The formula fits in one line. Half a month’s wage for each of the first five years. A full month’s wage for every year after that. Yet payroll teams get it wrong constantly, and the errors run in one direction: downward. Basic salary used instead of the full wage. Resignation reductions applied to people who resigned nothing. Partial years thrown away. Each mistake looks small on a payslip. In a termination of a ten-year employee, the gap reaches five figures, and labour courts award the difference in full. This post gives you the end of service calculation for Saudi Arabia, article by article, with worked examples you can copy. It doubles as a gratuity calculation Saudi Arabia employers can reuse: same formula, different name. It covers the end of service benefits Saudi labour law provides, from the raw formula to the resignation scale. And it takes the two cases people search for most: end of service after resignation, and the final settlement Saudi Arabia requires at every exit. Read it with your last payroll open. By the end, you will know whether your figure survives an inspection.
Last reviewed: October 2026
Key points
- The award is half a month’s wage per year for the first five years and a full month’s wage per year after that, on the last wage including fixed allowances.
- Resignation scale: under 2 years nothing, 2 to 5 years one third, over 5 to under 10 years two thirds, 10 years or more the full award.
- Partial years count proportionally, and the employer must pay within one week of contract end (two weeks if the employee ended it).
- Termination by the employer carries no resignation reduction. Articles 84 to 88 were not changed by the 2025 amendments.
1End of service calculation in Saudi Arabia: the rules in one table
Everything comes from Articles 84 to 88 of the Saudi Labour Law, unchanged by the 2025 amendments:
| Article | What it says |
|---|---|
| 84 | Award: half month’s wage per year, first 5 years; full month’s wage per year after. Last wage is the basis. Partial years count proportionally. |
| 85 | Resignation scale: under 2 years, nothing; 2 to 5 years, one third; over 5 to under 10, two thirds; 10 or more, full award |
| 87 | Cases where a resigning employee still gets the full award: force majeure, a female worker ending her contract within 6 months of marriage or 3 months of childbirth |
| 88 | Payment deadline: within one week of contract end; two weeks if the employee ended the contract |
The official summary sits on the HRSD knowledge centre. The law text carries the articles in full. Both predate the 2025 amendments, which left the award untouched.
Want the full method? The Labour Law and Employment Compliance in Practice course works through final settlements with more worked cases.
2Which wage to use
This is where most calculations die. The award is not computed on basic salary. It is computed on the last wage, and wage under Article 2 means basic pay plus every fixed contractual allowance: housing, transport, cost-of-living allowances, contractual bonuses. Benefits in kind count too, valued at no more than two months’ basic wage per year.
Variable pay is handled differently. Article 86 deals with commissions, percentage-based pay and piece rates, and bases the award on average earnings rather than a fixed monthly figure, so check the current text for the exact averaging period. A salesperson’s commission follows that rule. Their fixed housing allowance is part of the wage.
One practical test settles most disputes. Ask what the employee would receive if the allowance were removed tomorrow without consent. If the answer is “a breach of contract claim”, the allowance is part of the wage. If the contract genuinely ties it to performance or volume, it is variable pay. The contract text decides, which is why the wage clause in the contract matters more than the payroll system’s opinion.
3Worked example 1: termination after 7 years
An operations manager is terminated by the employer after 7 years and 3 months. Last wage: SAR 10,000 monthly, all fixed allowances included.
First five years. 5 years × half month = 2.5 months’ wage. 2.5 × 10,000 = SAR 25,000.
Years six and seven, plus the fraction. 2 years and 3 months = 2.25 years × full month = 2.25 × 10,000 = SAR 22,500.
Total award: SAR 47,500, due within one week of the last working day under Article 88.
| Component | Calculation | Amount (SAR) |
|---|---|---|
| First 5 years | 5 × 0.5 × 10,000 | 25,000 |
| Years 6 to 7.25 | 2.25 × 1.0 × 10,000 | 22,500 |
| Total | 47,500 |
Termination by the employer triggers no reduction. The full award is due, whatever the reason, unless the dismissal falls under Article 80 misconduct cases. Even then, the burden of proving the misconduct sits with the employer, in front of a judge if needed.
4Worked example 2: resignation after 4 years
An accountant resigns after 4 years. Last wage: SAR 8,000.
Article 85 puts 4 years in the “2 to 5 years” band: one third of the award. First, the full award: 4 × 0.5 × 8,000 = SAR 16,000. Then the reduction: 16,000 × 1/3 = SAR 5,333.
The arithmetic is two steps, and skipping the first is the classic error. Teams remember “one third on resignation” and apply it to the wrong base, or forget the reduction entirely. The resignation figure is one third of the full award, not one third of a month’s wage per year.
5Worked example 3: resignation after 12 years
A warehouse supervisor resigns after 12 years. Last wage: SAR 9,000.
