid-leave dates.

For example:

Leave requested: March 10–14
Working days affected: Based on the employee's work schedule

The payroll system should use the employee's actual calendar and working pattern rather than simply subtracting five calendar days.

This is especially important for employees working:

• Rotational shifts
• Six-day schedules
• Five-day schedules
• Night shifts
• Part-time arrangements
• Irregular work schedules

Step 4: Obtain Approval Before Payroll Cut-Off

Unpaid leave should ideally be approved before the payroll cut-off date.

A good workflow is:

Employee Request → Manager Approval → HR Review → Payroll Validation → Attendance Update → Salary Calculation → Payroll Approval

This reduces the risk of unexpected deductions appearing on an employee's payslip.

How Is Salary Deducted for Unpaid Leave?

The salary adjustment depends on the employee's wage structure, applicable working schedule, payroll policy, and Saudi legal requirements.

Payroll should establish:

• Monthly wage
• Applicable wage components
• Number of unpaid days/hours
• Employee's working schedule
• Applicable payroll calculation method
• Any statutory implications

The system should then calculate the appropriate unpaid-leave adjustment according to the employer's compliant payroll configuration.

Example

Suppose an employee has a monthly salary of SAR 9,000 and takes approved unpaid leave.

Payroll should not simply make an arbitrary deduction.

Instead, it should determine the appropriate daily or hourly rate under the employer's payroll methodology and applicable requirements, then apply the adjustment to the affected period.

For example, if the configured payroll calculation produces a daily rate of SAR 300 and three payable working days are treated as unpaid:

Unpaid leave deduction = 3 × SAR 300 = SAR 900
Illustrative adjusted salary = SAR 9,000 − SAR 900 = SAR 8,100

This is only an illustration. Employers should use the legally and contractually appropriate calculation method rather than assuming a universal divisor.

Should Allowances Be Deducted During Unpaid Leave?

This depends on the nature of the payment and the employment contract.

Payroll should distinguish between:

• Basic wage
• Fixed allowances
• Variable allowances
• Attendance-based payments
• Shift allowances
• Commissions
• Reimbursements
• Benefits

Not every payroll component should automatically be reduced in the same way.

The payroll configuration should therefore specify which components are affected by unpaid leave.

Unpaid Leave and Basic Salary

The basic salary is an important component of payroll calculations, including calculations involving statutory employment benefits.

However, the actual salary adjustment for unpaid leave should be based on the applicable payroll rules and employment arrangement.

HR should avoid creating a blanket rule such as:

"Every unpaid leave day equals monthly salary divided by 30."

That may not accurately reflect every employee's contractual or payroll circumstances.

Unpaid Leave and Attendance Management

Attendance software should be integrated with leave management.

For example:

Employee scheduled to work → No attendance recorded → Approved unpaid leave exists → System classifies day as unpaid leave → Payroll receives deduction information

This is better than manually reviewing every attendance exception.

What Happens When an Employee Takes Unpaid Leave Without Approval?

An employee who does not attend work without approved leave should not automatically be classified as being on unpaid leave.

HR should investigate the absence and determine the appropriate status.

Possible statuses include:

• Approved leave
• Sick leave
• Unauthorized absence
• Disciplinary absence
• Other legally recognized absence

Payroll should make deductions only after the absence has been properly classified.

Salary Deductions Under Saudi Labor Law

Saudi Labor Law regulates deductions from wages.

Article 92 provides that an employer may not deduct more than one-fifth of the worker's wage in certain circumstances, subject to the exceptions and provisions specified by law. Where multiple deductions are applicable, the law also establishes rules concerning their combined limits and enforcement.

Therefore, payroll should not treat every deduction as unrestricted.

Before applying a deduction, HR should identify:

1. The reason for the deduction.
2. Whether the deduction is legally permitted.
3. Whether employee consent is required.
4. Whether a statutory limit applies.
5. Whether supporting documentation exists.

Common Types of Salary Deductions

Depending on the circumstances, payroll may process deductions relating to:

• Approved unpaid leave
• Employee loans
• Salary advances
• Certain disciplinary deductions where legally permitted
• Employee-authorized deductions
• Statutory deductions
• Other legally recognized amounts

Each category should have its own payroll rule and approval process.

