Ending a work relationship in Saudi Arabia often raises one of the most common concerns among employees and employers alike — end of service benefits (ESB).
These benefits—often called gratuity—are more than just a legal requirement. They represent appreciation for years of dedication, loyalty, and contribution.
However, understanding Saudi labor law’s end of service benefits can be confusing. This guide answers the most frequently asked questions employees have, simplifying the law’s key provisions and offering practical insights for both workers and HR professionals.
1. What Are End of Service Benefits (ESB) in Saudi Arabia?
Under the Saudi Labor Law, end of service benefits are mandatory payments made by employers to employees when an employment contract ends.
These payments recognize the employee’s service duration, whether the termination is initiated by the employer, employee, or for other legal reasons.
They are governed by Articles 84 and 85 of the Saudi Labor Law, which define entitlement, calculation methods, and exceptions.
In summary:
ESB is calculated based on the employee’s last drawn salary and length of service.
2. Who Is Eligible for ESB?
All employees under the Saudi Labor Law—both Saudi nationals and expatriates—are eligible if they have completed at least two consecutive years with the same employer.
Eligibility includes:
- Full-time and part-time employees under official contracts
- Employees terminated by the employer (except under Article 80)
- Employees who resign after the minimum qualifying period (with partial benefits)
Note: Employees who resign before completing two years are not entitled to ESB unless otherwise stated in their employment contract.
3. How Are End of Service Benefits Calculated?
The Saudi labor law end of service benefits formula depends on both the employee’s duration of service and the reason for termination.
| Years of Service | Entitlement |
| First 5 years | Half a month’s wage for each year |
| After 5 years | One full month’s wage for each additional year |
Formula:
(Half month’s salary × 5) + (Full month’s salary × years beyond 5)
Example:
If an employee earns SAR 10,000 per month and worked for 8 years:
= (0.5 × 10,000 × 5) + (1 × 10,000 × 3)
= SAR 25,000 + SAR 30,000
= SAR 55,000 total ESB
4. Do Employees Who Resign Receive ESB?
Yes — but the amount depends on the length of service.
According to Article 85 of the Saudi Labor Law:
- 2–5 years: One-third of ESB
- 5–10 years: Two-thirds of ESB
- 10 years or more: Full ESB
This system encourages long-term employment while ensuring fairness.
5. What Happens if an Employee Is Dismissed?
If dismissal is for valid legal reasons under Article 80 (e.g., misconduct), the employee may lose the right to ESB.
However, if dismissal lacks valid cause, the employee is entitled to full ESB and may also receive compensation ordered by the Labor Court.
Employers must document and justify dismissals to comply with Saudi labor regulations.
6. Are ESB Payments Taxable or Subject to Deductions?
No.
Saudi Arabia does not impose personal income tax, so ESB is not taxable.
However, deductions may apply for unpaid loans or advances, if agreed in writing between both parties.
7. When Should Employers Pay ESB?
According to Article 88 of the Saudi Labor Law:
- If terminated: within 1 week from contract end
- If resigned: within 2 weeks after the final working day
Failure to pay on time may lead to labor disputes or penalties if the employee files a complaint with the MHRSD.
8. Can ESB Be Replaced by Another Payment?
Yes — but only under strict conditions.
Employers and employees may agree on alternatives (e.g., pension plans or private gratuity funds) if they provide equal or greater benefits.
The arrangement must be:
- Documented in the employment contract
- Approved by Saudi labor authorities
Otherwise, the standard ESB formula applies.
9. How Does ESB Differ for Fixed-Term and Unlimited Contracts?
- Fixed-term contracts: ESB is calculated based on the full duration of the contract.
- Unlimited contracts: ESB is calculated up to the actual last working day.
If an employee continues working after a contract expires without renewal, the contract is automatically considered renewed, and ESB continues to accrue.
10. What About Death or Force Majeure Cases?
In case of death, the employee’s legal heirs receive the full ESB, regardless of years of service.
In force majeure situations—such as company closure or national crises—employees still retain their ESB rights under Article 87.
11. How Can Employees Calculate Their ESB Easily?
The Ministry of Human Resources and Social Development (MHRSD) offers an official End of Service Benefits Calculator.
Employees can input:
- Salary
- Duration of service
- Type of contract termination
The calculator instantly provides an estimated ESB amount in line with Saudi Labor Law.
(Available on the official MHRSD website.)
12. What if the Employer Refuses to Pay?
If an employer fails or refuses to pay ESB:
- The employee may file a complaint through Musaned or Qiwa platforms.
- The case goes to the Labor Disputes Committee, which reviews evidence (contracts, payslips, etc.) and issues a binding decision.
Saudi law ensures employee protection and enforces penalties for proven violations.
13. How Can Employers Stay Compliant?
Employers can maintain compliance by:
- Keeping clear digital HR records
- Documenting all salary changes and service periods
- Following Articles 84–88 meticulously
- Using HR software (e.g., Nawras HRMS) for automated calculations
Such systems enhance accuracy, transparency, and audit readiness.
14. What’s the Future of ESB in Saudi Arabia?
With Vision 2030, Saudi Arabia is digitizing labor processes. Soon, ESB settlements will be automated via linked HR platforms and banks, ensuring faster, traceable, and fair transactions.
This modernization aims to strengthen employee rights, employer efficiency, and overall transparency.
Final Thoughts
Understanding Saudi labor law end of service benefits is essential for every employee and employer in the Kingdom.
For employees, it guarantees financial recognition for years of dedication.
For employers, it builds trust and ensures compliance with national labor standards.
Whether you’ve worked two years or twenty, knowing your rights helps turn the end of your service into a fair and well-deserved reward.