End-of-Service Gratuity Calculation in Saudi Arabia 2026: The Complete Guide with Examples and Steps
17 minutes ago
Are you approaching the end of your service and want to know your entitlements accurately? Are you an employer who wants to calculate end-of-service gratuity for your employees correctly to avoid labor disputes and fines?
End-of-service gratuity is one of the most important financial rights guaranteed by the Saudi Labor Law to the employee upon termination of the employment relationship. It is regulated by the law in Articles (84) to (87). Despite the apparent simplicity of the end-of-service gratuity calculation rule, the details — such as the difference between fixed-term and indefinite contracts, the effect of resignation and unfair dismissal, and the wage used as the basis for calculation — raise many questions and disputes.
In this comprehensive guide, we explain end-of-service gratuity calculation in Saudi Arabia 2026 step by step, with practical numerical examples, illustrative tables, and answers to the most frequently asked questions.
- The law of end-of-service gratuity calculation according to Articles (84–87) of the Saudi Labor Law and employee rights.
- The difference between fixed-term, indefinite, and unwritten contracts.
- Practical numerical examples for every case.
- The other entitlements accompanying end-of-service gratuity.
- Steps to claim your right if the employer delays payment.
Do you want to calculate end-of-service gratuity for your employees accurately and ensure full compliance?
What is end-of-service gratuity under the Saudi Labor Law?
End-of-service gratuity is a sum of money that the employee is entitled to for their period of service with the employer upon termination of the employment relationship. Article (84) of the Saudi Labor Law obliges the employer to pay it to the employee upon termination of the employment contract, whether the contract is fixed-term or indefinite.
- It is a legally guaranteed right and may not be waived or dropped by agreement.
- It is calculated on the basis of the last wage the employee was receiving when the service ended.
- The employer bears full responsibility for paying it on time.
- The service period is calculated in years, months, and days, and a fraction of a year is calculated in proportion to the period actually served.
The law of end-of-service gratuity calculation in Saudi Arabia
Article (85) of the Labor Law sets out the rule for end-of-service gratuity calculation as follows:
The golden rule of calculation:
- The first five years of service: half a month (15 days) for each year.
- Any period beyond five years: one full month (30 days) for each year.
- Basis of calculation: the last wage = basic wage + fixed allowances related to the nature of the work.
| Service period | Gratuity value per year | The formula |
|---|---|---|
| First 5 years | Half a month (15 days) | (Last wage ÷ 30) × 15 × number of years |
| After 5 years | One full month (30 days) | (Last wage ÷ 30) × 30 × number of years |
| Fraction of a year | In proportion to the actual period | (Full-year value ÷ 365) × number of days |
Steps of end-of-service gratuity calculation in detail
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Determine the applicable last wage
Add the basic wage to the fixed allowances (housing, transport, nature-of-work allowance) as shown in the last payslip — and check our guide to payroll calculation for employees to know the components of the wage accurately.
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Calculate the value of half a month and a full month
Divide the last wage by 30 to get the daily wage, then daily wage × 15 = half a month, and × 30 = one full month.
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Calculate the first five-year portion
Half-month wage × number of years of service (up to a maximum of 5 years).
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Calculate any period beyond five years
Full-month wage × the number of years exceeding five.
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Add the fraction of the incomplete year
Calculate the value of a full year according to its stage, then multiply by (number of days ÷ 365).
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Sum the amounts and add the other entitlements
Add the cash allowance for untaken annual leave and any other outstanding entitlements.
Practical examples of end-of-service gratuity calculation
Example 1: Service of less than 5 years (indefinite contract)
An employee whose basic salary is SAR 4,000 + housing allowance SAR 1,000 + transport allowance SAR 500, with 3 years and 6 months of service:
- Last wage: SAR 5,500.
- Daily wage: 5,500 ÷ 30 = SAR 183.33.
- 3 full years: 183.33 × 15 × 3 = SAR 8,250.
- 6 months (fraction of a year): (183.33 × 15) × (180 ÷ 365) = 2,750 × 0.493 ≈ SAR 1,356.
- Total gratuity: 8,250 + 1,356 ≈ SAR 9,606.
Example 2: Service of more than 5 years
An employee with a fixed gross salary of SAR 7,000 and 8 years of service:
- Daily wage: 7,000 ÷ 30 = SAR 233.33.
- First 5 years: 233.33 × 15 × 5 = SAR 17,500.
- 3 additional years: 233.33 × 30 × 3 = SAR 21,000.
- Total gratuity: 17,500 + 21,000 = SAR 38,500.
Example 3: Unfair dismissal after one year
An employee with a fixed salary of SAR 6,000, unfairly dismissed after one year and 3 months:
- In unfair dismissal, the employee is entitled to the full gratuity for their period of service, however short it may be.
- Daily wage: 6,000 ÷ 30 = SAR 200.
- Gratuity: 200 × 15 × 1.25 years = SAR 3,750.
End-of-service gratuity calculation by contract type
| Contract type | Ruling on the gratuity |
|---|---|
| Fixed-term contract that reached its expiry | Full gratuity for the entire period of service |
| Indefinite contract terminated for a legitimate reason | Full gratuity if service exceeds two years, or two-thirds/one-third of it depending on the case |
| Unwritten (verbal) contract | The employee is entitled to gratuity for the entire actual period of service |
| Unfair dismissal | Full gratuity for the entire service, however long it may be |
| Termination during the probation period | No gratuity is due |
End-of-service gratuity in case of resignation
The rules of end-of-service gratuity calculation in case of resignation differ according to the length of service:
| Length of service at resignation | Entitlement |
|---|---|
| Less than two years | Nothing is due |
| Two to five years | One-third of the gratuity (with a legitimate reason) or two-thirds (with a stronger legitimate reason) |
| Five years or more | The full gratuity |
Legitimate reasons for resignation that entitle the employee to the full gratuity:
- If the employer fails to fulfill their contractual or legal obligations.
