The end-of-service benefit — also called the end-of-service award, gratuity or EOSB — is the lump sum a Saudi employer pays a worker when the employment relationship ends. It is set by the Labour Law, applies to expatriate workers on Qiwa, and is one of the most common sources of disputes at contract end. Employers who calculate it correctly and accrue it from the first month rarely have trouble; those who treat it as a surprise at final exit often do. Labour Law amendments that took effect in 2025 adjusted several provisions, so confirm the current text for unusual cases.
The Basic Formula
Under the Labour Law as generally applied:
- Half a month's wage for each of the first five years of service
- A full month's wage for each year after the fifth
- Part years counted proportionally
For a worker on a two-year contract whose wage base for the calculation is SAR 1,800 a month, the award is two half-months, or SAR 1,800. For a worker who stays seven years on SAR 2,400, it is five half-months plus two full months: SAR 6,000 plus SAR 4,800, or SAR 10,800.
When the Worker Resigns
If the worker resigns, the award is reduced according to length of service:
- Under two years — no award
- Two to five years — one third of the award
- Five to ten years — two thirds
- Ten years or more — the full award
These reductions do not apply where the employer ends the contract, where a fixed-term contract simply expires, or where the worker leaves for reasons the law treats as justified, such as the employer's breach. A worker who completes a two-year fixed-term contract and leaves at expiry is therefore entitled to the full calculated award, not a reduced one. Some situations, including certain cases for female workers and force majeure, have their own rules; take advice where the facts are unusual.
Which Wage Counts
The award is calculated on the last wage, and this is where disputes start. The Labour Law defines the wage broadly to include the basic wage and regular allowances, while many employers have historically calculated on basic plus housing only. Labour dispute bodies look at the contract and the law together. The safest practice is to make the contract explicit about wage components, keep genuinely variable payments such as overtime and site bonuses separate, and calculate on the components that the law and contract treat as wage. If in doubt, take Saudi legal advice rather than relying on habit.
When It Must Be Paid
The Labour Law sets short deadlines for settling final dues, measured in days after the relationship ends, with a slightly longer period where the worker resigns. Late settlement exposes the employer to claims and can delay the worker's departure. Prepare the settlement before the last working day — final wage, accrued leave, the award and the return ticket where the contract provides it — and pay it through the payroll channel so the record shows in Mudad.
Accruing It Properly
Treat the award as a monthly liability. A simple method is to accrue one twenty-fourth of the monthly wage base for each month in the first five years, which equals half a month per year, and one twelfth per month thereafter, adjusted when wages change. For a large crew the accrual is a material number on project budgets, and contractors bidding multi-year packages should include it in the labour rate rather than treating it as overhead.
Transfers and the Award
When a worker transfers to another employer under the mobility rules, the current employer settles the award for the service with them unless a lawful agreement provides otherwise. A transfer at the one-year mark during a fixed-term contract may be treated as resignation, which affects the entitlement. That interaction is one more reason to authenticate contracts on Qiwa and keep them consistent with the labour reform rules.
Common Errors
- Calculating on basic wage alone when the contract defines a broader wage
- Applying resignation reductions to workers whose fixed-term contracts simply expired
- Forgetting the final partial year
- Deducting debts or costs from the award that the law does not allow
- Paying in cash outside the wage-protection channel, leaving no record
Indian-Side Expectations
The model employment contract attested by the Embassy of India refers to end-of-service entitlements under Saudi law, and workers raise unpaid awards through the Embassy and the labour courts. A transparent settlement sheet, explained to the worker in Hindi or their own language, avoids most complaints. The award sits alongside wages, fees and housing in our Saudi hiring cost breakdown; for payroll mechanics, read the Mudad wage protection guide.
Frequently Asked Questions
Does a worker who finishes a two-year contract get the full end-of-service award?
Generally yes. Resignation reductions apply when a worker resigns, not when a fixed-term contract simply expires, so a worker leaving at expiry is entitled to the full calculated award.
Is end-of-service benefit calculated on basic salary only?
Not necessarily. The Labour Law defines wage broadly, so the contract should state the wage components clearly. Take Saudi legal advice where the basis is disputed.
