End-of-service gratuity calculator

End-of-service gratuity is an amount the employee earns when the employment relationship ends, whatever the reason: expiry of the contract, termination by the employer, resignation, or retirement. It is a statutory right governed by Articles 84 to 88 of the Saudi Labor Law.

Entitlement begins on the first day of work, but the amount varies with length of service and the reason the relationship ended. The two questions to settle before any calculation are therefore: exactly how long did service last, and who ended it and why.

The gratuity is calculated on the last wage the employee received, not on an average of past wages and not on the starting salary. Wage here means the basic wage plus fixed allowances paid on a regular basis, such as housing and transport.

Payments that are not fixed, such as variable commissions, discretionary bonuses, and overtime pay, are normally excluded. This distinction is where establishments most often go wrong, because the gap between basic and total wage can double the amount due.

Where the wage is commission or output based and varies month to month, the average of the last twelve months is used as the basis.

The rule in Article 84 is simple at its core. The employee earns half a month's wage for each of the first five years of service, then a full month's wage for every year after those five.

The tiers are cumulative, not alternative. Someone with eight years of service earns half a month for each of the first five, which is two and a half months, plus three months for the following three years, for a total of five and a half months. The common error is applying the higher tier to the entire period of service.

Fractions of a year are counted pro-rata and are not dropped. Six years and four months means the four months are counted at their proportion of the year, as Article 84 states expressly.

If the relationship was under an indefinite contract and ended by the employee's resignation, 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.

Note that the third and the two-thirds are taken from the full gratuity computed under Article 84, not from the wage. The correct order is to compute the full gratuity first, then apply the resignation fraction to it.

The thirds rule is not absolute. Article 87 carves out cases where the employee earns the full gratuity even after leaving voluntarily, including 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.

Likewise, if the employee leaves for one of the lawful grounds in Article 81, which are cases of employer breach, the departure is treated as an employer termination and the gratuity is paid in full.

Article 80 lists the cases where the employer may terminate without gratuity, notice, or compensation, including 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, however. The law requires that the employee be given the opportunity to state their case, and that termination occur within the period prescribed from the date the incident was established. An establishment that forfeits the gratuity without documenting its investigation exposes itself to a labour claim it will usually lose.

The four most common errors are: computing on the basic wage alone when fixed allowances exist, dropping fractions of a year, applying the full-month tier across all years of service, and applying the thirds rule to a fixed-term contract that simply expired, where it does not apply.

A fifth error is less visible and more costly: forgetting the cash allowance for unused annual leave. It is a separate entitlement paid alongside the gratuity, and many settlements omit it only to face a claim later.

The gratuity is one line in a settlement that has others. First among them is payment for accrued annual leave never taken, an entitlement under Article 111 that survives both resignation and dismissal, and that is computed on the wage rather than the basic pay alone.

Next come wages for the days actually worked in the final month, notice pay where the contract ended without the required notice under Article 76, compensation under Article 77 where the ending had no lawful ground, and the return of documents together with a free service certificate under Article 64.

Settlement has a deadline: Article 88 requires wages and dues to be settled within one week of the ending where the employer terminated, and within two weeks where the worker did.

Many people search for a "labour office" end-of-service calculator. The labour office is the older name for what is now the Ministry of Human Resources and Social Development, and the calculation is identical either way because it rests on the Labour Law articles rather than on any particular authority.

This calculator serves the private sector governed by the Labour Law. It does not apply to government employees, who fall under their own retirement and award schemes, nor to the categories excluded by Article 5 of the Law.