Estimated reading time: 9 minutes
Key Takeaways
- EOSB is mandatory under Saudi Labor Law (Article 84) for all private sector employers.
- Standard calculation: 0.5 month per year for the first 5 years, then 1 month per year thereafter; partial years are prorated.
- Resignation rules change entitlement: from no EOSB (<2 years) to full EOSB (>10 years).
- Use the last wage (basic salary + regular allowances) unless the contract states otherwise.
- Avoid errors: misclassifying allowances, miscalculating partial years, and ignoring breaks in service.
- Digital HR systems and regular audits help ensure compliance and accuracy.
Introduction
End of Service Benefits (EOSB) are legally mandated severance payments in Saudi Arabia, designed to provide financial security when employment ends due to resignation, contract expiration, or employer-initiated termination. Non-compliance can lead to penalties and disputes, making it essential for both employers and employees to understand how EOSB is calculated and administered. For a legal primer, see Al Othman Law’s End of Service Benefits guide.
What Are End of Service Benefits?
EOSB is a lump-sum payment that recognizes an employee’s tenure and supports them financially upon termination of employment, whether due to resignation, contract end, or termination by the employer.
Legal Framework
- Governed by Saudi Labor Law, Article 84
- Cannot be waived except in cases of employee misconduct (Article 80)
- Mandatory for all private sector employers
Reference: CERCLI’s Saudi Labor Law: End of Service
EOSB is a statutory right. Employers must calculate and pay EOSB accurately and on time to avoid legal exposure.
EOSB Calculation: Step-by-Step Guide
Base Salary Considerations
- Use the last wage received at termination.
- Includes basic salary and regular allowances; excludes variable earnings unless the contract states otherwise.
Standard Formula
- First 5 years: 0.5 month’s wage per year
- After 5 years: 1 month’s wage per year
- Partial years: pro-rated based on months/days
Worked Example (7 years of service, last monthly wage SAR 10,000)
- First 5 years: 5 × 0.5 × 10,000 = SAR 25,000
- Additional 2 years: 2 × 1 × 10,000 = SAR 20,000
- Total EOSB = SAR 45,000
Further reading: ZenHR’s ESB guide for the MENA region
Resignation Rules and EOSB Entitlement
- Less than 2 years: No EOSB entitlement
- 2–5 years: Entitled to 1/3 of total EOSB
- 5–10 years: Entitled to 2/3 of total EOSB
- Over 10 years: Entitled to full EOSB
Details: Al Othman Law’s End of Service Benefits guide
Legal Requirements for Employers
Mandatory obligations:
- Process EOSB payments immediately upon termination
- Maintain accurate documentation of salary history, service duration, and termination details
Compliance requirements:
- Keep detailed payroll records and document all salary adjustments
- Maintain termination documentation and process payments within legal timeframes
- Leverage Qiwa compliance services in Saudi Arabia to streamline labor contract compliance
Reference: CERCLI’s Saudi Labor Law: End of Service
Common EOSB Calculation Challenges
Key issues to watch:
- Incorrect classification of bonuses and allowances
- Errors in calculating partial years
- Misapplication of resignation rules
- Overlooking service breaks
Prevention strategies:
- Regular payroll audits and use of verified calculation software
- Staff training on EOSB regulations and documentation reviews
- Consider Benefits & Payroll Outsourcing for KSA SMEs to reduce risk and improve accuracy
Legal background: Al Othman Law – End of Service Benefits
Best Practices for EOSB Management
Digital Solutions:
- Implement HR management systems and automated EOSB calculation tools
- Maintain electronic records and secure document trails
- Evaluate ERP & HR Software Solutions in KSA for end-to-end HR and payroll control
Compliance Strategies:
- Regular staff training and annual compliance audits
- Updated procedure manuals and clear communication channels
- Cross-check EOSB with contracts and local regulations
Reference: CERCLI – End of Service
Recent Updates in EOSB Regulations
- Enhanced focus on digital payment platforms
- Mandatory electronic contract systems
- Increased transparency requirements
Stay updated:
- Monitor MHRSD announcements and subscribe to legal updates
- Conduct regular policy reviews and update internal procedures promptly
More details: CERCLI – Saudi Labor Law: End of Service
Useful Tools and Resources
- Use ZenHR’s ESB guide and calculator references to model scenarios
- Access the MHRSD official portal for current directives
- Adopt HR compliance software and digital record-keeping systems
- Explore HR Outsourcing in Saudi Arabia – why it’s the smarter move for businesses in 2025 for scalable compliance operations
Conclusion
Accurate EOSB calculation and management safeguard both employees and employers while ensuring compliance with Saudi labor laws. The keys: apply the correct formula, use the last wage with appropriate allowances, respect resignation thresholds, and maintain robust documentation and digital systems.
Remember to:
- Review calculations regularly
- Keep accurate records
- Stay updated with regulations
- Seek professional advice when needed
Authoritative reference: Al Othman Law – End of Service Benefits
Why Choose SCPL for EOSB Compliance, Payroll & HR in Saudi Arabia
EOSB accuracy depends on the right data, correct classification of allowances, and timely processing. SCPL integrates HR, payroll, and compliance so your EOSB is right the first time—and always audit-ready.
- HR Outsourcing & Payroll: Complete payroll processing, wage/allowance mapping, and EOSB calculations aligned with Saudi Labor Law.
- Finance & Compliance: Documentation control, audit support, and payment workflows that meet statutory timeframes.
- IT & Digital Solutions: Implementation of ERP & HR software solutions in KSA for automated EOSB, approvals, and e-records.
- Qiwa & Contract Compliance: Alignment of employment contracts and changes through Qiwa compliance services in Saudi Arabia.
- Payroll Outsourcing for SMEs: Scalable and cost-effective EOSB administration via Benefits & Payroll Outsourcing for KSA SMEs.
Why SCPL? We combine local labor law expertise with hands-on payroll execution. From policy set-up to monthly processing and final settlements, our specialists ensure EOSB is calculated accurately, transparently, and on time.
Need a compliant EOSB framework that scales with your team? Explore HR outsourcing in Saudi Arabia and let SCPL set up the right model for your business.
FAQ
What is EOSB in Saudi Arabia?
End of Service Benefits (EOSB) are mandatory severance payments due to employees when employment ends, as per Saudi Labor Law Article 84.
How is EOSB calculated?
Use the last wage (basic + regular allowances). Calculate 0.5 month per year for the first 5 years and 1 month per year thereafter; prorate partial years.
Does resignation affect EOSB?
Yes. <2 years: none; 2–5 years: 1/3; 5–10 years: 2/3; over 10 years: full amount.
What counts as “last wage”?
Typically the final monthly basic salary plus regular allowances. Variable/one-off payments are excluded unless the contract specifies inclusion.
When must EOSB be paid?
Immediately upon termination as per labor law requirements; employers must not delay without legal grounds.
What are common EOSB mistakes?
Misclassifying allowances, ignoring service breaks, mishandling partial years, and misapplying resignation thresholds.
How can we reduce EOSB risk and errors?
Use audited payroll processes, implement HR software, maintain electronic records, and consider outsourcing to specialists like SCPL.
Where can I read the legal basis?
See CERCLI’s Saudi Labor Law: End of Service and Al Othman Law’s EOSB guide.
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