- If the employer or their representative treats the employee or a family member with disrespect.
- If there is a serious risk threatening the employee’s safety or health.
- If the employer assigns the employee work that is substantially different from the agreed nature of their work.
- If the employer fails to pay the employee’s wage within 30 days of its due date.
What counts toward end-of-service gratuity — and what doesn’t?
Included in the calculation
- The basic wage.
- The housing allowance (cash or its equivalent).
- The fixed transport allowance.
- The fixed nature-of-work allowance.
Not included in the calculation
- Overtime pay and overtime hours.
- Non-periodic bonuses and rewards.
- Travel and relocation allowances.
- Lump-sum rewards (such as year-end bonuses).
Other entitlements accompanying end-of-service gratuity
Upon termination of the employment relationship, the employee is paid, in addition to end-of-service gratuity, a set of other entitlements:
- Leave allowance: compensation for untaken leave under the Saudi Labor Law, calculated on the last wage.
- Outstanding wages: any unpaid salaries for previous months.
- Overtime pay: if any is due and unpaid. For more details, see our guide to the Saudi overtime system.
- Notice-period compensation: one month’s wage (or the agreed period) from the employer who terminates an indefinite contract without prior notice.
- Unfair dismissal compensation: two months’ wages for each year of service. You can find full details in our guide to employment contract termination in Saudi Arabia.
- Return ticket: to the home country for a non-Saudi employee.
Professional payroll management ensures that all these entitlements are paid together in a single end-of-service payslip, accurately and without shortfalls.
Steps to claim a delayed end-of-service gratuity
If the employer delays payment of end-of-service gratuity or refuses to pay it, follow these steps:
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Claim in writing
Submit an official written claim letter to the HR department specifying the amount and supporting documents.
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Amicable settlement through the Wadi portal
File an electronic claim through the Ministry of Human Resources and Social Development portal within a maximum of 21 days.
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Labor Courts through the Najiz platform
If settlement fails, the case is referred to the Labor Court, and you can claim late-payment interest.
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Submit the evidence
The attested contract, bank statements, the wage statement from the Qiwa platform, and attendance records.
Do you want to audit end-of-service settlements in your establishment and avoid violations?
Common mistakes in end-of-service gratuity calculation to avoid
- Calculating on the basic wage only: fixed allowances count toward the calculation; ignoring them wrongs the employee and exposes the establishment to liability.
- Dropping the fraction of a year: months and days must be calculated at their actual proportion — not dropped.
- Forgetting the leave allowance: many establishments overlook the cash compensation for untaken leave.
- Deducting from the gratuity without legal basis: no amounts may be deducted from the gratuity except under documented legal grounds.
- Delaying payment: payment must be made when the relationship ends, and delay requires compensation.
Frequently asked questions about end-of-service gratuity calculation
How is end-of-service gratuity calculated in Saudi Arabia in 2026?
End-of-service gratuity is calculated based on the employee’s last wage: half a month’s wage for each of the first five years of service, and one full month’s wage for each year thereafter. Example: an employee with a salary of SAR 6,000 and 6 years of service = (6,000 ÷ 2 × 5) + (6,000 × 1) = SAR 21,000.
Is end-of-service gratuity calculated on the basic salary or the gross salary?
End-of-service gratuity is calculated based on the last wage, which includes the basic salary plus the fixed allowances related to the nature of the work, such as the housing allowance and the transport allowance, according to Article (85) of the Saudi Labor Law, unless the contract states otherwise.
When is an employee not entitled to end-of-service gratuity?
An employee is not entitled to end-of-service gratuity in two cases: if they resign without a legitimate reason before completing two consecutive years of service, or if the employment relationship ends during the probation period.
What is the difference between end-of-service gratuity in resignation and unfair dismissal?
In unfair dismissal, the employee is entitled to the full end-of-service gratuity regardless of their length of service. In resignation, they receive the full gratuity if they have worked 5 years or more, or a portion of it if they worked between 2 and 5 years, depending on the reason for resignation.
Do overtime hours count toward end-of-service gratuity?
No, overtime pay does not count toward end-of-service gratuity, because it is calculated on the basis of the fixed last wage (basic salary + fixed allowances), while overtime pay is variable. See the Saudi overtime system for full details.
Is end-of-service gratuity subject to tax or social insurance?
End-of-service gratuity in the private sector is not subject to VAT, and it is not subject to social insurance contributions because it is a final benefit paid upon termination of the employment relationship and is not a monthly wage.
What should I do if my employer refuses to pay end-of-service gratuity?
You can file a claim in three stages: a written claim, then amicable settlement through the Wadi portal (21 days), then the Labor Courts through the Najiz platform, submitting the contract and payslips as evidence.
Is an employee entitled to compensation for untaken annual leave at the end of service?
Yes, the employee is entitled to monetary compensation for untaken annual leave calculated on the basis of their last wage. It is one of the benefits that is paid together with the end-of-service gratuity.
Calculate end-of-service gratuity accurately with 360 Solutions
If you are looking for a trusted partner to help you calculate end-of-service gratuity for your employees with legal accuracy, audit end-of-service settlements, and avoid labor disputes and fines, 360 Solutions (HR 360) offers you integrated services from consultation to execution and follow-up.
From auditing calculations to representation before the Labor Courts, we are with you every step of the way.