End-of-Service Award in Saudi Arabia: Calculation and Examples

2026-10-23

Under the Saudi Labor Law, the end-of-service award is based on the employee's last wage: half a month's wage for each of the first five years of service and a full month's wage for each year after that, with part-years counted pro rata. That is the full award an employee receives when the employer ends the contract or the contract ends. If the employee resigns, the entitlement depends on length of service: nothing for under two years, one third of the award for two to under five years, two thirds for five to under ten years, and the full award for ten years or more.

Which articles of the Labor Law govern the award?

The award is set out mainly in Articles 84 and 85. Article 84 defines how the full award is calculated when the employment relationship ends; Article 85 sets the share an employee receives on resignation. Article 87 lists situations in which the employee receives the full award even though the employee is the one who ended the contract.

How is the full award calculated?

• First five years: half a month's wage per year.
• Each year after the fifth: one month's wage per year.
• Part-years: counted in proportion, so six months is half a year and three months is a quarter.
• Wage used: the employee's last wage. Which allowances form part of that wage depends on the Labor Law's definition of wage and on the employment contract, so check this carefully before calculating.

As a formula: full award = (wage ÷ 2 × years of service up to five) + (wage × years of service beyond five).

How is the award calculated on resignation?

First work out the full award as above, then apply the share that matches the employee's total length of service:

Worked examples

Example 1: three years of service

Service of 3 years, last wage SAR 6,000.

• Full award: 3 × (6,000 ÷ 2) = SAR 9,000.
• If the employer ends the contract: SAR 9,000.
• If the employee resigns: service is between two and five years, so one third = SAR 3,000.

Example 2: seven and a half years

Service of 7 years and 6 months, last wage SAR 10,000.

• First five years: 5 × 5,000 = SAR 25,000.
• Two and a half years beyond the fifth: 2.5 × 10,000 = SAR 25,000.
• Full award: SAR 50,000.
• If the employee resigns: service is between five and ten years, so two thirds = about SAR 33,333.33.

Example 3: twelve years

Service of 12 years, last wage SAR 8,000.

• First five years: 5 × 4,000 = SAR 20,000.
• Next seven years: 7 × 8,000 = SAR 56,000.
• Full award: SAR 76,000, payable in full even on resignation because service has reached ten years.

Example 4: under two years

Service of 1 year and 8 months, last wage SAR 5,000.

• If the employee resigns: no award, as service is under two years.
• If the employer ends the contract: service is 20/12 of a year, so the award = 2,500 × 20 ÷ 12 = about SAR 4,166.67.

Example 5: just short of five years

Service of 4 years and 9 months, last wage SAR 9,000, and the employee resigns.

• Full award: 4.75 × 4,500 = SAR 21,375.
• Service is under five years, so one third = SAR 7,125.

This shows how much the thresholds matter: three more months of service would have moved the employee into the two-thirds band.

When does an employee who leaves get the full award?

Article 87 grants the full award in situations including:

• The employee leaves because of force majeure beyond their control.
• A female employee ends her contract within six months of her marriage contract, or within three months of giving birth.

The law also allows an employee, in specific cases such as the employer's failure to meet essential obligations, to leave without notice while keeping all statutory rights. Conversely, Article 80 lists, exhaustively, the cases in which an employer may terminate the contract without an award.

Common calculation mistakes

• Applying a full month's wage to every year; the first five years count at half a month.
• Ignoring part-years and counting only complete years.
• Applying the one-third or two-thirds share only to the years after the fifth; it applies to the whole award.
• Using an old wage instead of the last wage.
• Not booking a monthly end-of-service provision, so the whole amount hits the accounts as a surprise when the employee leaves.

Summary

• Full award: half a month per year for the first five years, a full month per year after that, pro rata for part-years.
• The calculation uses the employee's last wage.
• On resignation: nothing under two years, one third up to five, two thirds up to ten, full from ten.
• Article 87 grants the full award in cases including force majeure and a female employee leaving within the set period after marriage or childbirth.

This article is general information, not legal advice. Before settling a specific case, check the latest version of the Labor Law and its regulations or consult a specialist, especially where the contract has special terms or the way the employment ended is disputed.

End of service in Final Solution ERP

The HR and payroll module in Final Solution ERP covers the whole cycle from attendance to the monthly payroll and the end-of-service award, in line with the Saudi Labor Law, connected to accounting in the same system. See the HR and payroll page, or contact us on WhatsApp or through the form for a demo and a free trial.