Comprehensive Guide to End of Service Gratuity under Saudi Labor Law
The End of Service Award (severance gratuity) is one of the most vital statutory rights guaranteed by the Saudi legal framework under Royal Decree No. (M/51). It becomes payable upon the conclusion or termination of the contractual relationship between the employee and employer.
1. General Statutory Rule (Article 84 of Saudi Labor Law)
Article 84 stipulates that when an employment relationship concludes, the employer must pay the employee an end of service gratuity calculated on the following basis:
- Half a month's actual wage for each of the first five years of continuous service.
- A full month's actual wage for each subsequent year of service beyond the first five years.
- Fractions of a year are calculated proportionally based on completed months and days.
- The calculation is strictly based on the last drawn actual wage (Basic Salary plus all regular, contractually fixed allowances such as housing, transportation, and fixed bonuses).
2. Voluntary Resignation by the Employee (Article 85 of Saudi Labor Law)
If the employment relationship terminates due to voluntary resignation by the employee, the statutory entitlement percentage is graded based on total completed service:
- Less than 2 years of service: The worker is not entitled to any end of service gratuity (0%).
- Between 2 and 5 years of service: The worker is entitled to one-third (33.33%) of the full statutory award.
- Between 5 and 10 years of service: The worker is entitled to two-thirds (66.66%) of the full statutory award.
- 10 years or more of service: The worker is entitled to the full statutory award (100%).
Frequently Asked Questions
According to Article 84 of the Saudi Labor Law, an employee is entitled to half a month wage for each of the first five years of service, and a full month wage for each subsequent year, calculated based on the last drawn salary including fixed allowances.
Under Article 85: If service is less than 2 years, no gratuity is due. Between 2 and 5 years, the employee receives one-third (33.3%). Between 5 and 10 years, two-thirds (66.6%) is payable. If service reaches 10 years or more, the full award (100%) is paid.
To add VAT, multiply the net amount by 0.15. To extract VAT from a gross amount that already includes VAT, divide the gross amount by 1.15 to find the net price, then subtract it to find the tax value.
Saudi Central Bank (SAMA) regulations mandate that monthly debt deductions for personal loans cannot exceed 33.33% of an active employee's total monthly salary, or 25% for retirees.