If the employment relationship ends, the employer must pay the employee an end-of-service gratuity calculated on the basis of half a month's wage for each of the first five years of service, and a full month's wage for each subsequent year, based on the employee's last wage.
Basic Calculation Method
Under the Labor Law, if the employment relationship ends, the employer must pay the employee a gratuity for the period of service, calculated on the basis of a half-month's wage for each of the first five years and a full month's wage for each subsequent year, with the last wage used as the basis for the calculation. The employee is entitled to a gratuity for fractions of a year in proportion to the time spent in service.
Reduced Gratuity on Resignation
If the employment relationship ends due to the employee's resignation, the employee is entitled to one-third of the gratuity after service of not less than two consecutive years and not more than five years, two-thirds if the service exceeds five consecutive years but is less than ten years, and the full gratuity if the service reaches ten years or more.
- Service of two to five years: one-third of the gratuity.
- Service exceeding five years but less than ten years: two-thirds of the gratuity.
- Service of ten years or more: the full gratuity.
Exceptions to the Resignation Reduction
As an exception to the resignation reduction rule, the full gratuity is due if the employee leaves work due to force majeure beyond their control, and a female employee is also entitled to the full gratuity if she terminates the contract within six months of her marriage or three months of giving birth. These exceptions remain in place regardless of the length of the employee's service, unlike the usual graduated scale that applies to ordinary resignations.
Wage Used to Calculate the Gratuity
The parties may agree that all or some commission amounts and percentages of sales prices, and similar wage elements paid to the employee that are inherently subject to increase or decrease, are not included in the wage on the basis of which the end-of-service gratuity is settled.
Illustrative Example
As a hypothetical example, if an employee's last wage is 6,000 riyals and they completed 7 years of service before the employment ends (not by resignation), the gratuity is calculated as follows: 3,000 riyals x 5 years (half-month) = 15,000 riyals, plus 6,000 riyals x 2 years (full month) = 12,000 riyals, for a total of 27,000 riyals (illustrative example with assumed figures).
No Gratuity During the Probation Period
If the employee is subject to a probation period and the employment contract is terminated during that period, neither party is entitled to compensation, and the employee is not entitled to end-of-service gratuity for that period. An employee may not be placed on probation more than once with the same employer, except by written agreement between the parties for another probation period, provided it is in a different profession or job, or that at least six months have passed since the end of the employee's prior relationship with that employer.
Deadline for Settling Dues
If the employee's service ends, the employer must pay the employee's wage and settle their dues within one week at most from the date the contractual relationship ends; if it was the employee who terminated the contract, the employer must settle all dues within a period not exceeding two weeks.
Legal References
- Labor Law (Royal Decree No. M/51 dated 23/8/1426H) — Articles Fifty-Four, Eighty-Four, Eighty-Five, Eighty-Six, Eighty-Seven, and Eighty-Eight.
For questions about your specific situation, you can ask the Saudi Arabia Tax & Legislation Helper on Helpers, or consult a licensed chartered accountant.
