End-of-service gratuity in Saudi Arabia: Calculation guide and legal framework

Is an employee entitled to an end-of-service bonus in Saudi Arabia once the employment relationship has ended?

The Saudi Labor Law recognizes the right to receive this reward, and considers it non-transferable or non-disposable. It is also not permissible to agree to anything that contradicts the provisions of this law in a way that violates the worker's guarantees.

Given the complexity of the rules and regulations governing this aspect, and the related minute details in the method of calculating the amount due, some workers and employers may need a clear and comprehensive explanation that removes the ambiguity about the correct mechanism for calculation.

Therefore, this guide serves as a detailed reference explaining how to calculate end-of-service benefits according to the Saudi Labor Law and its implementing regulations, while also addressing frequently asked questions related to this matter.

  Abdulaziz bin Yasser Al-Anzi Law Firm

What is the end-of-service bonus?

The end-of-service gratuity in Saudi Arabia is a financial compensation that the employer is obligated to pay to the worker upon the termination of the employment contract, whether it is fixed-term or indefinite, in accordance with the regulations and conditions stipulated in the Saudi Labor Law.

This bonus is calculated based on the employee's final salary and is a monetary amount reflecting the employee's length of service, as a recognition of their efforts and compensation for their work period.

The importance of end-of-service benefits in Saudi Arabia

The end-of-service bonus in Saudi Arabia represents a legal and moral obligation that contributes to enhancing job and social stability.

The following are the main reasons why this bonus is a fundamental element of the work system:

1. Ensuring legal rights and strengthening trust between the parties to the contract, and protecting the worker from any abuse or exploitation upon termination of the employment relationship.
2. Providing financial security and living stability for the worker after the end of his service, until he moves to a new job.
3. Recognizing the value of the employee's efforts during their service, enhancing job satisfaction, and deepening their sense of belonging and loyalty to the organization.
4. To motivate job performance and productivity, and to reassure the worker that his achievements and efforts will be fairly appreciated at the end of his service.
5. Maintaining the organization’s reputation and attractiveness, demonstrating its commitment to standards of justice and social responsibility, and enhancing its image as an attractive work environment for talent.
6. Contributing to social stability by providing temporary financial support to workers, mitigating the negative effects of unemployment, and contributing to social justice.

End-of-service bonus calculation

This section explains how to calculate end-of-service benefits according to the provisions of the Saudi Labor Law and its implementing regulations, as follows:

The end-of-service gratuity is calculated based on the total length of service and the employee's final salary according to the following basic formula:

• Half a month's salary for each of the first five years.
• A full month's salary for each year after the fifth year.
• If the employee’s service period includes part of a year, the value of the end-of-service gratuity due for this period is calculated proportionally, based on the actual time spent working during the last year.

Conditions and eligibility requirements for end-of-service bonus in the private sector

The worker is entitled to the full bonus in the following cases:

1. Termination of the contract by the employer, except in cases of disciplinary dismissal stipulated in Article 80.
2. Both parties agreed to terminate the contract.
3. The contract term has expired if it is a fixed term contract.
4. The worker leaves work for one of the reasons mentioned in Article 81, such as the employer’s breach of his essential obligations, assault, or the presence of a serious danger.
5. Leaving work due to force majeure and circumstances beyond management, such as the occurrence of disasters.
6. The employee resigns within 6 months of her marriage or 3 months of giving birth.
7. An employee resigns after 10 years of service or more.

End of service in case of resignation

The worker is entitled to a partial bonus (one-third or two-thirds of the bonus) in the following cases:

1. He is entitled to one-third of the bonus in the event of resignation after service of two years to less than five years.
2. Two-thirds of the bonus is due if the person resigns after 5 years of service to less than 10 years.

Cases of ineligibility for end-of-service bonus

The worker is deprived of the bonus in the following cases:

1. Resignation before completing two years of service.
2. Disciplinary dismissal for one of the reasons mentioned in Article 80 of the Labor Law.

It is worth noting that the calculation of the end-of-service gratuity is based on the final basic salary, including fixed allowances that the employee receives regularly, excluding variable allowances such as travel and temporary housing allowances.

A practical example of calculating end-of-service benefits

If the worker's last salary was 10,000 riyals, and his service period was 7 years, then the calculation of the full bonus would be as follows:

The first five years: (10,000 ÷ 2) × 5 = 25,000 riyals. The next two years: 10,000 × 2 = 20,000 riyals. The total bonus = 25,000 + 20,000 = 45,000 riyals.

If he is dismissed by his employer, he is entitled to the full amount of 45,000 riyals.

If he resigns after 7 years – that is, between 5 and less than 10 – he is entitled to two-thirds of the amount, i.e., 45,000 x (2/3) = 30,000 riyals.

End-of-service bonus for domestic workers

Domestic workers in Saudi Arabia are also entitled to an end-of-service gratuity upon termination of their employment contract. This gratuity is calculated as one month's salary for every four years of continuous service, based on the worker's final salary at the end of the contractual relationship.

The employer is obligated to settle all the dues of the domestic worker within one week of the end of the contract if the termination of service is on the part of the employer, but if the contract is terminated on the part of the worker, the settlement must be made within two weeks.

The employer may deduct any amounts owed to the employee in lieu of legal or contractual obligations.

End-of-service benefits for foreigners

The Saudi Labor Law guarantees the principle of equality in rights and job entitlements among workers, whether they are Saudi citizens or foreign residents.

The end-of-service bonus is considered one of the basic rights regulated by the system, and the foreign worker is entitled to it according to the same provisions that apply to the Saudi worker.

The foreign worker is entitled to an end-of-service bonus upon termination of the employment relationship, whether due to dismissal, resignation or retirement, in accordance with the regulations stipulated in the Labor Law.

The bonus is calculated based on the last basic salary received by the worker. The bonus is calculated at half a month for each of the first five years, and a full month for each year thereafter. Additional months and days are calculated proportionally to the year.

If the worker’s service period is less than two years, he is not entitled to a bonus. From two years to less than five years, he is entitled to one-third of the bonus. From five years to less than ten years, he is entitled to two-thirds of the bonus. And for more than ten years, he is entitled to the full bonus.

Cases of forced resignation or resignations due to reasons beyond the worker's control are excluded, in which case the foreign worker is entitled to the full bonus.

If a foreign worker resigns within six months of her marriage or three months of giving birth, she is entitled to the full gratuity.

The difference between entitlements and end-of-service gratuity

We can say that the concept of entitlements is broader, as it includes any financial amounts due to the worker upon termination of his service.

These entitlements may include back pay, vacation allowance, or even the end-of-service bonus itself.

As for the end-of-service bonus, it is a specific amount of money paid to the worker after the end of his contract, and it is calculated based on his length of service and his final wage in accordance with the Saudi Labor Law and its Implementing Regulations.

In conclusion, you can use the end-of-service gratuity calculator service provided by the Ministry of Human Resources and Social Development. This service requires you to enter details regarding your actual salary, contract type, reason for termination of employment, and number of years/months/days of service, after which the expected amount will be displayed.

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