End-of-Service Award Under the Saudi Labour Law: How Is It Calculated?

Under the Saudi Labour Law, the end-of-service award is calculated on the basis of half a month's wage for each of the first five years of service and a full month's wage for each subsequent year, using the employee's last wage. The employee is also entitled to the award for parts of a year in proportion to the time worked. Where the employment ends because the employee resigns, the award may be payable in full, in part or not at all, depending on the length of service and the conditions set by the law.

Who Is Entitled to an End-of-Service Award?

An employee is entitled to the award when the employment relationship ends, whether because a fixed-term contract expires, the employer terminates the contract, or in the other cases provided for by the law. The outcome depends on why the relationship ended: there are cases where the employee loses the award, such as dismissal for one of the legitimate reasons exhaustively listed in the law, and other cases where resignation affects the amount.

Which Wage Is the Award Calculated On?

The award is calculated on the basis of the employee's last wage. Under the Labour Law, the wage includes the basic wage and the allowances and benefits that form part of the actual wage, as defined by the law. Disagreement over which wage components are included in the calculation causes many disputes, so it is important to review the employment contract and payroll records carefully.

If the employee's wage is variable, for example if it depends wholly or partly on commission or output, the method of determining the wage used in the calculation may differ in accordance with the law. In such cases, it is wise to keep a detailed record of what the employee was paid during their employment.

How Is the Award Calculated? A Worked Example

Assume an employee whose contract was terminated by the employer, with eight years of service and a last wage used for the calculation of SAR 10,000 per month (a hypothetical figure for illustration only):

1. The first five years: 5 years × half a month = two and a half months' wage = SAR 25,000.
2. The following three years: 3 years × a full month = three months' wage = SAR 30,000.
3. Total award: SAR 55,000.

If there are additional months or days, the award for them is calculated in proportion to the time the employee spent in service.

Is an Employee Who Resigns Entitled to an End-of-Service Award?

The rules for an employee who resigns differ from those for an employee whose contract is terminated by the employer. The law links a resigning employee's entitlement to the length of their service: they may be entitled to nothing if their service was short, and to a portion that increases the longer they have served, until they become entitled to the full award after a certain period. The law also sets out cases in which the employee is entitled to the full award despite leaving voluntarily, such as leaving work due to force majeure beyond their control, and certain cases specific to female employees.

Because these proportions and cases are detailed and may be affected by legislative amendments, we recommend reviewing the current text of the Labour Law on the official laws platform or consulting a specialist before resigning.

What Is the Difference Between Fixed-Term and Indefinite Contracts?

The type of contract matters in determining both parties' rights when it ends. A fixed-term contract ending on expiry is different from an indefinite contract being terminated by one of the parties. Compensation separate from the award may also be due in cases of unlawful termination. You should therefore read the contract and identify its type accurately before calculating.

What Should You Do If Your Award Is Not Paid?

1. Ask your employer in writing for a statement of your final dues and how they were calculated.
2. Check the statement against your contract and payroll records.
3. If the disagreement continues, submit an amicable settlement request through the electronic channels of the Ministry of Human Resources and Social Development.
4. If settlement fails, the claim is referred to the competent Labour Court.

Note that labour claims are subject to statutory time limits for being heard, so do not delay your claim.

What Are the Common Mistakes in Calculating the Award?

• Calculating the award on the basic wage alone, ignoring other components that may form part of the wage.
• Leaving out part-years from the calculation, even though they count proportionally.
• Confusing the rules on resignation with the rules on termination by the employer.
• Relying on unofficial online calculators without reviewing the details of the case.

Frequently Asked Questions

Q: Are allowances included in the end-of-service award calculation? A: It depends on how the law defines the wage, the nature of the allowance and what the contract says. It is advisable to review your case with a specialist.

Q: Can the award be waived in the employment contract? A: Employee rights under the Labour Law are, in principle, a matter of public policy, and a clause that reduces them is generally not given effect.

How Can We Help?

FATIMA AL ASMARI Law & Intellectual Property Company in Jeddah provides legal consultations for individuals to review and calculate end-of-service entitlements, serving employees and employers across all regions of the Kingdom. You can also explore our employment contracts service.

Legal sources

This article is for general awareness and is not legal advice.