End-of-service benefit in Saudi Arabia: how it is calculated

Under the Saudi Labour Law (Royal Decree No. M/51), an employer pays an end-of-service award of half a month's wage for each of the first five years of service and a full month's wage for each year after that. The award is based on the employee's last wage and is paid pro rata for partial years.

The wage it is calculated on

This is the detail that separates Saudi from the UAE. Article 2 defines wage as basic pay plus fixed, regularly paid allowances, and the award is calculated on that fuller figure, not on basic alone. An employer who sets a low basic to limit liability does not reduce the Saudi award the way the same structure reduces a UAE gratuity, because the regular allowances are pulled back into the calculation.

How resignation changes it

Article 85 reduces the award when an employee resigns, on a sliding scale by length of service:

• Under two years: no award.
• Two to five years: one third of the full award.
• More than five and under ten years: two thirds.
• Ten years or more: the full award.

Termination by the employer pays the full award regardless of tenure. So the same five years of service can pay one third on resignation or the full amount on termination, which makes the reason for leaving a real number on the balance sheet.

What this means for budgeting

Two levers drive Saudi exposure that UAE comp leads often miss: the award sits on full wage, not basic, and it accrues faster after year five. Modelling the liability on basic alone understates it. Carry it on the last-wage basis, and account for the resignation scale when forecasting voluntary leavers.