Whenever an employment relationship ends, End of Service Benefits Saudi Arabia often become one of the main financial issues disputed between the parties. While most available content focuses on employee rights, employers need an accurate accounting and legal understanding of the calculation method. A small mistake in determining the relevant wage or classifying the reason for termination may quickly develop into a costly labor complaint. Following the 2025 Labor Law amendments and the increased emphasis on documentation through Qiwa, accuracy has become essential. In this guide, the team at Al-Shatiri & Al-Ghamdi Law Firm explains what employers need to know to calculate and settle end-of-service benefits while reducing the risk of later disputes.
End of Service Benefits Saudi Arabia are calculated under Article 84 of the Saudi Labor Law based on the employee’s last wage, at the rate of half a month’s wage for each of the first five years and one full month’s wage for each subsequent year. A proportionate benefit is also payable for fractions of a year. In the case of resignation, the entitlement varies under Article 85: one-third of the benefit for service between two and five years, two-thirds for service of up to ten years, and the full benefit thereafter. Employers may use the official Qiwa End-of-Service Benefits Calculator or the Ministry of Justice Labor Calculator for verification.
Concerned that a departing employee may file a labor complaint because of an error in calculating end-of-service benefits or settling final entitlements? The team at Al-Shatiri & Al-Ghamdi Law Firm can review the employee’s file before termination, prepare a properly drafted legal settlement, and help reduce the risk of later claims.
Would you prefer to understand the details first? Continue reading this guide to review the relevant legal rules and procedures before contacting us.
What Are End of Service Benefits Saudi Arabia?
End-of-Service Benefits are financial entitlements paid by an employer to an employee when the employment relationship ends, in recognition of the employee’s period of service. They constitute a statutory entitlement that may not be waived in advance and are calculated based on the employee’s last actual wage in accordance with the Saudi Labor Law issued by Royal Decree No. M/51 dated 23/8/1426H, as amended.
The employer pays the benefit when the employment contract ends, regardless of the reason, in the cases where the law establishes entitlement, although the applicable percentage may differ depending on the reason for termination. It forms part of the employee’s final entitlements together with the final salary, employment certificate, return ticket where applicable, and any outstanding allowances.
Legal Basis for Calculating End-of-Service Benefits: Article 84
Article 84 of the Labor Law establishes the following basic rule:
- Half a month’s wage for each of the first five years of service.
- One full month’s wage for each subsequent year.
- Fractions of a year are included in proportion to the period actually worked.
- The employee’s last wage is used as the basis of calculation.
The Ministry of Human Resources and Social Development has explained that the benefit is payable to employees whose employment relationship ends, whether because the contract expires or because either party terminates it, subject to differences in entitlement depending on the reason, as explained below.
Which Wage Is Used to Calculate the Benefit? Article 86
Basic Wage and Actual Wage
Distinguishing between the “basic wage” and the “actual wage” is essential for an accurate calculation. The Labor Law defines them as follows:
| Type | Definition |
|---|---|
| Basic Wage | All amounts paid to the employee in return for work under a written or unwritten employment contract, regardless of the type of wage or method of payment, together with periodic increments. |
| Actual Wage | The basic wage plus other increases due to the employee for effort or risk, percentages received in return for sales or production, and allowances and grants stated in the contract. |
The general rule under Article 84 is that the benefit is calculated based on the employee’s last wage, meaning the actual wage received by the employee, including permanent increases and allowances.
Allowances That May or May Not Be Included
Under Article 86 of the Labor Law, the employer and employee may agree in writing to exclude certain allowances from the wage used to calculate the benefit. In the absence of an express contractual provision, the rule based on the employee’s full last wage applies.