Twelve years clears the top band: full award, no reduction. First five years: 5 × 0.5 × 9,000 = SAR 22,500. Remaining seven: 7 × 1.0 × 9,000 = SAR 63,000. Total: SAR 85,500.
This example is why long-serving employees resign carefully. The resignation scale punishes leaving before ten years, and rewards staying past them. An employee at 9 years and 11 months who resigns takes two thirds. At 10 years and one month, the full amount. HR teams should know this scale as well as employees do, because “just wait three more weeks” is sometimes the cheapest advice anyone gives that month.
6Partial years: how months and days count
Article 84 counts partial years proportionally. The standard method converts service to days, then applies the fraction. An employee at 3 years, 7 months and 12 days has 3 + 7/12 + 12/365 of a year, roughly 3.616 years, for award purposes.
Two conventions to fix in writing before you need them. First, the start of service is the first working day, not the contract signature date, when the two differ. Second, the end of service follows the contractual employment end date: where the employee works through the notice period, that is the last working day, and where the employee is released early but the contract continues with paid notice, the relationship ends when the notice period ends. Both choices move the number. Neither choice should be made twice, differently, for two employees in the same month.
7When the full award applies even on resignation
Article 87 carves out two situations where a resigning employee keeps everything:
- Force majeure. A reason beyond the employee’s control ends the contract. What counts as force majeure is decided case by case, and the examples are narrower than employees hope. An employee who believes their situation qualifies should have it reviewed by a licensed adviser before resigning, because a failed Article 87 claim lands them back on the resignation scale.
- A female worker ending her contract within 6 months of marriage or 3 months of childbirth. This protection stands.
Note what Article 87 does not cover. Workplace pressure, a hostile manager, unpaid overtime: these feel like force majeure from inside. Legally they are constructive dismissal claims, argued through a different route, with a different evidence file. Employees who resign claiming Article 87 without the facts behind it lose, and the resignation scale applies anyway.
8What else goes into the final settlement
The end of service award is one line of a larger document. The final settlement also carries:
- Payment for unused annual leave, at the last wage.
- Any unpaid wages, overtime or contractual amounts.
- Deductions the employee authorised in writing, within legal limits.
- Repayment of employer loans, where agreed.
Each line has its own rule and its own dispute pattern. Leave encashment disputes usually turn on how much leave was actually accrued, which is why leave records need to be as clean as payroll records. A settlement signed with a wrong award inside it is not settled. Labour courts reopen settlements for calculation errors, and the one-week payment deadline in Article 88 runs from the contract end regardless.
9Common mistakes
Using basic salary only. The most common error, and the most expensive. Housing and transport allowances are wage. A company paying the award on SAR 6,000 basic when the wage is SAR 10,000 owes the difference for every year of service.
Applying resignation reductions to termination cases. Article 85 applies to resignation only. An employee terminated by the employer gets the full award at any service length. Confusing the two converts a routine exit into a court case.
Ignoring partial years. Seven years and eleven months is not seven years. The proportional fraction is small per employee and large across a workforce.
Paying late. Article 88 gives one week after the employer ends the contract, two weeks after the employee ends it. Late payment moves the dispute to the labour court, where the employee adds claims and the employer loses the settlement conversation.
Trusting the payroll system blindly. Systems compute what they are configured to compute. If the wage field holds basic salary only, the system will faithfully underpay every departing employee for years. Audit the configuration against the contract once a year.
10FAQ
Do I get end of service if I resign in the first year?
No. Under Article 85, resignation before two years of service carries no award at all. The two years are measured on actual service, and the clock starts at the first working day.
Is end of service due if the employee is terminated during probation?
No. Termination during the probation period does not carry an end of service award. See probation period in Saudi labour law for the full rules.
Is end of service paid on fixed-term contracts that expire?
Yes. Expiry of a fixed-term contract is a case where the full award is due, calculated on the same Article 84 formula. The contract type changes other things, such as notice, but not the award.
Is end of service taxable?
No. There is no personal income tax in Saudi Arabia, and the end of service award is not subject to any withholding. The employee receives the settlement figure in full.
What if the employer does not pay?
The employee files a claim with the labour court, after an attempt at amicable settlement through the ministry’s channels. Late payment puts the employer in the weaker position: the award is due, the deadline in Article 88 has passed, and further statutory consequences may apply depending on the case. Settlement before a hearing usually costs less than the hearing.
11Next step
Open your last completed final settlement and check three things: the wage used, the resignation scale applied, and the payment date against Article 88. If all three hold, your process is ahead of most. If one wobbles, the Labour Law and Employment Compliance in Practice course works through the formula, the scale and the full settlement with more worked cases. And for the rules your contracts must now reflect, read the next post on the 2025 amendments.
Related reading: Saudi labour law 2025 amendments and probation period in Saudi labour law.
This article is general information, not legal or tax advice. Rules change; confirm with the official source or a licensed adviser.