Ultimate Guide to Saudi End-of-Service Benefits (EOSB) Calculation & Salary Basis
By Saad AlSahli , LL.M. (Intl. Commercial Law, Univ. of Sussex) | Saudi Licensed Lawyer
The End-of-Service Benefit (EOSB) is a mandatory financial right for all eligible private sector employees in Saudi Arabia. This comprehensive guide breaks down the legal basis, defines the exact components of the "Last Wage" used for calculation, and outlines the precise formulas to ensure you receive the correct gratuity.
I. Legal Basis: Foundational Articles for End-of-Service Benefits
The entitlement to the End-of-Service Benefit (EOSB) in the Kingdom of Saudi Arabia (KSA) is a non-negotiable legal right established under the Saudi Labor Law. This obligation is primarily codified in Article 84, which dictates the formula for calculating the gratuity due to a worker upon the termination of the employment relationship.
Article 84 establishes the standard calculation rates: the worker is entitled to a half-month wage for each of the first five years of service, and a one-month wage for each subsequent year. Furthermore, the worker is legally entitled to the EOSB for any portion of a year worked, calculated in proportion to the time spent on the job. To underscore the precedence of this right, amounts due to the worker under the Law are classified as first-rate privileged debts over all the employer’s assets. Any condition or agreement that attempts to waive or contravene these statutory rights is deemed null and void, unless that agreement is definitively more beneficial to the worker. For a detailed breakdown of specific scenarios where entitlement is affected, view all entitlement and waiver rules.
Domestic Worker Exception
It is essential to note that the general provisions of the Saudi Labor Law, including Article 84, do not apply to all categories of workers. Specifically, domestic workers and those in similar roles are explicitly exempted from the scope of the main Labor Law provisions. These categories are instead governed by separate regulations, such as those detailed in Ministerial Decision No. (40676) dated 17/03/1445 AH (corresponding to 2023), which features its own specific EOSB provision under Article 22.
For all non-exempt private sector employees, the ultimate requirement of Article 84 is clear: the reward is calculated on the basis of the last wage received by the worker. Therefore, calculating the correct EOSB fundamentally depends on accurately defining and quantifying what constitutes this "last wage."
II. What Constitutes the "Last Wage" (Salary Basis) for EOSB?
The core principle governing the financial settlement of the End-of-Service Benefit (EOSB) is mandated by Article 84 of the Saudi Labor Law: the final gratuity must be calculated based on the last wage received by the worker. Therefore, accurately defining the legal term "wage" is paramount, as the term encompasses more than just the basic salary. View our specific analysis on What is Basic Salary for EOSB Calculation in Saudi Arabia (KSA)?
The Saudi Labor Law (specifically Article 2) distinguishes between two crucial components of remuneration to arrive at the statutory "Last Wage."
A. Understanding Key Definitions
The Basic Wage
The Basic Wage is defined as all amounts granted to the worker for performing their work, whether based on a written or unwritten contract, irrespective of the method of payment, in addition to any periodic increments. This establishes the minimum fixed foundation of the worker’s compensation.
The Actual Wage (The EOSB Calculation Basis)
The term Wage used throughout the Labor Law is equivalent to the Actual Wage. This "Actual Wage" forms the official basis for calculating the EOSB. The Actual Wage is the Basic Wage augmented by all other due increments decided for the worker. These increments are compensation either for effort exerted, risks encountered in performing the work, or payments specified under the employment contract or the internal work organization regulation.
The elements comprising the "Actual Wage" are legally enumerated as follows:
- Commissions, Sales, or Profit Percentages: Any commission or percentage from sales or profits that is paid for what the worker markets, produces, collects, or realizes from increased or enhanced production.
- Allowances for Effort or Risk: Allowances to which the worker is entitled for exerted effort or for risks encountered while performing their job.
- Cost of Living/Family Increments: Increments granted in accordance with the standard of living or to meet family expenses.
- Grants or Rewards: Monetary amounts explicitly stipulated in the work contract or customarily granted to the extent that workers consider them part of the wage.
