How to Calculate End of Service Benefits in KSA
End of Service Benefits in Saudi Arabia are a key employee entitlement under the Saudi Labor Law. Understanding how gratuity is calculated, when it becomes payable, and how resignation or termination affects the final amount is important for both employers and employees.
In Saudi Arabia, end of service benefits are generally calculated based on the employee’s last wage and total years of service. The legal basis is mainly found in Article 84 and Article 85 of the Saudi Labor Law, which outline the accrual formula and resignation-related entitlement rules. Employers should calculate EOSB carefully to avoid disputes and compliance issues. :contentReference[oaicite:2]{index=2}
This guide explains the end of service benefit formula in KSA, eligibility rules, resignation and termination scenarios, and a practical example to make the calculation easier to understand.
End of Service Benefits, also known as gratuity, are a financial entitlement paid by the employer when the employment relationship ends. It is intended to compensate the employee for their period of service and is an important part of employee settlement in Saudi Arabia.
In general, EOSB applies when an employee resigns, is terminated, retires, or the contract otherwise comes to an end, subject to the applicable legal conditions and years of service. Official calculation tools provided by the Ministry of Human Resources and Social Development also require contract type, reason for ending the employment relationship, wage, and service period. :contentReference[oaicite:3]{index=3}
Eligibility for end of service benefits depends on the employee’s service period and the reason the employment ended. The entitlement is calculated from the first day of service to the last day of employment, with pro-rata calculation for incomplete years. :contentReference[oaicite:4]{index=4}
According to Saudi Labor Law, the end of service benefit is generally calculated as follows:
Formula:
Half-month wage × each of the first 5 years of service
+
One-month wage × each year after the first 5 years
The employee’s last wage is used as the basis for calculation, and the worker is entitled to a pro-rata award for fractions of a year worked. :contentReference[oaicite:5]{index=5}
The main factors affecting EOSB calculation are the employee’s last wage, total service period, and whether the employment ended due to resignation or termination. Contract type may also affect how the end of employment is treated in practice, but resignation versus termination is one of the most important factors in determining final entitlement.
If the employment relationship ends due to the worker’s resignation, the gratuity entitlement is reduced depending on total years of service under Article 85 of the Saudi Labor Law. :contentReference[oaicite:6]{index=6}
This generally means:
| Service Tenure | Gratuity Entitlement |
| Less than 2 years | No gratuity |
| 2 to less than 5 years | One-third of the award |
| 5 to less than 10 years | Two-thirds of the award |
| 10 years or more | Full gratuity |
If the employee is terminated, the gratuity is generally calculated under Article 84 based on the full accrual formula, subject to the relevant legal conditions. :contentReference[oaicite:7]{index=7}
This generally means:
| Service Tenure | General EOSB Basis |
| Less than 1 year | Usually no EOSB entitlement |
| 1 to 5 years | Half-month wage for each year |
| More than 5 years | Half-month wage for first 5 years + one-month wage for each additional year |
Here is a simple example for an employee with a last salary of SAR 10,000.
If the employee worked for 4.5 years, the gratuity would be based on half-month wage for each year of service. If the employee worked for 7.5 years, the first 5 years would be calculated at half-month wage per year, and the remaining 2.5 years would be calculated at one-month wage per year. :contentReference[oaicite:8]{index=8}
| Gratuity | ||
| Service Tenure | Less than 5 years | 5 years and above |
| Monthly Salary (SAR) | 10,000 | 10,000 |
| No. of years worked | 4.5 | 7.5 |
| Wage per day | 333.33 | 333.33 |
| Gratuity days | 62.05 | 151.5 |
| First 5 years (half-month wage per year) | 20,671.23 | 25,000 |
| After 5 years (one-month wage per year) | NIL | 25,500 |
| Total Gratuity | 20,671.23 | 50,500 |
A major reason employees and employers miscalculate EOSB is that they apply the same formula to all cases. In Saudi Arabia, the final amount may change depending on whether the employee resigned or was terminated, so the reason for leaving must always be considered before calculating the final award. Official calculators from HRSD and Qiwa also require the reason for termination as part of the calculation process. :contentReference[oaicite:9]{index=9}
If you need support with EOSB calculation, payroll processing, employee settlements, or HR compliance, Payroll Middle East can assist your business with practical and reliable payroll and HR solutions across Saudi Arabia.
We support companies with employee settlements, payroll accuracy, and HR outsourcing solutions to help reduce compliance risks and improve workforce management.