How to Calculate End Service Benefits in KSA

The Saudi Labor Law states laws and regulations for employment. The law has articles and clauses which define rights of the employer and employee both. It is very necessary for both the employer and employee to understand the labor law before starting working in 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 loop for various HR solutions.

The article 84 of the Saudi labor law states the right of employee to receive end of service award, 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 each month for the first five years of employment and full salary per each month for the following years of service.

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

What is Gratuity?

Gratuity is a monetary token of acknowledgement 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 the Saudi labor law, if an employee wishes to resign, he is entitled to receive gratuity by the company after completion of two years in the same company. However, if the employee is terminated, he is entitles to receive full accumulation of gratuity in case of serving more than a year in the same company. Gratuity is considered as a liability to the employer.

Who is eligible for gratuity in Saudi Arabia?

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

What are the factors affecting the gratuity calculations 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 in excess of 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 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

How to calculate the gratuity?

Here is an example of gratuity calculating chart for an employee with last salary as 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

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Read also: GOSI Calculation and Benefits in Saudi Arabia