Understanding Your End-of-Service Benefits in Saudi Arabia

End-of-service benefits (EOSB) represent a fundamental aspect of Saudi labor law, ensuring financial security for workers upon termination of employment. This comprehensive system mandates that employees receive compensation commensurate with their length of service, serving as a safety net in the job market. However, the landscape of EOSB regulations can be complex, often subject to updates and amendments. So, understanding the intricacies of EOSB is essential for employers to remain compliant and for employees to safeguard their financial futures.

This article explores everything you need to know about End-of-Service Benefits in Saudi Arabia, including eligibility requirements, final settlement calculations, the different types of EOSB, and more. Stay tuned.

What are End-of-Service Benefits?

End-of-service benefits (EOSB) are financial compensations provided to employees by their employers upon the termination of their employment contract. These benefits are mandated by labor laws in many countries and are designed to provide employees with financial security and assistance as they transition out of their jobs. In Saudi Arabia, EOSB is governed by the Labor Law, which outlines the rights and obligations of employers and employees regarding EOSB. End-of-Service Benefits in Saudi Arabia – and other countries – are a cornerstone in employment regulations aimed at protecting workers’ rights and ensuring fair treatment upon termination of employment.

Who is Entitled to End-of-Service Benefits in Saudi Arabia?

In Saudi Arabia, end-of-service benefits (EOSB) are typically available to both Saudi nationals and expatriate workers who are covered under the country’s labor laws. Generally, any employee who has completed a certain period of continuous service with an employer is entitled to EOSB upon termination of their employment contract, whether due to resignation, retirement, or dismissal. This means nationality doesn’t affect EOSB eligibility if the employee meets the minimum service requirements, which may vary depending on some factors, such as:

Minimum service requirements

Minimum service requirements stipulate the duration an employee must work for an employer to qualify for EOSB. In Saudi Arabia, these requirements are typically outlined in labor laws and can vary depending on factors such as the type of employment contract and industry standards. Generally, employees must complete a minimum period of continuous service to be eligible for EOSB.

Here’s a breakdown of the two key factors affecting minimum service requirements:

Termination: If the employment is terminated by the employer (except for misconduct):
- Less than One year: No benefit shall be paid.
- 2-5 years: Half salary per month per year shall be paid.
- 5+ years: Full benefit shall be paid.
Resignation: The eligibility for benefits upon resignation is stricter. However, the amount you receive depends on the duration of your service:
- Less than two years: No benefit shall be paid.
- 2-5 years: One-third of the total benefit.
- 5-10 years: Two-thirds of the total benefit.
- 10+ years: Full benefit.

Termination scenarios

The reason your employment ends also plays a role:

Termination by the Employer (no misconduct): As mentioned above, the employee needs to meet the minimum service requirement and the amount received depends on the duration.
Termination by the Employer (due to misconduct): The employee generally forfeits their EOSB if the termination, as specified in their employment contract.
Mutual Agreement: If the employee and the employer agree to end the employment, the employee is typically entitled to EOSB based on their mutual agreement items.

How are End-of-Service Benefits Calculated?

Calculations of End-of-Service Benefits in Saudi Arabia are anchored on two fundamental factors: the “half-month salary rule” and the length of service. These elements are pivotal in determining the compensation employees receive upon the termination of their employment contracts. Here’s a breakdown:

Half-month salary rule

According to Saudi labor law, employees with unlimited-term contracts are entitled to gratuity equivalent to half a month’s salary for each of the first five years of service, followed by one month’s salary for each subsequent year. For employees with limited-term contracts, gratuity is calculated based on the duration of their contract. This formula provides a structured approach to EOSB calculations, with the compensation amount tied directly to the employee’s length of service.

Length of service

An employee’s service duration is a crucial determinant in EOSB calculations. In Saudi Arabia, the length of service refers to the total period of continuous employment with the same employer. This includes full years and additional months worked beyond a complete year. The longer an employee has served, the higher their entitlement to EOSB. Consequently, employees with lengthier tenures receive more substantial EOSB payments, reflecting their dedication and contribution to the organization over time.

Example calculation

Let’s consider an example to illustrate how End-of-Service Benefits in Saudi Arabia are calculated based on the “half-month salary rule” and the length of service:

Suppose we have an employee, Ahmed, who has been working for a company with an unlimited-term contract for 8 years and 3 months. Ahmed’s basic monthly salary is 10,000 Saudi Riyals (SAR):

Length of Service Calculation

Ahmed has completed 8 years and 3 months of service.

Half-Month Salary Rule Calculation

According to the half-month salary rule:

For the first 5 years: Ahmed is entitled to half a month’s salary for each year.

