End-of-service award in Saudi Arabia
In Saudi Arabia an employer owes an end-of-service award of half a month's wage for each of the first five years and a full month's wage for each year after, calculated on the last wage (Article 84). An employee who resigns gets nothing under two years, one third from two to five years, two thirds from five to ten, and the full award after ten (Article 85). It must be paid within one week of the end of employment, or two weeks if the employee resigned (Article 88).
End-of-service award in Saudi Arabia
- Award accrued on contractual wage
- Resignation fractions by service length
- Article 87 exceptions checked
Amended Labor Law adds a formal resignation process
What happened
The Labor Law amendments in force from 19 February 2025 define resignation and add Article 79 (bis). A resignation counts as accepted if the employer does not reply within 30 days, and the employer can postpone acceptance by up to 60 days with a written reason. The end-of-service articles themselves were not changed.
What it means for you
The date a resignation takes effect now follows a set procedure, and that date fixes the length of service used for the award. A resigning employee keeps all rights under the law, including the reduced award in Article 85.
Source: Ministry of Human Resources and Social Development. We check this page every week. Last checked .
The end-of-service award (in Arabic, mukafa'at nihayat al-khidma, often called gratuity) is a lump sum the employer pays when the employment relationship ends. It is not a pension and it is not funded through GOSI: the employer pays it directly from its own funds. The Labor Law sets it in Chapter 4 of Part 5, Articles 84 to 88, and it applies to Saudi and non-Saudi employees alike. The amount depends on three things: length of continuous service, the last wage, and how the employment ended. Dismissal under one of the grounds in Article 80, such as assault, serious misconduct or unauthorised absence, removes the award; resignation reduces it on a sliding scale unless an exception in Article 87 applies.
How is the end-of-service award calculated?
Half a month's wage for each of the first five years of service, then one month's wage for each year after that, with part years paid in proportion to the time worked. The calculation uses the employee's last wage (Article 84).
Worked example (our arithmetic): an employee with 8 years' service and a last monthly wage of SAR 10,000 earns 5 × 0.5 = 2.5 months for the first five years plus 3 × 1 = 3 months for the next three, a total of 5.5 months, or SAR 55,000. If the employer ends an indefinite contract or a fixed-term contract expires, the full amount is due.
What does wage mean for the award?
Wage in the Labor Law means the actual wage: the basic wage plus increments paid for effort or risk or set by the contract or work regulations. That includes commissions and sales or profit percentages, effort and risk allowances, cost of living increases, bonuses that are contractual or customary, and benefits in kind.
Benefits in kind, such as employer-provided housing, are valued at up to two months' basic wage a year unless the contract or work regulations set a higher value (Article 2). Article 86 lets the parties agree that commissions, sales percentages and similar variable components are left out of the wage used for the award, in whole or in part. A clear clause in the contract on what the award is calculated on prevents most disputes.
How much does an employee get after resigning?
Nothing with under two years' continuous service; one third of the award after two to five years; two thirds after more than five but less than ten years; the full award after ten years or more (Article 85).
Using the same example, an employee with 8 years' service who resigns receives two thirds of SAR 55,000, which is about SAR 36,667 (our arithmetic). Leaving under Article 81, where the employer has broken its obligations, committed fraud, assigned substantially different work or treated the employee abusively, is not a resignation for this purpose: the employee keeps all statutory rights.
When is the full award due despite a resignation?
When the employee leaves because of force majeure beyond their control, and when a female employee ends her contract within six months of marrying or within three months of giving birth (Article 87).
These exceptions override the Article 85 reductions entirely, so the full Article 84 amount is payable regardless of length of service beyond the formula itself.
When must the award be paid?
Within one week of the end of the employment relationship. If the employee ended the contract, the employer has up to two weeks (Article 88).
The employer may deduct any work-related debt the employee owes from the final entitlements. The final settlement also covers wages to the last day and pay for accrued annual leave not taken (Article 111).
Did the 2025 amendments change the award?
Not the award itself. Articles 84 to 88 are not among the articles the February 2025 package amended. What changed is the route into a resignation.
The amended Article 2 defines resignation as the employee's written, uncoerced declaration of a wish to end the contract, accepted by the employer. The new Article 79 (bis) treats a resignation as accepted if the employer does not reply within 30 days; lets the employer postpone acceptance by up to 60 days for business reasons with a written explanation given before the 30 days run out; lets the employee withdraw within 7 days unless already accepted; bars a deferred resignation date in the request; keeps the contract in force while the request is pending; and confirms the resigning employee keeps all rights under the law.
Key figures
| Detail | Value |
|---|---|
| Award rate | Half a month's wage for each of the first five years; one month's wage for each later year; part years pro rata (Article 84). (source) |
| Wage basis | Calculated on the last wage (Article 84); wage means the actual wage including commissions, allowances, cost of living increases, contractual or customary bonuses and benefits in kind (Article 2, as amended). (source) |
| Variable pay | The parties may agree to exclude all or some commissions, sales percentages and similar variable components from the award's wage basis (Article 86). (source) |
| Resignation | Under 2 years: none. 2 to 5 years: one third. Over 5 and under 10 years: two thirds. 10 years or more: full award (Article 85). (source) |
| Full award exceptions | Leaving because of force majeure; a female employee ending her contract within 6 months of marriage or 3 months of giving birth (Article 87). (source) |
| Payment deadline | Within one week of the end of employment; within two weeks if the employee ended the contract; work-related debts may be deducted (Article 88). (source) |
| Resignation procedure | Deemed accepted after 30 days without a reply; employer may postpone acceptance up to 60 days with written reasons; employee may withdraw within 7 days unless already accepted (Article 79 bis, in force 19 February 2025). (source) |
| Benefits in kind | Valued at up to two months' basic wage for each year unless the contract or work regulations set a higher value (Article 2). (source) |
Frequently asked questions
Does the end-of-service award apply to Saudi nationals as well as expatriates?
Yes. Articles 84 to 88 apply to every employee covered by the Labor Law, whatever their nationality. Saudi employees also build GOSI pension rights, which are separate from the award.
Is the award paid if an employee is dismissed for misconduct?
Not where the dismissal falls under one of the grounds in Article 80, such as assault, serious breach of duties, dishonesty, forgery to obtain the job or unauthorised absence beyond the set limits. The employer must give the employee a chance to object first.
Can an employee waive the award in the contract?
Not during employment. Article 8 makes void any contract term that conflicts with the Labor Law, and any release or settlement of the employee's statutory rights made while the contract is in force, unless it is more beneficial to the employee. The one adjustment the law allows is agreeing under Article 86 to exclude variable components such as commissions from the wage basis.
What happens when a fixed-term contract simply expires?
The employment relationship ends without a resignation, so the reductions in Article 85 do not apply and the full Article 84 award is payable.
Each of the six Gulf states writes its own labour law, its own end-of-service rules and its own quota for hiring citizens. When Teamed is your legal employer, we apply the right rules for the country each person works in and update your contracts, policies and payroll as the law changes, so you never have to read a statute to stay compliant.
