End of service calculation: formula + 3 examples

End of service benefit in Saudi Arabia is calculated with one formula from Article 84 of the Labor Law: half a month's wage for each of the first five years, a full month's wage for each year after that, based on the last actual wage, with part-years counted pro rata. An employee with 7.5 years of service and a last wage of SAR 6,000 is owed SAR 30,000 when the employer ends the contract. If the employee resigns, they receive one third, two thirds or the full amount depending on length of service. Below are the formula step by step, three worked examples in riyals, the cases that change the amount, and the payment deadline.

How do I calculate end of service for an employee?

Article 84 of the Labor Law (the text published by the Ministry of Human Resources) states that the benefit is calculated on the basis of half a month's wage for each of the first five years and a month's wage for each following year, that the last wage is the basis of the calculation, and that the worker is entitled to a benefit for parts of a year in proportion to the time worked. In practice the calculation has four steps:

1. Fix the length of service exactly: from the start date to the last working day, converted into years and fractions. Six months is half a year; four months is a third of a year.
2. Fix the wage you calculate on: it is the last actual wage, not the basic salary alone. Article 2 of the law defines the actual wage as the basic wage plus all other increments due, such as allowances, commission and percentages of sales.
3. Calculate the two parts: years up to the fifth multiplied by half the wage, and years after the fifth multiplied by the full wage.
4. Apply the entitlement ratio: the full amount if the employer ends the contract or its term expires, and a smaller share on resignation, as shown in the next section.

Article 86 allows the parties to agree that commissions and sales percentages, in whole or in part, are left out of the wage used for the benefit. If the employee's contract contains such a clause, calculate on the wage without them; if it does not, they are part of the wage.

How much does an employee get if they resign?

Article 85 reduces the benefit on resignation according to continuous length of service:

Article 87 makes two exceptions in which the employee receives the full benefit even though they left: when they leave because of force majeure beyond their control, and when a female employee ends the contract within 6 months of her marriage contract or 3 months of giving birth.

Worked examples in riyals: three common cases

Example 1: 7 years and 6 months, contract ended by the employer

Last actual wage SAR 6,000. The first five years: 5 × 3,000 = SAR 15,000. The two and a half years after: 2.5 × 6,000 = SAR 15,000. Total SAR 30,000. Had the same employee resigned after this period, they would be owed two thirds, which is SAR 20,000.

Example 2: 3 years and 4 months, the employee resigned

Last actual wage SAR 4,500, of which 3,500 is basic and 1,000 is housing allowance. Service is 3.33 years, all within the first five: 3.33 × 2,250 = about SAR 7,500. Because they resigned after two years and before five, they are owed one third: SAR 2,500. Calculated on the basic salary alone, the figure would come out at SAR 1,944, which is the most common mistake.

Example 3: 1 year and 10 months

Last actual wage SAR 4,500. If the employee resigns, nothing is owed because service is under two years. If the employer ends the contract for a reason outside Article 80, the full benefit for the period is owed: 1.83 × 2,250 = about SAR 4,125.

When is an employee not entitled to the benefit at all?

• During probation: Article 54 states that when a contract is ended during probation the worker is not entitled to an end of service benefit, and Article 53 caps total probation at 180 days.
• Termination under Article 80: nine specific cases, including assaulting the employer or a superior, forgery to obtain the job, and unjustified absence of more than 30 days in a contract year or 15 consecutive days after written warning. The law requires that the worker be given a chance to state their objections.
• Resignation before two years: as in the table above.

These cases carry detailed conditions, so if a dispute is likely, read the full article or take specialist advice before deciding.

When must the benefit be paid?

Article 88 requires the employer to settle the worker's dues within one week at most of the end of the relationship if the employer ended it, and within two weeks if the worker ended the contract. The employer may deduct any work-related debt owed to it, such as an unpaid advance, provided it is documented.

For a small business the hard part is not the formula but the amount. An employee on SAR 6,000 adds SAR 250 a month to the business's liability during the first five years, and SAR 500 a month after that. A business that does not set this aside monthly can face a SAR 30,000 payment within a single week.

How can I track my staff's end of service from my phone instead of Excel?

In a spreadsheet each employee needs a row that is edited by hand whenever the wage or allowances change, and the figure is often left on an old wage. It is simpler when the liability is calculated from the payroll record itself, so you know the amount on any day without opening a file.

In Fahim's HR and payroll software end of service is calculated from length of service and the recorded salary, and you ask about it on WhatsApp in a plain message such as "What is Mohammed's end of service if he resigns at the end of the month?" or "What is the total end of service liability for all staff today?". Permissions keep payroll data visible only to the people it concerns. If you pay salaries through the bank, see also the Wage Protection System guide.

Frequently asked questions

Is end of service calculated on basic salary only?

No. Article 84 makes the last wage the basis of the calculation, and in the law the wage means the actual wage, which includes basic pay, allowances and commission. The only exception is commission and sales percentages when both parties agree in writing to exclude them under Article 86.

Are the months after the last full year counted?

Yes. The law states that the worker is entitled to a benefit for parts of a year in proportion to the time worked. Four months count as a third of a year and are multiplied by half the wage or the full wage depending on whether they fall before or after the fifth year.

Can I deduct an employee's advance from their benefit?

Yes. Article 88 allows the employer to deduct any work-related debt owed to it from the amounts due to the worker. It is best to document the advance with its amount, date and the employee's signature or written consent, so that it cannot become a point of dispute.

Is an employee entitled to the benefit when a fixed-term contract expires and is not renewed?

The expiry of a contract term is not a resignation, so the general rule is the full benefit under Article 84 without the Article 85 reduction. If the contract contains special circumstances, check the full text of the law or take specialist advice.