5 years × 0.5 × 10,000 SAR = 25,000 SAR

For the subsequent 3 years: Ahmed is entitled to one month’s salary for each year.

3 years × 1 × 10,000 SAR = 30,000 SAR

For the additional 3 months (partial year):

0.5 × 10,000 SAR = 5,000 SAR

Total EOSB Calculation

Total EOSB = EOSB for the first 5 years + EOSB for the subsequent 3 years + EOSB for the partial year

= 25,000 SAR + 30,000 SAR + 5,000 SAR

= 60,000 SAR

Therefore, Ahmed’s end-of-service benefits would amount to 60,000 Saudi Riyals based on the half-month salary rule and his length of service.

What are the Different Types of End-of-Service Benefits in Saudi Arabia?

EOSB encompasses various forms of financial compensation provided to employees upon the termination of their employment contracts. The main two types of EOSB in Saudi Arabia include:

End-of-Service Gratuity

This is the core financial compensation mandated by law. As discussed previously, it’s calculated based on monthly salary and total service years. The half-month salary rule for the first five years and the full-monthly salary rule for subsequent years determine the gratuity amount.

Accrued Leave Pay

Employees in Saudi Arabia are entitled to annual leave days as per labor regulations and their employment contracts. Employees who do not utilize their allocated annual leave days during their employment are entitled to receive payment for the unused days upon termination of their contracts. The calculation of accrued leave pay typically involves multiplying the number of unused leave days by the employee’s daily wage or salary rate. Accrued Leave Pay ensures that employees are fairly compensated for their entitlement to annual leave, even if they do not use it before leaving their jobs.

Here’s a table summarizing the key differences:

Feature	End-of-Service Gratuity	Accrued Leave Pay
Purpose	Financial compensation for years of service.	Compensation for unused vacation/sick leave.
Calculation	Based on monthly salary and total service years (half-month vs. full month rule).	Based on daily/monthly salary and unused leave days.
Mandatory	Yes, mandated by law.	No, depends on the contract and company policy.

Responsibilities and Deadlines

In the context of EOSB, both employers and employees have distinct responsibilities and deadlines to ensure compliance with labor regulations and facilitate a smooth transition upon termination of employment contracts:

Employer responsibilities

Providing Information: Employers are responsible for informing employees about their entitlements to EOSB per Saudi labor laws and the terms outlined in their employment contracts. This includes educating employees about the calculation methods, eligibility criteria, and any additional benefits they may receive upon termination.
Calculation and Payment: Employers must accurately process EOSB payments for eligible employees under labor regulations and contractual agreements. This involves considering factors such as the employee’s length of service, basic salary, and any accrued benefits like unused leave pay. Employers are also responsible for ensuring timely payment of EOSB to employees upon termination of their contracts.
Compliance with Deadlines: Employers must adhere to deadlines set forth by labor laws or regulatory authorities for processing and disbursing employee EOSB payments. Failure to meet these deadlines may result in penalties or legal consequences for the employer.

Employee responsibilities

Understanding Entitlements: Employees are responsible for familiarizing themselves with their rights and entitlements to EOSB under Saudi labor laws and employment contracts. This includes understanding the calculation methods, eligibility criteria, and any additional benefits they may receive upon termination.
Providing Necessary Documentation: Employees must provide relevant documentation or information requested by their employers to facilitate the calculation and processing of EOSB payments. This may include proof of employment tenure, salary details, or other relevant documents.
Compliance with Procedures: Employees are responsible for adhering to any procedures or requirements set forth by their employers for the smooth processing of EOSB payments. This may involve completing necessary paperwork, attending exit interviews, or fulfilling other obligations as per company policies.
Timely Notification: Employees should provide timely notification to their employers regarding their intention to terminate employment or retire. This allows employers to initiate the EOSB calculation and payment process within the stipulated deadlines.

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FAQs

1. What is the Saudi labor law about the end of a contract?

The Saudi labor law stipulates regulations regarding the termination of employment contracts, including provisions for End-of-Service Benefits based on factors like length of service and salary.

2. What is the End-of-Service for domestic helpers in Saudi Arabia?

The Domestic worker is entitled to an end-of-service benefit equivalent to one month’s salary if they have been employed by the employer for four consecutive four years.

3. What is Rule 81 in Saudi labor law?

Article 81 in Saudi labor law outlines the situations where an employee can terminate their employment without giving notice and still be eligible for their full legal rights. These situations involve the employer breaching the employment contract or creating a hostile work environment.

4. What is Rule 74 in Saudi Labor Law?

Article 74 in the Saudi labor law deals with terminating a work contract. It outlines the general grounds for termination by the employer or the employee. It emphasizes the need for a written notice with a specified timeframe depending on the salary payment frequency.