How to Calculate End of Service Benefits (Gratuity) in KSA (Saudi Arabia)

The Saudi Labor Law states laws and regulations for employment. The law has articles and clauses which define the rights of the employer and employee. Both the employer and employee must understand the labor law before starting work in the Kingdom of Saudi Arabia. A large number of people working in Saudi Arabia are expatriates who usually find it convenient to keep notable human resource consulting companies in the loop for various HR solutions.

Article 84 of the Saudi labor law states the right of employees to receive end of service Benefits (EOSB), also commonly known as gratuity. It says that after the end of service tenure, the employer should pay an amount to the employee as an end-of-service award. According to the law, this amount is calculated as the accumulation of half salary per month for the first five years of employment and full salary per month for the following years of service.

If you are a new business in KSA, it is best to look for the best HR outsourcing companies in Saudi Arabia to help you understand end-of-service awards.

What is Gratuity or End Of Service Benefits (EOSB)?

Gratuity or end of service benefits (EOSB) is a monetary token of acknowledgment paid to an employee by the company for their commitment, diligence, and efforts they have contributed during the tenure of service. This amount is usually paid after the employment ends – whether the employee resigns or gets terminated by the company. According to Saudi labor law, if an employee wishes to resign, he is entitled to receive gratuity from the company after completion of two years in the same company. However, if the employee is terminated, he is entitled to receive a full accumulation of gratuity in case of serving more than a year in the same company. Gratuity is considered a liability to the employer.

Who is Eligible for End of Service Benefits (Gratuity) in KSA?

The calculation and entitlement of End of Service according to Saudi labor law starts from the first day of service till the last day of employment of the worker. However, some factors affect the calculations, which we will discuss below.

Also read: GOSI Calculation and Benefits in Saudi Arabia

What Are the Factors Affecting the End of Service Benefits (Gratuity) in Saudi Arabia?

The Saudi labor law has defined two types of contracts of employment – a fixed contract and an open-ended contract. The type of contract does not affect the amount of gratuity to be paid, however, the way an employment ends affects the gratuity amount i.e. Resignation or Termination.

In Case of Resignation

The Saudi labor law states:

“If the work relation ends due to the worker’s resignation, he shall, in this case, be entitled to one-third of the award after a service of not less than two consecutive years and not more than five years, to two thirds if his service is more than five successive years but less than ten years and to the full award if his service amounts to ten or more years.”

This means:

  • If the service tenure is less than two years then no gratuity shall be paid.
  • If the service tenure is between two and five years, then one-third of the gratuity shall be paid
  • If the service tenure is between five and ten years, two-thirds of the gratuity shall be paid.
  • If the service period is more than 10 years then a complete gratuity shall be paid.

In case of Termination

The Saudi labor law states:

“As an exception to the provisions of Article (85) of this Law, the worker shall be entitled to the full award if he leaves the work due to a force majeure beyond his control.”

This means:

  • If the service tenure is under one year then no gratuity shall be paid.
  • If the service tenure is between one and five years, half salary per month per year shall be paid.
  • If the service tenure is more than five years, full gratuity shall be paid.

Read also: Guide on Employee Termination in Saudi Arabia

Example to Calculate the End of Service Benefits (Gratuity) in KSA

Here is an example of a gratuity calculating chart for an employee with a last salary of SAR 10,000.

In this chart we have shown calculations for both cases – service tenure being under 5 years and above 5 years.

Gratuity
Service TenureLess than 5 years5 years and above
Monthly Salary (SAR)10,00010,000
Payroll MonthNov-19Nov-19
No. of years worked4.57.5
Wage per day333.33333.33
Gratuity days62.05151.5
First 5 years (1/2 monthly salary per year)20,671.2325,000
5+ years (1 monthly salary per year)NIL25500
Total Gratuity20,671.2350,500

Need Assistance for Employee Termination

If you are looking for a firm to assist you with employee termination and perfect HR solutions for your staff, Payroll Middle East is your savior being one of the best HR outsourcing companies! We cater to our clients with the right kind of human resource outsourcing facilities enabling them to retain their best talent resources in the Middle East region. Whether your company needs guidance on staff employment, payroll management, or termination of services, we have it all covered for you. Our services are affordable, smooth, and well-guided to relieve your company’s HR functions.

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