Saudi End of Service Benefits: How to Calculate Gratuity
End-of-service gratuity is one of the most important financial entitlements for employees in Saudi Arabia. The calculation depends on your length of service, whether you resigned or were terminated, and your last basic salary. This guide explains the formula, the resignation penalties, and practical examples.
The Basic Formula
Under Articles 84-86 of Saudi Labour Law, end-of-service gratuity is calculated on the employee's last basic salary (excluding allowances, bonuses, and commissions). The formula has two tiers:
First 5 years: Half a month's basic salary for each year of service
After 5 years: One full month's basic salary for each additional year
Minimum service: 2 years required to qualify for any gratuity
The Resignation Penalty
Unlike the UAE (where resignation no longer reduces gratuity under the new law), Saudi Arabia applies significant reductions when an employee resigns rather than being terminated:
Less than 2 years: No gratuity at all
2 to 5 years: One-third of the calculated gratuity
5 to 10 years: Two-thirds of the calculated gratuity
10+ years: Full gratuity
This means that resigning after 4 years of service results in receiving only one-third of what you would receive if your employer terminated the contract. This is a significant financial consideration when deciding whether to resign.
Practical Example
Consider an employee with a basic salary of SAR 10,000 who has worked for 8 years. The full gratuity calculation would be:
First 5 years: SAR 10,000 / 2 x 5 = SAR 25,000
Next 3 years: SAR 10,000 x 3 = SAR 30,000
Full gratuity = SAR 55,000
If the employee resigned: SAR 55,000 x 2/3 = SAR 36,667
If the employer terminated: SAR 55,000 (full amount)
When Gratuity Is Forfeited
Under Article 80, if an employee is terminated for specific gross misconduct reasons (assault, forgery, prolonged unauthorised absence, breach of safety regulations, disclosure of trade secrets), the gratuity is forfeited entirely. However, the employer must prove the misconduct falls within the specific grounds listed in Article 80. Vague termination letters citing "performance issues" do not qualify for Article 80 termination.