Employee Consent and Salary Deductions

Some deductions require the employee's written consent or must satisfy specific legal requirements.

HR should therefore avoid using a general "deduction" category for every adjustment.

Instead, payroll software can classify deductions as:

• Statutory
• Contractual
• Employee-authorized
• Leave-related
• Other legally permitted deductions

This creates a clearer audit trail.

Unpaid Leave and Payroll Cut-Off

Payroll cut-off dates are particularly important when unpaid leave occurs near the end of a payroll cycle.

For example:

Payroll cut-off: 20th of the month
Unpaid leave: 25th–30th

The company needs a process for determining whether the leave is:

• Included in the current payroll
• Included in the next payroll
• Adjusted through a subsequent payroll run

A payroll system can create an adjustment record rather than requiring manual salary recalculation.

Unpaid Leave Across Multiple Saudi Branches

Organizations with employees in Riyadh, Jeddah, Dammam, Makkah, Madinah, and other locations may process hundreds of leave requests.

A centralized HR platform can show:

Branch	Unpaid Leave Requests	Pending Approval
Riyadh	18	3
Jeddah	12	2
Dammam	9	1
Other branches	15	4

Managers can approve requests at the branch level while payroll maintains centralized control over salary adjustments.

Unpaid Leave for Shift Workers

Shift-based employees require additional attention.

Consider an employee working: 4 days on / 2 days off.

A five-day absence does not necessarily correspond to five scheduled working days.

Payroll should therefore calculate unpaid leave based on the employee's actual work schedule and applicable payroll rules.

This is particularly important in:

• Hospitals
• Security companies
• Hotels
• Restaurants
• Manufacturing
• Logistics
• Retail
• Construction

Unpaid Leave and Overtime

If an employee has approved unpaid leave during part of a payroll period, payroll should still process any properly approved overtime worked during the rest of the period.

For example:

Unpaid leave: 2 days
Approved overtime: 6 hours

The payroll system should keep the two calculations separate.

This prevents unpaid leave from accidentally removing legitimate overtime earnings.

Unpaid Leave and Public Holidays

Public holidays should not automatically be treated as unpaid leave simply because they fall within an employee's absence period.

HR should review:

• The employee's approved leave
• Public holiday dates
• Weekly rest days
• Applicable statutory rules
• Company policy

Saudi Labor Law contains specific rules concerning official holidays and their interaction with annual leave and other absences, so payroll should rely on the applicable statutory treatment rather than a generic deduction rule.

Unpaid Leave and Annual Leave

Unpaid leave should be kept separate from annual leave.

For example:

Annual leave: 5 days
Unpaid leave: 3 days

Payroll should preserve the employee's annual leave transaction and separately record the three unpaid days.

This makes leave balances and payroll calculations easier to audit.

Unpaid Leave and Social Insurance Records

Unpaid leave can potentially affect statutory payroll and social insurance records depending on its duration and circumstances.

HR should therefore review the applicable social insurance requirements rather than assuming that an unpaid leave transaction has no statutory effect.

Conclusion

Processing unpaid leave correctly in Saudi Arabia requires coordination between HR, attendance management, and payroll. The employer should distinguish approved unpaid leave from unauthorized absence, document the request and approval, calculate the salary adjustment using an appropriate payroll methodology, and review applicable wage-deduction and statutory requirements.

Saudi Labor Law also places important controls on wage deductions, while Article 116 specifically addresses unpaid leave and its potential effect on the employment relationship.

For organizations with large workforces or multiple Saudi branches, integrated HR and payroll software can make the process more reliable by connecting leave requests, attendance, payroll calculations, approvals, and employee payslips.

A structured process helps employers reduce payroll errors, maintain transparent employee records, and ensure that unpaid leave is processed consistently.

Approved unpaid leave can flow directly into payroll through InnBuilt Attendance Software, helping Saudi Arabia employers apply salary deductions consistently while maintaining transparent balances and authorization records.