- In Rem Privileges (In-Kind Benefits): Benefits that the employer commits to provide to the worker. Their value is estimated at a maximum of two months basic wage per annum, unless the contract specifies otherwise to exceed that. _
The definitive inclusion of these diverse components in the Actual Wage means that the total financial baseline for the EOSB is frequently higher than the Basic Salary alone.
Basic Wage + Allowances/Commissions = Actual Wage (EOSB Basis).
⚠️ Legal Exception (Article 86)
It is permissible to agree by contract that not all or some amounts of commissions, sales percentages, or similar variable wage components shall be included in the wage used for EOSB calculation. Fixed allowances (Housing, Transportation) are often included if they are given for work performed.
III. Service Period and Calculation Formulas
The calculation of the End-of-Service Benefit (EOSB) is strictly determined by the length of the worker’s continuous service and the rate applied to that period.
A. Standard Calculation Rates: The Two-Tier Formula (Article 84)
The Saudi Labor Law mandates a progressive scale for the EOSB, which increases the accumulation rate after the worker completes five years of service.
How to Calculate the End-of-Service Benefit
- Step 1: Calculate the first five years of service (The Half-Month Rule): For each of the first five years of continuous service, the worker accrues a reward equivalent to a half-month wage.
- Step 2: Calculate the subsequent years of service (The Full-Month Rule): For all years of service following the first five years, the worker accrues a reward equivalent to a one-month wage for each subsequent year.
| Service Duration | EOSB Accrual Rate (Based on Last Wage) | Supporting Legal Article |
|---|---|---|
| Years 1 through 5 | Half-month wage (per year) | Article 84 |
| Years 6 and onwards | One-month wage (per year) | Article 84 |
⚠️ Domestic Workers Exception
These specific formulas apply to non-domestic workers. Domestic workers follow a separate rule, entitling them to one month’s wage for every four consecutive years of service, as outlined in Article 22 of the Domestic Workers Law.
B. Calculating Fractions of a Year and Continuous Service
The Rule of Proportionality
The worker is legally entitled to an end-of-service award for the portions of the year in proportion to the time spent on the job.
Example: If a worker completes 5 years and 6 months of service, the fractional period (6 months) is calculated proportionally to the rate applicable to that period (which would typically be the full-month rate if it falls after the initial five years, as detailed in EOSB Calculation for Service Over 5 Years).
Defining Continuous Service
For the purpose of calculating this accrued service period, not all interruptions disqualify the service as "continuous." The definition of Continuous Service specifies several cases where service is legally deemed uninterrupted, even when the worker is not actively at work.
- Official Holidays and Vacations: These periods are counted as part of the continuous service.
- Examination Interruptions: Periods of interruption utilized for sitting for examinations, in accordance with the provisions of the Labor Law, are counted as continuous service.
- Unpaid Absences: A worker’s unpaid absences from work are included in continuous service, provided the intermittent periods do not exceed twenty days per work year.
This detailed definition ensures that a worker's entitlement is maximized by counting all legally sanctioned rest and brief intermittent absences toward the final EOSB calculation.
IV. Operational and Final Payment Considerations
The employer’s final obligation is not only to calculate the End-of-Service Benefit (EOSB) correctly but also to ensure the timely and accurate settlement of all outstanding dues, including the last wage and accumulated entitlements.
📄 Key Requirement for Employees
Ensure you obtain a signed Final Clearance Certificate or release letter confirming all dues, including the final EOSB payment, have been settled.
A. Payment Timeline (Article 88)
The maximum allowable period for the employer to finalize the settlement is determined by which party initiated the termination of the contractual relationship:
- Employer Termination or Contract Expiration: The employer must pay the worker’s wages and settle all entitlements within a maximum period of one week from the date the contractual relation ended.
- Worker Termination (Resignation): If the worker is the party who ends the contract, the employer must settle all the worker’s entitlements completely within a period not exceeding two weeks.
The employer retains the right to deduct any work-related debt owed to them from the amounts due to the worker.
