Understanding labor laws is crucial for both employers and employees, especially when it comes to rights and benefits. In Saudi Arabia, the concept of gratuity, or End of Service Benefits (EOSB), is an integral part of the employment relationship.
It reflects the acknowledgment and appreciation of an employee’s contributions over their tenure. Whether you’re an expatriate working in the Kingdom or a business owner navigating the Saudi labor landscape, understanding the details of EOSB can make a significant difference.
In this guide, we’ll break down the key aspects of Article 84 of the Saudi Labor Law, explain gratuity entitlement in various scenarios like resignation or termination, and provide examples to make the calculations simple and clear.
Let’s explore how gratuity works and ensure you’re well-informed about this essential component of employment in KSA.
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.
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.
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.
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:
| Service Tenure | Gratuity Entitlement |
| Less than 2 years | No gratuity shall be paid |
| Between 2 and 5 years | One-third of the gratuity shall be paid |
| Between 5 and 10 years | Two-thirds of the gratuity shall be paid |
| More than 10 years | Full gratuity shall be paid |
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:
| Service Tenure | Gratuity Payment |
| Less than 1 year | No gratuity shall be paid |
| Between 1 and 5 years | Half-month salary per year of service |
| More than 5 years | Full gratuity shall be paid |
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 Tenure | Less than 5 years | 5 years and above |
| Monthly Salary (SAR) | 10,000 | 10,000 |
| Payroll Month | Nov-19 | Nov-19 |
| No. of years worked | 4.5 | 7.5 |
| Wage per day | 333.33 | 333.33 |
| Gratuity days | 62.05 | 151.5 |
| First 5 years (1/2 monthly salary per year) | 20,671.23 | 25,000 |
| 5+ years (1 monthly salary per year) | NIL | 25500 |
| Total Gratuity | 20,671.23 | 50,500 |
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.