An end of service calculator for Saudi Arabia applies one rule from the Saudi Labor Law: the employee receives half a month’s wage for each of the first five years of service and one month’s wage for each year after that, based on the last wage, with parts of a year counted in proportion. If the employee resigns, the amount is reduced according to the length of continuous service. This guide walks through the calculation the way a calculator does, so employers and HR teams can check the figure before paying it.
Who the end of service award applies to
The end of service award is a statutory right of private sector employees covered by the Labor Law, whether they are Saudi or non-Saudi. It becomes payable when the employment relationship ends, and it is paid on top of any outstanding wages and other final dues. A clause agreed during employment that waives the award in advance is generally void, because the Labor Law voids terms that reduce an employee’s statutory rights unless they favour the employee.
The method below does not cover government employees, who are governed by separate rules, or domestic workers, who have their own regulation. Teachers and staff in private schools are generally covered by the Labor Law, so the same method applies to them.
End of service benefits under the Saudi Labor Law
The full award under Article 84
Article 84 sets the full award, the starting point of every calculation:
- First five years: half a month’s wage for each year of service.
- Each year after the fifth: one month’s wage for each year.
- Part of a year: counted in proportion to the time actually worked.
- Wage used: the employee’s last wage.
It is paid in full when employment ends for reasons other than resignation, such as the expiry of a fixed-term contract or termination by the employer, unless the law allows termination without an award in that case.
How resignation changes the amount under Article 85
When the employee resigns, Article 85 gives a share of the full award based on continuous service:
- Less than two years: no award.
- Two years or more but less than five: one third of the award.
- Five years or more but less than ten: two thirds of the award.
- Ten years or more: the full award.
The law also sets out exceptions in which an employee who leaves still receives the full award, for example where leaving was caused by force majeure beyond the employee’s control. Check the exact conditions in the Labor Law before applying any exception.
How to calculate end of service step by step
- Confirm the service period. Count from the start date to the last working day in years, months and days, and check that service was continuous.
- Confirm the last wage. Use the documented contract on Qiwa and payroll records, and be clear which components count.
- Calculate the full award. Half a month for each of the first five years, one month for each later year, plus a proportional share for any part year.
- Apply the reason for leaving. For a resignation, take the fraction that matches the length of continuous service. Otherwise the full award applies unless the law allows it to be withheld.
- Add the other final dues. Outstanding wages and payment for unused annual leave are settled alongside the award. Any deduction must be one the law permits and should be documented.
A worked example
Take an employee with ten years of continuous service. The first five years give half a month each, which adds up to two and a half months’ wages. The next five years give one month each, which adds up to five months’ wages. The full award is therefore seven and a half months of the last wage. Because the employee has reached ten years, resigning at this point still gives the full award. Had the same employee resigned after five years but before completing ten, the award would be two thirds of the amount calculated for the period actually served.
What counts as the last wage
Disputes often start here. The Labor Law defines the actual wage as the basic wage plus the other increments due to the employee, such as allowances, and the calculation generally relies on that wider figure rather than basic pay alone. Commissions, variable bonuses and benefits in kind can raise questions, so employers should:
- state the wage components clearly in the documented contract;
- keep the wage on the contract consistent with the wage registered with GOSI and the payroll uploaded to Mudad;
- take specialist advice before finalising the figure where pay has large variable parts.
When the award can be withheld
Apart from resignation before two years of continuous service, the Labor Law lists specific situations in which the employer may terminate the contract without an award, notice or compensation. These relate to serious breaches by the employee, such as assault, failure to perform essential duties despite a warning, or obtaining the job through forgery. The employer must follow the required procedure and give the employee the opportunity to state the reasons for objecting. These decisions can be reviewed if a dispute is raised, so document the facts carefully and take advice first.
Common mistakes employers make
- calculating on the basic wage only and leaving out allowances that form part of the wage;
- applying the resignation fractions to a contract that simply expired;
- rounding the service period down to whole years and ignoring the part year;
- using an earlier wage instead of the last wage after a raise or promotion;
- not building an end of service provision in the accounts, so a long-serving employee’s exit becomes a cash surprise;
- paying late: the Labor Law sets a time limit for settling final dues, so check it before the employee’s last day.
Staying compliant
- Keep accurate start dates and records of any break in service for every employee.
- Update the end of service provision regularly in the financial statements, in line with the accounting standards endorsed by SOCPA.
- Prepare a written final settlement showing each item, signed by the employee on receipt.
- Follow HRSD guidance and amendments to the Labor Law, as the rules can change.
Innovant can help review end of service calculations and set up the provision in your accounts.
