The end-of-service award is one of the worker's most important financial rights, and one of the matters most subject to confusion and dispute. Many do not know how it is calculated precisely, or how it is affected if the relationship ends by resignation. This guide explains the rule with practical numerical examples you can easily follow, whether you are a worker wanting to verify your right, or an employer wanting to calculate your obligation precisely.
The basic rule for calculating the award
At the end of the employment relationship, the employer pays the worker an award for their period of service calculated as follows:
- Half a month's wage for each of the first five years.
- A full month's wage for each of the following years (after the fifth).
The last wage is taken as the basis for calculation. The worker is also entitled to an award for fractions of a year in proportion to what they served of it.
Which wage is counted? Basic or actual?
What counts is the "wage" in its broad sense in the law, which is the actual wage including the basic plus allowances and benefits due on a fixed basis. It is permissible to agree to exclude certain elements that are variable by nature (such as fluctuating commissions) from the basis for calculating the award. So review your contract precisely to know what enters the calculation.
Practical example (1): termination by the employer
Suppose a worker whose last wage is SAR 8,000, who served eight full years, and whose contract was terminated by the employer (not by resignation):
- First 5 years: 5 × (half a month) = 5 × 4,000 = SAR 20,000.
- The following three years: 3 × (a full month) = 3 × 8,000 = SAR 24,000.
- Total award = SAR 44,000.
How is the award affected by resignation?
Here is a fundamental difference every worker must know. If the relationship ends by the worker's resignation, they are entitled to the award at graduated ratios according to their length of service:
- service less than two years: entitled to nothing.
- service from two to five years: entitled to one-third of the award.
- service more than five and less than ten years: entitled to two-thirds of the award.
- service ten years or more: entitled to the full award.
Practical example (2): the same worker but by resignation
The same worker (wage 8,000, service 8 years), but resigned this time. Their full award calculated above is SAR 44,000, but because they resigned after service between 5 and 10 years, they are entitled to two-thirds of it:
- 44,000 × (2 ÷ 3) = approximately SAR 29,333.
The difference from the case of termination by the employer is clear and large — which is why determining the reason for the relationship's end precisely matters.
Exceptions where the full award is due despite the worker leaving
There are cases where the worker takes the full award even if they are the one who ended the relationship: if they left work due to force majeure beyond their control, or if a working woman ended her contract within six months of her marriage or three months of her giving birth. The resigning worker is also entitled to their full rights in cases where leaving is justified in law due to the employer's breach.
Practical example (3): fractions of a year
If a worker (wage 6,000) served 3 years and 6 months and their contract was terminated:
- 3 full years (within the first five): 3 × 3,000 = SAR 9,000.
- Half a year: (half a month ÷ 2) = 3,000 × (6 ÷ 12) = SAR 1,500.
- Total = SAR 10,500.
When are the award and rights paid?
The law obliges the employer to settle quickly: if the employer terminated the contract, they pay the wage and settle the rights within a week at most from the relationship's end. If the worker is the one who terminated the contract, their rights are settled within a period not exceeding two weeks. The employer may deduct any debt owed to them due to work from these amounts.
Conclusion
Calculating the award is not complicated once you know the rule: half a month for the first five, a month for those after, on the last wage — with an adjustment of the ratio in the case of resignation. The golden rule: calculate your award early and know how the reason for the relationship's end affects it — for the difference between termination and resignation may be thousands of riyals, and knowing your right precisely protects you from being shortchanged or from a dispute.
How does LEXIUM help?
We calculate the end-of-service award and all entitlements precisely according to your contract and actual wage, determine the effect of the reason for the end on the due ratio, and represent you in claiming it or in defending against an inaccurate claim before the labor courts.
Note: The examples provided are simplified illustrations, and the actual calculation may be affected by wage elements and contract details, so consulting a specialist is advised for a precise calculation of your situation.
Disclaimer: This article is for general informational purposes only and does not constitute legal advice. See our full disclaimer.