What is Basic Salary for EOSB Calculation in Saudi Arabia? (Actual Wage Definition)

Calculating End of Service Benefits (EOSB) in the Kingdom of Saudi Arabia (KSA) hinges entirely on understanding a critical legal concept: the “Wage.”
Under the Saudi Labor Law (SLL), the calculation of the final gratuity is determined not just by the basic amount, but by a comprehensive figure known as the Actual Wage.

The SLL mandates that the EOSB be calculated using the last wage received by the worker as its fundamental basis. For employers and employees navigating Saudi labor regulations, grasping the distinction between the Basic Wage and the Actual Wage is essential, as the Actual Wage dictates the final financial entitlements, particularly the EOSB amount.

Basic Wage vs. Actual Wage: Defining the Legal Terms

In the context of the Saudi Labor Law, two distinct definitions govern compensation. Although related, the Actual Wage is the overarching legal standard used for calculating most entitlements, including the EOSB.

The Basic Wage (الأجر الأساسي)

The Basic Wage is the core, stable element of a worker’s compensation.

• Definition: All amounts granted to the worker for performing their work, whether based on a written or unwritten work contract, irrespective of the method of payment.
• Crucial Inclusion: The Basic Wage explicitly includes periodic increments.

The Actual Wage (الأجر الفعلي) or Wage (الأجر)

The Actual Wage is the all-inclusive compensation used as the default basis for calculating legal rights, such as the End of Service Benefit.
It represents the Basic Wage augmented by all other due increments determined for the worker.

The distinction is crucial: where the SLL refers simply to the “Wage” (الأجر), it explicitly means the Actual Wage. Therefore, the EOSB calculation must incorporate every component of the worker’s Actual Wage, unless a specific, legally recognized exception applies.

Mandatory Components of the Actual Wage in Saudi Arabia

The Saudi Labor Law provides an explicit list of components that must be included, in addition to the Basic Wage, to determine the total Actual Wage (Wage):

• Commission, Percentage from Sales or Profits: 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: Any allowances the worker is entitled to in return for effort exerted or risks encountered while performing their job are included.
• Cost-of-Living or Family Increments: Increases that may be granted according to the standard of living or designed to meet family expenses.
• Grants or Rewards: Monetary compensation stipulated in the contract or customarily granted to the extent that the workers consider them a part of the wage.
• In Rem Privileges (In-kind Benefits): Benefits that the employer is obligated to provide. These are estimated at a maximum equivalent to the basic wage for two months per year, unless the contract or regulation specifies a higher estimate.

For entitlements determined by non-time-based criteria (such as piecework or commissions), the calculation relies on the average wage received for actual working days during the last year of service.
Read more about calculating average wage for variable pay →

The Article 86 Exception: Excluding Variable Pay from EOSB Calculation

While the general rule dictates that the comprehensive Actual Wage must be used for EOSB calculation, the Saudi Labor Law provides a critical exception under Article 86 regarding pay components that are variable by nature.

This provision allows employers and employees to negotiate the exclusion of certain variable pay elements when determining the EOSB basis - overriding the general strictness of Article 8.

Mechanism of Exclusion

Article 86 stipulates that it is permissible to agree that the wage used as a basis for calculating the end-of-service award does not include all or some of the following variable pay components:

• Commissions
• Sales percentages
• Similar components of the wage paid to the worker

Key Takeaway on Agreement:
The exclusion of these variable components is not automatic. For this exception to apply, there must be a clear and enforceable written agreement between the employer and the worker.
If the contract is silent, the general rule prevails, and the full Actual Wage must be used for the EOSB calculation.

Conclusion

The determination of the “Basic Salary” for EOSB calculation under Saudi Labor Law is inherently tied to the broader legal term, the “Actual Wage.”
The Actual Wage is a comprehensive figure mandated to include the Basic Wage along with all consistent and due increments.

While the foundation of compensation is the Basic Wage, the final financial rights of the worker upon termination - including the calculation of the End of Service Benefit - rely upon the Actual Wage.

Understanding these precise legal definitions and exceptions (like those permissible under Article 86 for excluding variable pay) is fundamental to ensuring compliance with the Saudi Labor Law.

Any unresolved disputes or questions must be formally directed to the relevant Saudi authorities for official clarification and binding decisions.