| Allowance | General Treatment |
|---|---|
| Housing Allowance | Generally included if fixed and regularly paid |
| Transportation Allowance | Generally included if paid as a fixed monthly amount |
| Nature-of-Work or Hazard Allowance | Included because it compensates for effort or risk |
| Commissions and Percentage-Based Payments | Included depending on the nature of the work and contract |
| Communication Allowance | May be excluded by written agreement |
| Irregular Incentive Bonuses | Generally not included |
| Overtime Allowance | Not included in the basic wage used for the benefit |
End-of-Service Benefit Entitlement by Reason for Termination
The amount and percentage of the benefit depend on the reason the employment relationship ends and the type of contract:
| Reason for Termination | Indefinite-Term Contract | Fixed-Term Contract |
|---|---|---|
| Expiry of Contract Term | Not applicable | Full benefit |
| Termination by Employer Without Lawful Cause | Full benefit + compensation | Full benefit + compensation for the remaining term |
| Resignation: Less Than 2 Years | No benefit | No benefit |
| Resignation: 2 to 5 Years | One-third of the benefit | One-third of the benefit |
| Resignation: 5 to 10 Years | Two-thirds of the benefit | Two-thirds of the benefit |
| Resignation: 10 Years or More | Full benefit | Full benefit |
| Termination During Probation | No benefit | No benefit |
| Dismissal Under Article 80 | No benefit | No benefit |
| Death of Employee | Full benefit payable to the heirs | Full benefit payable to the heirs |
| Total Disability or Leaving Work Due to Force Majeure Beyond the Employee’s Control | Full benefit | Full benefit |
| Female Employee Leaving Work Due to Marriage or Childbirth Within 6 Months | Full benefit | Full benefit |
Calculating the Benefit Under an Indefinite-Term Contract
Ther is a many cases:
Termination by the Employer
If the employer terminates an indefinite-term contract, while complying with the 60-day notice period applicable following the 2025 amendments, the employee is entitled to the full end-of-service benefit under Article 84:
- First five years: half a month’s wage for each year.
- Subsequent years: one full month’s wage for each year.
- Fractions of a year: calculated proportionately.
If the dismissal is arbitrary or without a legitimate reason, the employee may also be entitled to statutory compensation under Article 77, calculated at 15 days’ wages for each year of service under an indefinite-term contract.
Resignation: Article 85
Article 85 of the Labor Law provides for a graduated entitlement in the case of resignation:
| Length of Service | Benefit Entitlement |
|---|---|
| Less than 2 years | No benefit |
| 2 years to less than 5 years | One-third of the full benefit |
| 5 years to less than 10 years | Two-thirds of the full benefit |
| 10 years or more | Full benefit |
Calculating the Benefit Under a Fixed-Term Contract
A fixed-term contract automatically ends when its agreed term expires. In that case, the employee is entitled to the full end-of-service benefit regardless of the length of the contract. However:
- If the employer terminates the contract before its expiry without a lawful reason: the employee receives the full benefit plus compensation equivalent to the wage for the remaining term under Article 77.
- If the employee terminates the contract before expiry by resignation: the graduated calculation under Article 85 applies.
- If the term expires and the contract is not renewed: the employee receives the full benefit.
Cases Where the Benefit Is Forfeited: Article 80
Article 80 of the Labor Law specifies nine cases in which an employee may be dismissed without end-of-service benefits, notice, or compensation. The principal cases include:
- The employee assaults the employer, manager, or supervisor during or because of work.
- The employee fails to perform essential obligations despite receiving a written warning.
- The employee engages in misconduct or commits an act affecting honor or trust.
- The employee deliberately causes material damage to the employer.
- The employee uses forgery to obtain employment.
- The employee is appointed on probation and is found unsuitable.
- The employee is absent without legitimate reason for more than 20 days in one year or for 10 consecutive days.
- The employee abuses the position for personal gain.
- The employee discloses industrial or commercial secrets.
Practical Calculation Examples
The following three scenarios illustrate the calculation method:
Example 1: Employee Served 3 Years, Last Wage SAR 6,000, and Employment Was Terminated by the Employer
Example 2: Employee Served 7 Years and 6 Months, Last Wage SAR 10,000, and Employment Was Terminated by the Employer
First five years: half a month × 5 = 5 × 5,000 = SAR 25,000Next two years: one month × 2 = 2 × 10,000 = SAR 20,000
Six months: (6 ÷ 12) × 10,000 = SAR 5,000
Total = 25,000 + 20,000 + 5,000 = SAR 50,000
Example 3: Employee Served 6 Years, Last Wage SAR 8,000, and Resigned
Full benefit for 6 years:First five years: 5 × (8,000 ÷ 2) = SAR 20,000
Sixth year: 1 × 8,000 = SAR 8,000
Full benefit = SAR 28,000
Resignation entitlement for 5 to 10 years = two-thirds
Amount payable = 28,000 × (2 ÷ 3) ≈ SAR 18,667
Official Calculators
Two official calculators are available to verify the calculation:
- Qiwa End-of-Service Benefits Calculator: calculates the benefit based on contract details, including contract type, reason for termination, salary, commencement date, and termination date.
- Ministry of Justice Labor Calculator: covers end-of-service benefits, unpaid wages, leave pay, and compensation for unlawful termination.
Employers may use either calculator as an official reference when settling employee entitlements, particularly because their results may assist in matters brought before labor offices and labor courts.
