Saudi End of Service Gratuity: Article 84, 85 + Calculator

The thing that catches employees out in Saudi end-of-service gratuity is not the formula. It is what resignation does to it. Someone who serves four years and resigns collects one third of the award; had they stayed until the fifth year closed, their entitlement would have jumped to two thirds. Most people learn that rule after handing in the resignation letter rather than before, and by then the difference runs into thousands of riyals.

There is a second, quieter gap — and this one costs more. Several English-language guides ranking on page one calculate the award on the employee's last basic salary. The statute does not say basic salary. On a package of 6,000 basic plus 2,000 in allowances, that single misreading understates a seven-year settlement by 9,000 SAR.

This guide sets out the rules as they appear in the Saudi Labor Law — Articles 84, 85, 86, 87 and 88 — with worked examples in riyals, then hands you a free calculator that applies all of them automatically.

The base is the actual wage, not the basic salary

Article 84 says the award "shall be calculated on the basis of the last wage." The decisive detail sits sixty pages earlier, in the law's definitions section, which resolves the term in four words:

Wage: actual wage.

And the Actual Wage is defined as "the basic wage plus all other due increments decided for a worker for the effort he exerts at work." The law then enumerates what that includes: commissions and percentages of sales or profits, allowances for effort or risk, increments granted for standard of living or family expenses, contractual grants and rewards, and in-rem privileges such as employer-provided housing — the last of these valued at up to two months' basic wage per year unless the contract says otherwise.

So housing allowance, transport allowance and the rest are inside the base. Basic salary alone is the wrong number.

If the definition were not enough on its own, the structure of the law settles it. Article 86 exists solely to let the parties agree that the gratuity base "does not include all or some of the commissions, sales percentages, and similar wage components." That carve-out would be meaningless if the base had been the basic wage all along — commissions are not part of the basic wage. The legislature only needed to write Article 86 because the default base is the full actual wage.

This is the same distinction that trips up overtime calculations, where the statute deliberately uses two different bases in a single sentence. We unpick that one in overtime pay under Article 107.

What Article 84 actually provides

• Half a month's wage for each of the first five years.
• One full month's wage for each of the following years.
• Part-years are prorated — six months earns half that year's entitlement.
• The base is the last wage, as defined above.

Two points worth pinning down, because page-one sources disagree on both.

Article 84 contains no minimum service threshold. Its text entitles the worker to an award "for the portions of the year in proportion to the time spent on the job." The two-year floor that several guides quote as a general eligibility rule belongs to Article 85, and applies only to resignation. Where the employer ends the contract or a fixed-term contract simply expires, the award accrues from the start and is prorated.

A "month" is 30 days by the law's own definition, unless the employment contract or the work organization regulation says otherwise. That is the divisor for part-year and daily arithmetic — not 26, and not the calendar month.

One exception runs the other way: under Article 54, if the contract is terminated during the probation period, neither party owes compensation and no end-of-service award is due at all. The probation rules that decide whether you are still inside that window are covered in Article 53 and the probation period.

Resignation: the Article 85 ladder

Where the employment relation ends because the worker resigns, the entitlement is scaled by length of service:

The fraction applies to the award after it has been computed in full under Article 84 — not to the wage directly. The worked examples below show the difference that ordering makes.

Resignation has its own procedural rules, including the fixed-term route under Article 79 bis, and where the employer terminates without valid cause the compensation regime in Article 77 applies instead.

When you leave and still collect the full award

Article 87 sets out exceptions where the worker takes the full award despite ending the contract themselves:

• Leaving work because of force majeure beyond their control.
• A female worker who ends her contract within six months of her marriage or three months of giving birth.

Article 81 adds the cases where a worker may leave without notice while keeping full statutory entitlements — principally where the employer has failed in a fundamental obligation toward them.

Worked examples in riyals

Example 1 — the wage-base error, 7 years, employer-ended. Basic 6,000 plus housing 1,500 and transport 500, so an actual wage of 8,000 SAR:

A 9,000 SAR shortfall — 25 percent of the settlement — from one wrong word in the base.

Example 2 — resignation after 4 years, last wage 6,000 SAR:

• Full award: 4 × 3,000 = 12,000 SAR
• Due on resignation, one third: 4,000 SAR

Example 3 — resignation after 8 years, last wage 10,000 SAR:

• First five years: 5 × 5,000 = 25,000 SAR
• Following three years: 3 × 10,000 = 30,000 SAR
• Full award 55,000 SAR — due at two thirds: 36,666.67 SAR

Example 4 — part-years, terminated after 6 years and 6 months, last wage 9,000 SAR:

• First five years: 5 × 4,500 = 22,500 SAR
• One and a half years beyond the fifth: 1.5 × 9,000 = 13,500 SAR
• Total: 36,000 SAR

The gap between the two resignation examples is why this deserves an accurate calculation before the decision is made: one month short of the fifth anniversary can be worth more than a year's salary.

Two deadlines nobody quotes

Article 88 puts a clock on the settlement, and the clock differs by who ended the contract:

• Employer ends the relationship: wages and entitlements settled within one week of the end of the contractual relation.
• Worker ends the contract: within two weeks.

The employer may deduct any work-related debt owed by the worker from those entitlements. The grounds on which a contract terminates in the first place — and therefore which deadline applies — are set out in Article 74.

Run the numbers with the free calculator

Rather than working the tables by hand, the free end-of-service gratuity calculator returns the figure directly: pick the contract type and the reason the relationship ended, enter the wage and the length of service, and it applies the Article 84 rule, the Article 85 fractions and the part-year proration for you. If you are reviewing a wider settlement — overtime hours or an unused leave balance — the overtime calculator and the leave calculator sit alongside it and run on the same statutory rules.

One input that manual calculations routinely miss: unpaid leave days do not count toward the service period, which is why the calculator carries a separate field for them.

For employers: gratuity is an accrual before it is a payment

From the company's side, end-of-service gratuity is not a sum to be found when someone leaves — it is an accounting provision that accumulates monthly against every employee on the payroll. Firms that do not accrue it automatically discover the gap at the worst possible moment: settling a long-serving employee, or in an audit.

If your payroll runs through the Saudi compliance platforms, the impact reaches past the ledger. The wage data the gratuity is computed from is the same data reconciled in wage protection and payroll differences; the contracts that determine contract type and reason for termination are managed through Qiwa and its HR system integrations; and disbursement itself runs over Mudad. When those systems are wired together, the end-of-service provision becomes a report generated from data you already hold — not a spreadsheet somebody updates by hand.

Are your end-of-service figures computed automatically, or by judgement? We review how your provisions are calculated and how they connect to your payroll and compliance systems, and identify the gaps before an audit does. Book a free diagnostic session.