B. Deductions from Final Dues
The law rigorously limits the amounts an employer may unilaterally deduct from a worker’s entitlements to ensure fair compensation:
- Deductions for Damages/Losses: Deductions for damages may not exceed a five-day wage per month.
- Repayment of Employer Loans/Advances: Deductions for employer loans must not exceed 10% of the worker's wage (requires written consent).
- Maximum Total Deduction Rule (Article 93): Regardless of the cumulative reasons for deduction, the total percentage deducted may not exceed half (50%) the worker's due wage, except under specific circumstances ruled by the Commission for the Settlement of Labor Disputes.
The final settlement must also include other dues, such as Accrued Leave Pay. See how to Calculate Accrued Leave Pay.
V. Disclaimer on Accuracy
This guide draws upon direct excerpts and interpretations of the Saudi Labor Law and associated regulations. However, the information provided herein is intended solely as a preliminary guide and is designed to aid understanding of the complex calculation mechanisms and rules.
The content of this guide does not constitute legal advice and carries no warranty regarding its accuracy.
It is imperative that all users recognize the legal supremacy of the official legislation: the Arabic language of the laws and regulations prevails for all legal interpretations. While English translations have been utilized, they are often computer-aided or unofficial, and should be treated solely as general guidance.
Any unresolved disputes or questions regarding specific entitlements or interpretations between employers and employees must be formally directed to the relevant Saudi authorities (such as the Ministry of Human Resources and Social Development or the labor courts) for official clarification and binding decisions.
Don't Guess Your Final Entitlement - Calculate It Precisely
The rules governing Saudi EOSB for resignation (1/3, 2/3, Full) and termination (Articles 80, 81, 87) are highly specific and depend on your service duration and the exact reason for separation. Remove the uncertainty and ensure you receive the correct amount. Use our Saudi End-of-Service Benefits Calculator - the only tool built to factor in all the nuanced entitlement rules, including resignation tiers and special exemptions under the Saudi Labor Law. It's fast, accurate, and completely FREE.
Use Our End-of-Service Benefits CalculatorFAQs about End-of-Service Benefits (EOSB) Calculation & Salary Basis
Is the End-of-Service Benefit (EOSB) a mandatory and non-negotiable right for eligible private sector employees?
What financial components constitute the 'Last Wage' (or Actual Wage) used for the final EOSB calculation?
- The Basic Wage plus any periodic increments.
- Commissions, sales, or profit percentages.
- Allowances for exerted effort or encountered risks.
- Cost of living or family increments.
- Monetary grants or rewards explicitly stipulated or customarily granted.
- In-kind benefits (In Rem Privileges), valued at a maximum of two months' basic wage per annum, unless the contract specifies a higher value.
How is the standard EOSB calculation formula determined based on the length of continuous service?
- Years 1 through 5: The worker accrues a reward equivalent to a half-month wage for each year of continuous service.
- Years 6 and onwards: The worker accrues a reward equivalent to a one-month wage for each subsequent year.
Are domestic workers covered by the same EOSB rules as private sector employees?
What is the maximum timeline for an employer to pay the final EOSB and entitlements?
- Employer Termination or Contract Expiration: The employer must settle all entitlements within a maximum period of one week from the date the contractual relation ended.
- Worker Termination (Resignation): If the worker ends the contract, the employer must settle all entitlements completely within a period not exceeding two weeks.
What periods are included when defining 'Continuous Service' for the purpose of calculating the accrued EOSB period?
- Official holidays and vacations.
- Periods utilized for sitting for examinations, in accordance with the Labor Law provisions.
- A worker’s unpaid absences, provided the intermittent periods do not exceed twenty days per work year.
Can an employer deduct debts or damages from the worker's final EOSB payment, and what are the limits?
- Deductions for damages or losses may not exceed a five-day wage per month.
- Deductions for employer loans or advances must not exceed 10% of the worker's wage (and require written consent).
- The total cumulative deduction percentage may not exceed half (50%) of the worker's due wage, unless ruled otherwise by the Commission for the Settlement of Labor Disputes.