End-of-service benefits (EOSB) under Saudi labor law
How end-of-service gratuity is calculated in Saudi Arabia, how resignation vs termination changes it, and why accruing it monthly matters.
End-of-service benefit (EOSB) — the gratuity owed to employees when they leave — is one of the most misunderstood obligations in Saudi labor law. Get the calculation wrong and you face disputes; ignore the accrual and you face a nasty cash surprise.
The basic formula
Under the Saudi Labor Law, EOSB is based on the employee’s last wage and length of service:
- Half a month’s wage for each of the first five years.
- A full month’s wage for each year after five.
Partial years are paid pro-rata. “Wage” generally means the last basic wage plus regular allowances.
Resignation changes the award
How the employee leaves matters:
- Termination (by employer) — typically the full award above.
- Resignation — the award is reduced on a sliding scale by years of service (commonly: a third for 2–5 years, two-thirds for 5–10 years, and the full amount after 10 years), with specific exceptions.
The exact fractions, definitions of “wage,” and exceptions are set in the Labor Law and its amendments — confirm the current articles or consult a labor advisor for edge cases.
Why accrue it monthly
EOSB is a growing liability that belongs on your balance sheet. Recognizing it monthly (rather than discovering it when someone resigns) keeps your financials honest and avoids a lump-sum shock — especially for a workforce with long tenure.
Where it goes wrong
- Using basic only when allowances should be included (or vice versa).
- Forgetting the resignation scale.
- No accrual, so the liability is invisible until payout.