Summary
How end-of-service gratuity is calculated under the Saudi Labor Law: half a month per year for the first five years and a full month after, what counts as wage, the effect of resignation, and worked examples so you know your correct figure before signing a release.
The basic rule in Article 84
When the employment relationship ends, the employer must pay the worker an end-of-service award: half a month's wage for each of the first five years, and a full month's wage for each year after that. The award is calculated on the last wage, and the worker is entitled to a pro-rata share for any fraction of a year.
The rule applies to fixed-term and indefinite contracts, to Saudis and non-Saudis alike, and cannot be contracted below. Any clause in a contract or company policy that reduces this minimum is disregarded.
Which "wage" is the award calculated on?
This is where settlements most often fall short. The Labor Law defines the actual wage as the basic wage plus all other due increments granted to the worker for effort or risk, which includes fixed allowances such as housing and transport and regular commissions. Labor courts normally calculate the award on the last actual, all-inclusive wage, not on the basic salary alone.
So if your basic salary is SAR 8,000 with a SAR 2,000 housing allowance and SAR 1,000 transport allowance, the calculation base is generally SAR 11,000, not 8,000. Employers who calculate on basic pay alone typically understate the award by about a third, an amount worth claiming.
Worked example: 8 years of service, contract ended by the employer
Last actual wage: SAR 11,000.
- First five years: 5 × (11,000 ÷ 2) = SAR 27,500
- Next three years: 3 × 11,000 = SAR 33,000
- Total: SAR 60,500
If the service was 8 years and 6 months, a pro-rata share for the six months is added: 6 ÷ 12 × 11,000 = SAR 5,500, bringing the total to SAR 66,000. Unused leave balance and any late salaries or commissions are separate entitlements added on top.
What if you resigned? Article 85
If an indefinite contract ends by the worker's resignation, the award is reduced according to length of service:
- Less than two years: no award
- Two to under five years: one third
- Five to under ten years: two thirds
- Ten years or more: the full award
There are cases where the worker keeps the full award even though they ended the contract (Article 87): leaving because of force majeure, a female worker ending the contract within six months of marriage or three months of childbirth, or the worker leaving for one of the Article 81 grounds, such as the employer's breach of essential obligations, delayed wages or harsh treatment. In those cases the resignation is not treated as voluntary.
When is the award forfeited entirely?
The employer may end the contract without award, notice or compensation only in the cases listed exhaustively in Article 80, including assault on the employer or manager, failure to perform essential obligations after a written warning, forgery, disclosure of secrets, and unjustified absence of more than thirty days in a year or fifteen consecutive days after a written warning. The employer must give the worker the chance to state their objections.
Many companies invoke Article 80 to end service without an award in situations it does not cover. The Labor Court decides whether it applies, and the burden of proving the ground lies on the employer. If your contract was ended under Article 80 and you believe the ground is unfounded, you claim the full award and unfair-dismissal compensation together. Read Unfair dismissal: when you are owed compensation and how much.
Before you sign the release
The final release is a document in which you acknowledge receiving all your rights. Sign it only after checking the figure yourself: last actual wage, exact years and months from start date to last working day, the entitlement percentage based on how the contract ended, leave balance, late salaries and commissions, and the return ticket if you are non-Saudi. If the number is lower than what this formula produces, do not sign before asking.
Labor claims must be brought within twelve months of the end of the relationship, so do not delay. Our employment law team reviews your award calculation, gives you the correct figure, and handles the claim from friendly settlement to the Labor Court. Request a consultation and attach your contract and last payslip.