Saudi end-of-service award: how to calculate it

The end-of-service award (مكافأة نهاية الخدمة) is one of the largest single payments an HR team in Saudi Arabia calculates, and one of the most disputed. This guide explains the rules in the Saudi Labour Law as they are commonly applied, with worked examples. The Labour Law has been amended several times, including amendments that came into force in 2025, so always check the current text published by the Ministry of Human Resources and Social Development (HRSD).

The basic rule (Article 84)

When an employment relationship ends, the employer pays the worker an award for the period of service:

• Half a month's wage for each of the first five years.
• A full month's wage for each year after the fifth.

The award is calculated on the last wage the worker received. Parts of a year are counted in proportion to the time worked, so 7 years and 6 months is treated as 7.5 years.

This full award applies when the employer ends the contract (other than for one of the reasons in Article 80, see below), when a fixed-term contract expires, and in the other cases where the law grants it.

When the employee resigns (Article 85)

If the worker resigns, the award is reduced according to length of service:

The reduction applies to the award calculated under Article 84. You calculate the full award first, then apply the fraction. Service must be consecutive, and exactly five years still gets one third, because the law says “not more than five years”.

When the full award is due despite a resignation (Article 87)

The law lists cases where the worker receives the full award even though they left on their own, for example when they leave because of force majeure beyond their control, or when a female worker ends her contract within six months of marriage or within three months of giving birth. The worker may also leave without notice and keep their rights in the situations described in Article 81, such as when the employer fails to meet essential contractual obligations. Check the current wording of these articles before applying them.

When no award is due (Article 80)

Article 80 lists the cases where the employer may terminate the contract without an award, notice or compensation, such as serious misconduct, provided the procedure in that article is followed, including giving the worker a chance to object. A termination under Article 80 should be documented carefully; it is frequently challenged before the labour courts.

Which wage to use

The award is based on the worker's last wage, and Article 2 of the Labour Law defines “wage” as the actual wage: the basic wage plus the other amounts due, such as allowances, commissions, cost-of-living increases and in-kind benefits. Article 86 lets the employer and worker agree to exclude commissions and sales percentages. Many establishments calculate the award on the basic wage plus fixed allowances only, which is narrower than the law; using the actual wage avoids most disputes.

Because this point causes most disputes, write down which components you include, apply it consistently, and check it against the contracts and your establishment's approved work regulation.

Worked examples

Example 1: termination by the employer after 7 years. Last actual wage (basic plus housing and transport allowances): 10,000 SAR.

• First 5 years: 5 × 0.5 × 10,000 = 25,000 SAR
• Next 2 years: 2 × 1 × 10,000 = 20,000 SAR
• Award: 45,000 SAR

Example 2: resignation after 7 years. Same wage. The full award is 45,000 SAR; with more than five and under ten years of service the worker receives two thirds.

• Award: 45,000 × 2/3 = 30,000 SAR

Example 3: resignation after 3 years and 6 months. Last wage 8,000 SAR.

• Full award: 3.5 × 0.5 × 8,000 = 14,000 SAR
• One third for 2 to 5 years: 4,666.67 SAR

Payment deadline (Article 88)

The worker's dues must be paid within one week of the end of the contract, including when a fixed-term contract expires. When the worker ends the contract, the deadline is two weeks. The employer may deduct work-related debts owed by the worker, within the limits the law allows.

Practical checklist

1. Confirm the start date, end date and any unpaid periods that should not count as service.
2. Record the reason the relationship ended, because it decides which article applies.
3. Decide and document which wage components are included.
4. Calculate the full Article 84 award, then apply any Article 85 fraction.
5. Add other final dues: unpaid salary, accrued leave balance and any notice pay, and deduct legitimate debts such as outstanding loans.
6. Pay within the Article 88 deadline and keep the signed final settlement.

How RafiqHR helps

RafiqHR calculates the award from the employee's effective-dated contract and salary history, applies the right fraction for the reason for leaving, and shows each step of the arithmetic on the final settlement, so HR, finance and the employee see the same explanation. The rule values are versioned and reviewed by a payroll specialist before they are used for real payment.