Settling Employee Entitlements Without a Labor Complaint
Proper settlement of final entitlements may help an employer avoid a labor complaint. A practical process includes:
- Calculate all entitlements accurately, including the end-of-service benefit, salary for the final days worked, unused leave balance, and any outstanding allowances.
- Prepare a written and detailed settlement agreement signed by both parties, showing the calculation and settlement items clearly.
- Transfer the amounts through the Wage Protection System to preserve an official payment record.
- Update the employee’s status on Qiwa to formally record the termination of the employment relationship.
- Issue an employment certificate showing the period of service and duties without adversely affecting the employee’s future employment opportunities.
- Retain a signed copy of the settlement agreement and related documents for at least five years.
Common Mistakes Made by Employers
- Calculating the benefit based only on the basic salary despite the existence of fixed allowances forming part of the actual wage.
- Failing to distinguish between dismissal and resignation, resulting in the full benefit being paid incorrectly in the case of a short period of service followed by resignation.
- Relying on Article 80 without written notice or proper documentation, which may prevent the employer from relying on that Article.
- Ignoring fractions of a year when calculating the benefit, such as three months, six months, or nine months.
- Treating the probation period as ordinary service for calculation purposes despite its separate legal treatment.
- Delaying payment of final entitlements after termination, which may lead the employee to file a complaint.
- Failing to update the employee’s status on Qiwa after payment.
- Preparing a general settlement without itemizing the calculation, making it more open to challenge.
When Does an Employer Need a Labor Lawyer?
- When terminating the employment of a senior executive with a high salary and multiple allowances.
- When relying on Article 80 to dismiss an employee without end-of-service benefits.
- When several employees are leaving at the same time.
- When there is a dispute over the nature of allowances and whether they should be included in the calculation.
- When the dispute develops into a labor complaint.
- When reviewing termination policies to reduce the risk of future disputes.
Our team provides comprehensive review of termination files and prepares properly drafted legal settlement agreements through our labor legal consultation service. visit our contact page.
Frequently Asked Questions about End of Service Benefits Saudi Arabia
How Are End of Service Benefits Calculated When an Employee Is Dismissed?
They are calculated in full under Article 84: half a month’s wage for each of the first five years and one full month’s wage for each subsequent year, based on the employee’s last wage.
Are Allowances Included in the Calculation of End-of-Service Benefits?
As a general rule, fixed and regular allowances, such as housing and transportation allowances, are included in the wage used to calculate the benefit unless there is an express written agreement excluding them under Article 86.
How Much Is the End-of-Service Benefit If an Employee Resigns After 3 Years?
The benefit may not be payable in the cases covered by Article 80, where dismissal is based on serious grounds and the required procedures have been satisfied, during the probation period, and when the employee resigns within the first two years of service.
When Is an Employee Not Entitled to End-of-Service Benefits?
Under Article 85, the employee is entitled to one-third of the full benefit. If the employee’s last wage was SAR 6,000, the full benefit for three years would be SAR 9,000, making the amount actually payable approximately SAR 3,000.
Are Fractions of a Year Included in the Calculation?
Yes. They are calculated proportionately. For example, six months equals half a year and therefore half of the entitlement attributable to that year.
When Should the Benefit Be Paid After the Contract Ends?
It should be paid as part of the final settlement as soon as possible after the employment relationship ends. Payment with the employee’s final salary may help avoid disputes concerning delayed entitlements.
Is a Fixed-Term Contract Calculated in the Same Way as an Indefinite-Term Contract?
Yes, the basic calculation under Article 84 is the same. The main difference is that natural expiry of a fixed-term contract results in full entitlement, while resignation by the employee before expiry is subject to the percentages under Article 85.
Does the Calculation Differ for Saudi and Non-Saudi Employees?
The calculation method is the same. Differences may arise from the nature of the contract, since a non-Saudi employee’s contract must be fixed-term, and from certain other entitlements such as a return ticket.
Calculating End of Service Benefits Saudi Arabia is not merely an accounting exercise. It is a legal process that requires accurate understanding of Articles 84, 85, 86, and 80, careful identification of the wage used for calculation, and proper documentation of the final settlement. Employers that approach the calculation without sufficient detail may later face higher costs before labor offices and labor courts. Using official calculators, preparing a detailed legal settlement, and documenting each step through Qiwa provides a clearer process for closing the employment relationship and reducing the risk of disputes.
Sources:
- Saudi Labor Law – Bureau of Experts at the Council of Ministers
- Labor Relations – Ministry of Human Resources and Social Development
- End-of-Service Benefits Calculator – Qiwa
- Labor Calculator – Ministry of Justice
- Guide to the 2025 Labor Law Amendments – Ministry of Human Resources and Social Development
