End of Service Benefits in Saudi Arabia: Calculation
Half a month's wage per year for the first five years, then a full month. Which allowances count, how resignation changes entitlement, and a worked example.
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 award under 2 years to the full award at 10 years or more.
- Use the last wage: basic salary plus the allowances, commission and other increases the Labour Law counts as wage (Article 2); commission can be left out only by agreement (Article 86).
- 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
- Not due where the employer ends the contract in one of the cases listed in Article 80 (misconduct among them), or where the contract ends during probation (Article 54); resignation reduces it on the Article 85 scale below
- Mandatory for all private sector employers
Reference: MHRSD — Labour Law, Articles 54, 80 and 84 to 88
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 the other increases the Labour Law counts as wage, commission among them; the parties may agree to leave commission and sales percentages out (Article 86).
The test is the Labour Law’s definition, not the label on the payslip. Article 2 defines the wage as the actual wage: the basic wage plus the other increases due to the worker for effort or risk in the work, or set for the worker in return for the work by the contract or the work regulations. Its list includes commission and sales or profit percentages; allowances for effort or risk; cost-of-living and family increases; grants and bonuses; and benefits in kind.
| Pay element | In the EOSB base? | Why |
|---|---|---|
| Basic salary | In | The base is the last wage received at termination, and basic salary is its core. |
| Housing allowance paid in cash each month | In | An increase the contract sets for the worker in return for the work, which Article 2 counts in the actual wage. |
| Transport or similar allowance paid as a fixed monthly amount | In, where the contract or work regulations set it | Read against the same definition in Article 2. Article 2 does not name transport allowance individually; this is our reading of its general wording, not a published classification of transport allowance. |
| Commission, sales percentages, profit percentages | In, unless the parties agree to leave them out | Article 2 names them in the actual wage; Article 86 lets the parties agree that all or some of them are not counted in the end-of-service base. |
| Overtime | Settled by the contract and MHRSD | Article 2’s list does not name overtime pay, so we state no rule. |
| Bonuses and grants | In where the contract or work regulations provide for them, or where they are customarily paid so that workers regard them as part of the wage rather than a gift | The conditions Article 2 sets for a grant or bonus. |
| Anything the contract expressly brings in | In | The contract can widen the base, and it is the document that settles the argument. |
The rows above apply Article 2’s definition to the pay elements we see most often. They are not an allowance-by-allowance classification published by MHRSD — where an allowance is unusual, or where a large sum turns on it, the contract and the ministry are the places to settle it.
Housing provided in kind rather than in cash, where the contract or the work regulations provide for it, is a benefit in kind, and Article 2 values benefits in kind at up to two months’ basic wage for each year, unless the contract or the work regulations value them higher. The valuation is worth agreeing before the final settlement is calculated, not after.
Do not reuse the GOSI wage. Payroll teams routinely pass the GOSI contributory wage into the end-of-service calculation because it is already sitting in the system. It is a different base, and the error runs in both directions.
| Pay element | End of service base | GOSI contributory wage |
|---|---|---|
| Basic salary | In | In |
| Housing allowance paid in cash | In | In |
| Housing provided in kind | In — valued at up to two months’ basic wage a year, unless the contract or work regulations value it higher (Article 2) | Valued at two months’ basic salary |
| Transport allowance | In, where the contract or work regulations set it | Out |
| Commission, sales or profit percentages | In, unless the parties agree to leave them out (Article 86) | In — treated as basic wage |
| Overtime | Settled by the contract and MHRSD; Article 2 does not name it | Out |
| Grants, annual bonuses | In where the contract or work regulations provide for them, or where customarily paid so that workers regard them as wage (Article 2) | Out |
The right-hand column comes from GOSI’s own Employer FAQ, set out branch by branch in our GOSI contributions guide. One further difference: the contributory wage is capped at SAR 45,000 a month, a ceiling with no counterpart in the end-of-service rules below.
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
The same three rules, read across a career, with the riyal column calculated on the SAR 10,000 last wage used in the worked example below.
| Completed service | Accrual rate applied | Wage-months accrued | On a SAR 10,000 last wage |
|---|---|---|---|
| 1 year | Half a month per year | 0.5 | SAR 5,000 |
| 3 years | Half a month per year | 1.5 | SAR 15,000 |
| 5 years | Half a month per year | 2.5 | SAR 25,000 |
| 7 years | Half a month for the first 5, then a full month | 4.5 | SAR 45,000 |
| 10 years | Half a month for the first 5, then a full month | 7.5 | SAR 75,000 |
| 12 years | Half a month for the first 5, then a full month | 9.5 | SAR 95,000 |
Every year past the fifth adds one further month of wage — SAR 10,000 on this example, twice what the same year would have earned inside the first five. Part years are pro-rated over their months and days rather than counted as whole years.
