End-of-servicegratuity calculator

What the gratuity is and when it is due

End-of-service gratuity is money the employee is owed when employment ends, whatever the reason: the contract expires, the employer terminates it, the employee resigns, or the employee retires. Articles 84 to 88 of the Saudi Labor Law govern it.

Entitlement starts on the first day of work, but the amount depends on how long the employee served and why employment ended. So before you calculate anything, settle two questions: exactly how long was the service, and who ended it and why?

The wage the gratuity is calculated on

The gratuity is calculated on the employee's last wage. It is not an average of past wages, and it is not the starting salary. Here, wage means the basic wage plus fixed allowances paid regularly, such as housing and transport.

Payments that are not fixed, such as variable commissions, discretionary bonuses and overtime pay, are normally left out. Employers get this wrong more often than anything else, and the gap between the basic and the total wage can double the amount due.

If the wage is based on commission or output and changes from month to month, the average of the last twelve months is used.

Two tiers: half a month, then a full month

Article 84 sets a simple rule. The employee earns half a month's wage for each of the first five years of service, then a full month's wage for each year after that.

The two tiers add up. Someone with eight years of service earns half a month for each of the first five years, which is two and a half months, plus three months for the next three years. That makes five and a half months in total. The common mistake is applying the higher tier to the whole period of service.

Part of a year counts pro-rata and is not dropped. With six years and four months of service, the four months count in proportion to a full year, as Article 84 states.

Resignation and the thirds rule

If the employee resigns from an indefinite contract, the full gratuity is not due. Article 85 sets a sliding scale instead. Less than two years of service earns nothing. Two years up to five earns one-third. More than five but less than ten earns two-thirds. Ten years or more earns the full amount.

The third and the two-thirds are fractions of the full gratuity under Article 84, not of the wage. So calculate the full gratuity first, then apply the resignation fraction to it.

When the full amount is due despite resignation

The thirds rule has exceptions. Under Article 87 the employee gets the full gratuity in some cases even after leaving voluntarily. These include leaving because of force majeure beyond their control, and a female employee leaving within six months of her marriage or three months of giving birth.

The same applies if the employee leaves on one of the grounds in Article 81, which cover breaches by the employer. The departure is treated as termination by the employer, and the gratuity is paid in full.

When the gratuity is forfeited

Article 80 lists the cases where the employer may terminate without gratuity, notice, or compensation. They include assault on the employer or manager, failure to perform essential contractual obligations, acts touching honour or honesty, and disclosure of industrial or commercial secrets.

Forfeiture is not automatic. The employee must be given a chance to state their case, and the termination must happen within the set period from the date the incident was established. An employer that withholds the gratuity without a documented investigation will usually lose the labour claim that follows.

Common mistakes that cost employers money

The four most common mistakes are calculating on the basic wage alone when there are fixed allowances, dropping part-years, applying the full-month tier to every year of service, and applying the thirds rule to a fixed-term contract that simply expired, where it does not apply.

A fifth mistake is harder to spot and costs more: forgetting to pay for unused annual leave. This is a separate entitlement paid with the gratuity. Many settlements leave it out and face a claim later.

The other end-of-service entitlements

The gratuity is only one line in the final settlement. The first of the others is pay for accrued annual leave that was never taken. Under Article 111 it is due after both resignation and dismissal, and it is calculated on the wage, not on basic pay alone.

Then there are wages for the days actually worked in the final month, notice pay if the contract ended without the notice required by Article 76, and compensation under Article 77 if there was no lawful reason to end it. Under Article 64 the employee also gets their documents back and a free service certificate.

There is a deadline. Under Article 88, wages and dues must be settled within one week if the employer ended the contract, and within two weeks if the employee did.

Private sector only, and a note on the old ministry name

Many people search for a "labour office" end-of-service calculator. Labour office is the old name for what is now the Ministry of Human Resources and Social Development. The calculation is the same either way, because it comes from the Labour Law articles, not from the name of the authority.

This calculator is for the private sector, which the Labour Law governs. It does not cover government employees, who have their own retirement and end-of-service schemes, or the categories excluded by Article 7 of the Law.