How to Calculate End-of-Service Award Under Saudi Labor Law, With Examples

The Basic Rule in Article 84

Article 84 of the Labor Law provides that the worker is entitled to an end-of-service award when the employment relationship ends, 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 year thereafter. The worker is also entitled to an award for fractions of a year in proportion to the time actually worked.

• Years 1 to 5: half a month's wage per year.
• Years 6 and above: a full month's wage per year.
• Fractions of a year: counted proportionally to the days or months worked.

The Wage Base Used in the Calculation

The award is calculated on the basis of the worker's last wage. Wage here is not the basic salary alone, but the basic salary plus any fixed allowances paid regularly and periodically, such as housing and transport allowances if they are granted on a permanent basis. Occasional bonuses and one-off payments are not included in the wage base.

If the worker's wage is commission-based or varies month to month, the average of what was earned over the last three months of work is used, or on the basis set by the law for that type of wage, so the calculation fairly reflects the worker's actual pay.

Termination vs Resignation vs Expiry of Term

The worker's entitlement differs by reason for ending the relationship. Where the employer ends the contract (other than for a lawful cause under Article 80), or where a fixed-term contract reaches its end without renewal, the worker receives the full award under Article 84. In the case of resignation, Article 85 applies graduated proportions that reduce the award according to length of service.

• Employer termination without a statutory cause: full award under Article 84.
• Expiry of a fixed-term contract: full award under Article 84.
• Worker resignation: the graduated proportions of Article 85 apply.

Graduated Proportions on Resignation (Article 85)

If the relationship ends by the worker's resignation, Article 85 applies a graduated scale to the award computed under Article 84, based on the number of years of service:

• Less than 2 years: the worker is entitled to no award.
• From 2 years up to and including 5 years: the worker is entitled to one third of the award.
• More than 5 and less than 10 years: the worker is entitled to two thirds of the award.
• 10 years and above: the worker is entitled to the full award.

Important note: the resignation scale applies to the value of the award after it is computed in full under Article 84, not to the number of years. The first step is always to compute the full award, then multiply it by the appropriate proportion in the case of resignation.

Worked Numeric Examples

1. Example 1: A worker on a monthly wage of SAR 8,000 with 4 years of service, whose contract was ended by the employer. All service falls within the first five years, so half a month per year applies: 4 x (8,000 / 2) = 4 x 4,000 = SAR 16,000. Since the employer ended the contract, the full award is paid: SAR 16,000.
2. Example 2: A worker on a monthly wage of SAR 10,000 with 8 years of service, whose contract was ended by the employer. First five years: 5 x (10,000 / 2) = SAR 25,000. Next three years: 3 x 10,000 = SAR 30,000. Total = SAR 55,000, paid in full because the employer ended the contract.
3. Example 3 (resignation after 3 years): A worker on a wage of SAR 6,000 resigns after 3 years. Full award under Article 84: 3 x (6,000 / 2) = SAR 9,000. Since service is between 2 and 5 years, one third applies: 9,000 x (1/3) = SAR 3,000.
4. Example 4 (resignation after 7 years): A worker on a wage of SAR 12,000 resigns after 7 years. Full award: first five years 5 x (12,000 / 2) = SAR 30,000, and the next two years 2 x 12,000 = SAR 24,000, for a total of SAR 54,000. Since service is between 5 and 10 years, two thirds apply: 54,000 x (2/3) = SAR 36,000.
5. Example 5 (fractions of a year): A worker on a wage of SAR 9,000 with two years and six months of service, whose contract was ended by the employer. The two full years: 2 x (9,000 / 2) = SAR 9,000. The six months (half a year): (9,000 / 2) x (6/12) = 4,500 x 0.5 = SAR 2,250. Total = SAR 11,250.

Issuing the Final Settlement

After reaching the correct figure, the award should be documented in a final settlement that protects both parties and confirms payment of all dues. The settlement should ideally include the award amount, compensation for unused leave, any other entitlements, and the worker's acknowledgment of receipt.

Frequently asked questions