Saudi Housing Allowance: Article 61 and Your Wage Bases

Most of what is written about the housing allowance in Saudi Arabia stops at two questions: is it mandatory, and what percentage is it? Both have short answers. The question that actually costs money is the third one: which calculations does the allowance enter, and which does it not? One riyal of housing allowance counts in full in the end-of-service gratuity, in full for social insurance, only partly in overtime, and is valued quite differently when the housing is provided in kind rather than in cash.

This article reads the texts as they stand after the Labour Law amendments, then works one example in riyals through each calculation.

Is the housing allowance mandatory? Yes, since 19 February 2025

The Labour Law amendments issued by Royal Decree M/44 of 8/2/1446H, in force since 19 February 2025, added two paragraphs to the employer's duties in Article 61:

"5. To provide suitable housing for his workers. He may replace this with an appropriate cash allowance paid to them with the wage. 6. To provide suitable transport for his workers from their place of residence to the workplace. He may replace this with an appropriate cash allowance paid to them with the wage."

Both paragraphs appear in the amended-text column of the summary of amendments published by the Ministry of Human Resources, not in the previous-text column. Article 21(2) of the Implementing Regulation then sets the scope: "Paragraph five applies to workers in the private sector and the non-profit sector."

Three points about the text:

• The default obligation is the housing itself; the cash allowance is the employer's option. A worker cannot refuse suitable housing and demand the allowance instead.
• The obligation comes from the law, not the contract. The text does not make it conditional on a contract clause, so a contract that says nothing about housing does not remove it.
• Housing and transport are separate obligations. Paragraph 6 has the same structure for transport, and each has its own allowance.

What percentage? The law does not set one

The text says "an appropriate cash allowance" and names no figure. There is no 25%, or any other number, in the Labour Law or its Implementing Regulation. The percentages that circulate (law firms report that contracts usually range from 10% to 25% of basic pay) are contractual custom, not law.

That does not make any number acceptable. "Appropriate" is a standard, and in a dispute it is measured against local rents and the wage level. A token allowance can be challenged before the labour court for the difference. Since the contract is the first thing a court reads, the safe practice is to write the allowance as an amount in riyals, not as "salary inclusive of housing".

Which wage includes the housing allowance?

This is where the real difference lies. Article 2 of the Labour Law defines two wages:

• Basic wage: everything paid to the worker for his work under the contract, plus periodic increments.
• Actual wage: the basic wage plus all other increments due to the worker for his work under the employment contract or the work regulations, including allowances and benefits in kind.

The same article then says: "Wage: the actual wage." Any article that says "wage" without qualification means the actual wage, and a cash housing allowance paid with the wage under the contract is part of it. It is not part of the basic wage.

So the allowance spreads across calculations like this:

One example in riyals, calculation by calculation

An employee with a basic wage of SAR 8,000, a cash housing allowance of SAR 2,000 (25%) and a transport allowance of SAR 800. Six years of service, open-ended contract.

• Actual wage = 8,000 + 2,000 + 800 = SAR 10,800.

End-of-service gratuity (Art. 84), employer ends the contract: Half a month per year for the first five years, a full month per year after that.

• On the actual wage: (5 × 0.5 × 10,800) + (1 × 10,800) = SAR 37,800.
• If wrongly computed on basic alone: (5 × 0.5 × 8,000) + 8,000 = SAR 28,000.
• The gap is SAR 9,800, of which SAR 7,000 comes from the housing allowance alone (2,000 × 3.5 months).

Article 77 compensation: 15 days' wage per year of service, with a floor of two months' wage.

• 6 × 15 days = 90 days = 3 months × 10,800 = SAR 32,400, above the two-month floor (21,600).

Annual leave (Art. 109): 21 days, paid in advance.

• Daily wage = 10,800 ÷ 30 = SAR 360, so leave pay = SAR 7,560. On basic alone it would be 5,600.

Overtime (Art. 107): the hourly wage plus 50% of the basic wage.

• Actual hourly wage = 10,800 ÷ 240 = SAR 45.
• Half of the basic hourly wage = (8,000 ÷ 240) × 0.5 = SAR 16.67.
• Overtime hour = SAR 61.67.

The housing allowance raised the hourly wage by SAR 8.33 (2,000 ÷ 240) but added nothing to the 50% premium, which is computed on basic. That is why neither "actual × 1.5" nor "basic × 1.5" is correct. The full formula is in overtime pay under Article 107.

Social insurance: the contributory wage = basic + housing = SAR 10,000; the transport allowance is excluded. The rate itself depends on the employee's first registration date, explained in GOSI deduction rates for 2026.

When the housing is provided in kind

An employer who provides an apartment instead of the allowance pays nothing extra on payroll, but the housing does not disappear from the calculation. Article 2(5) includes "benefits in kind" in the actual wage and says they are "valued at a maximum equal to two months' basic wage for each year, unless the employment contract or work regulations value them at more".

In the same example, the maximum value of in-kind housing = 8,000 × 2 = SAR 16,000 a year, or SAR 1,333.33 a month, against 2,000 for the cash allowance. The ceiling of the actual wage for gratuity purposes becomes SAR 10,133.33 instead of 10,800.

We found no text setting how social insurance values in-kind housing under the current system, so we do not build a figure on it here. If your employees' housing is in kind, confirm the value registered with GOSI before relying on any number.

For employers: three records that must show the same figure

The housing allowance appears in at least three places: the employment contract documented on Qiwa, the housing allowance column of the Wage Protection file uploaded to Mudad, and the wage registered with GOSI. We know of no single text that ties them together under one penalty, but in any labour claim these three records are the evidence, and a mismatch between them usually reads in the worker's favour.

The most expensive mistake we see is not the percentage of the allowance, but the base it is multiplied into: payroll that computes the gratuity on basic, overtime on actual × 1.5, or puts transport into the GOSI base. Each is a mistake repeated every month, and it accumulates until the end of service.

Before you approve next month's payroll:

1. Check that every contract states the housing allowance as an amount, or states in-kind housing explicitly.
2. Make the housing column in the WPS file template match the contract.
3. Compute one employee's entitlements by hand and compare them with what your system produces.

Run it in the free calculator

The labour calculator puts every calculation on one page: enter the actual wage (basic plus housing and fixed allowances) for gratuity, compensation and leave, and in the overtime panel enter basic and allowances in separate fields so the two-part formula applies. For the detail calculation by calculation: end-of-service gratuity under Articles 84 and 85, Article 77 compensation, and annual leave balance.

What we deliberately did not assert

• The fine for breaching Article 61(5) in the violations schedule: we found no figure published by an official source.
• How social insurance values in-kind housing under the current system.
• Whether a "salary inclusive of housing" clause with no amount satisfies paragraph 5. That is a matter for the court.

Does your payroll put the housing allowance on the right base in every calculation? Send us the wage structure of one employee (basic, allowances and length of service), and we will send back the gratuity, overtime and GOSI base computed article by article, with the exact place any figure differs from your current system. Contact us.