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
- Under 2 years: no entitlement on resignation
- 2 to 5 years, five included: one third of the accrued award
- More than 5 and under 10 years: two thirds
- 10 years or more: the full award
Article 87 is the exception: the full award is due where the employee leaves because of force majeure beyond their control, and to a female employee who ends the contract within six months of her marriage contract or three months of giving birth.
The scale is a fraction of the award the employee has already accrued, not a separate formula. Calculate the full award first, then apply the fraction.
| Completed service | Employer ends it, or the contract expires | On resignation — fraction | On resignation — percentage |
|---|---|---|---|
| Under 2 years | Full accrued award | Nothing | 0% |
| 2 to 5 years, five included | Full accrued award | One third — 1/3 | 33.33% |
| More than 5 and under 10 years | Full accrued award | Two thirds — 2/3 | 66.67% |
| 10 years or more | Full accrued award | All of it — 1/1 | 100% |
The boundaries come from Article 85’s own wording: one third after at least two years “and not more than five”, two thirds once service exceeds five years, the full award at ten years or more. Exactly five years is one third, exactly ten the full award, and the calculator on this page applies the same bands.
The same four bands in riyals, on the SAR 10,000 last wage used above.
| Service at leaving | Accrued award | Paid if the employer ends it | Paid if the employee resigns |
|---|---|---|---|
| 1 year | SAR 5,000 | SAR 5,000 | SAR 0 |
| 3 years | SAR 15,000 | SAR 15,000 | SAR 5,000 |
| 7 years | SAR 45,000 | SAR 45,000 | SAR 30,000 |
| 12 years | SAR 95,000 | SAR 95,000 | SAR 95,000 |
Two things the riyal columns make obvious. The resignation scale bites hardest in the middle of a career — at three years the leaver takes a third — and from ten years it stops mattering at all, because the two payment columns converge. And the fraction never touches the accrual itself: an employee resigning at seven years has still accrued 4.5 months of wage, and two thirds of that accrual is what is paid.
Details: MHRSD — Labour Law, Article 85
Legal Requirements for Employers
Mandatory obligations:
- Pay the wage and settle the employee’s dues within one week of the end of the contractual relationship, or within two weeks where the employee ended the contract (Article 88)
- 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: MHRSD — Labour Law, Article 88
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
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 runs HR, payroll and compliance together, so the award is calculated from the same records it will be audited against.
- HR Outsourcing & Payroll: Complete payroll processing, wage/allowance mapping, and EOSB calculations aligned with Saudi Labor Law.
- GOSI and final settlement: the contributory wage record, kept separate from the end-of-service base, the deregistration inside the fifteen-day window, and the settlement paid within one week of separation (two where the employee ended the contract) — see GOSI, WPS and Mudad compliance.
- 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 calculate each award to the Labour Law and document how it was reached.
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 salary plus the allowances, commission and other increases Article 2 of the Labour Law counts as wage). 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. Under 2 years: none; 2 to 5 years, five included: 1/3; more than 5 and under 10 years: 2/3; 10 years or more: full amount (Article 85). Article 87 gives the full award where the employee leaves because of force majeure, and to a female employee who ends the contract within six months of her marriage contract or three months of giving birth.
What counts as “last wage”?
The actual wage as Article 2 of the Labour Law defines it: the final basic salary plus the allowances and other increases due, including commission and sales or profit percentages, grants or bonuses that the contract or work regulations provide for or that are customarily paid so that workers regard them as part of the wage, and benefits in kind. The parties may agree that commission and sales percentages are not counted (Article 86).
Is the EOSB wage the same as the GOSI contributory wage?
No. The two bases differ on several elements: a transport allowance set by the contract forms part of the last wage but is outside the GOSI contributory wage. Commission counts in both by default, but the parties may agree to leave it out of the EOSB base (Article 86), while GOSI treats it as basic wage. The GOSI contributory wage is also capped at SAR 45,000 a month.
When must EOSB be paid?
Within one week of the end of the contractual relationship, or within two weeks where the employee ended the contract (Labour Law, Article 88). The employer may deduct any debt owed to it because of the work from the amounts due.
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?
In the Labour Law itself, on MHRSD’s site: Articles 84 to 88 for the award, the resignation scale and the payment deadline, and Article 2 for what counts as wage. For commentary, see CERCLI’s Saudi Labor Law: End of Service and Al Othman Law’s EOSB guide.
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Official sources
Verify current requirements directly with the authorities — rules and fees in this area change, and the official portal is always ahead of any guide, including this one.