End of service gratuity calculation in KSA

David Kambo


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    Article 84 of the KSA Labor law states as follows regarding end-of-service settlement;

    Upon the end of the work relation, the employer shall pay the worker an end-of-service award of a half-month wage for each of the first five years and a one-month wage for each of the following years. The end-of-service award shall be calculated on the basis of the last wage and the worker shall be entitled to an end-of-service award for the portions of the year in proportion to the time spent on the job.

    Gratuity is a token of appreciation for all the hard work and commitment an employee has shown towards one’s workplace. It is usually calculated at the time of resignation or termination. In KSA, an employee is entitled to an end of service benefit upon completion of two years of service if he is resigning from work. In the case of termination, the employee is entitled to a full accrual if the service period is more than one year.

    Here our payroll experts in KSA, explain in detail the gratuity policy in KSA, along with some sample gratuity calculations.

    What is Gratuity?
    Gratuity is a monetary payment eligible to an employee as a lump sum at the end of his tenure provided that the period of service exceeds one year. Gratuity payment is a liability to the employer which accrues as the employee service period progresses.

    When does the employee become eligible for gratuity accrual?
    Gratuity accrues from the first day of employment up to the last working day. The settlement is dependent on some factors as we will see below.

    Which workers are eligible for gratuity payment?
    Saudi labor law does not specify which workers qualify for gratuity accrual and payment. The law does not say if gratuity should be paid to expatriates only or to both KSA nationals and expats. It is our understanding that gratuity is accrued to all workers in KSA. Please see how gratuity accrual and payment policy in KSA differs from UAE gratuity policy here

    What is the limit for gratuity payable?
    The law does not limit the amount of gratuity that an employee can receive at end of service settlement.

    What is the basis amount that is used to calculate gratuity?
    Gratuity is calculated based on the last paid total wage as at the time of final settlement.

    How is the accrual period determined in calculating gratuity?
    Gratuity calculation is accrued at the following basis

    • If the service period is below five years at half month salary per year.
    • If the service period is more than five years and above at full month salary per year.

    The following simple illustration shows how gratuity accrues in Saudi Arabia.

    Service periodLess than 5 years 5 Years and Above
        Hire date
        Total salary (SAR)10,000.0010,000.00
        Payroll MonthAug-20Aug-20
        Number of years in service as of 31st August 20204.137.55
        One day salary333.33333.33
        Gratuity days62.01151.50
        Gratuity Accrued
            For the first five years (1/2-month salary per year)20,671.2325,000.00
            Five years and above (One-month salary per Year)N/A25500
        Total Accrued Gratuity20,671.2350,500.00


    Factors affecting the amount of gratuity payable in Saudi Arabia

    The Saudi Labor law does define the type of contracts as Fixed-term contracts and Indefinite term contracts. The gratuity paid is not affected by the type of contract, but by the type of separation. Articles 85 and 87 define the payable amount based on the separation type and the length of the period of service as seen below.


    Article 85 states as follows ‘If the work relation ends due to the worker’s resignation, he shall, in this case, be entitled to one-third of the award after a service of not less than two consecutive years and not more than five years, to two thirds if his service is in excess of five successive years but less than ten years and to the full award if his service amounts to ten or more years.’

    Under this separation type, the gratuity accrues at the following rate.

    • If the service period is below two years – No gratuity is paid
    • If the service period is above two and below five years – one-third of accrual.
    • If the service is above five years but less than ten years – two-thirds of accrual.
    • If the service period is above ten years – full accrual.

    The following table illustrates such a scenario;

    Service periodLess than 2 years2-5 years5-10 years 10 years and above.
        Hire date14/08/1912/05/1710/02/1310/01/08
        Total Salary (SAR)10,000.0010,000.0010,000.0010,000.00
        Last working day31/08/2031/08/2031/08/2031/08/20
        Number of days in service384.001,208.002,760.004,618.00
        Number of years in service1.053.317.5612.65
        Gratuity days15.7849.64151.80304.50
        One day salary333.33333.33333.33333.33
        Gratuity Accrued1/3 of accrual2/3 of accrualfull accrual
            For the first five years (1/2- month salary per year)5,515.9816,666.6725,000.00
            Five years and above (One-month salary per Year)N/AN/A17,066.6776,500.00
        Gratuity Pay-out AmountNo gratuity is paid5,515.9833,733.33101,500.00



    When the separation is by termination, the employee is entitled to full accrual if the service period is longer than one year.

    Article 87 states as follows; ‘As an exception to the provisions of Article (85) of this Law, the worker shall be entitled to the full award if he leaves the work due to a force majeure beyond his control’.

    Under this separation type, the gratuity accrues at the following rate.

    • If the service period is less than one year – no gratuity.
    • If the service period is more than one year but less than five years – half month salary per year.
    • If the service period is above five years – full Accrual.

    The following table illustrates this scenario.

    Service periodLess than 1 year1-less than 5 Years5 Years and Above
        Hire date14/11/1912/05/1810/02/14
        Total salary (SAR)10,000.0010,000.0010,000.00
        Last working day31/08/2031/08/2031/08/20
        Number of days in service292843.002,395.00
        Number of years in service0.802.316.56
        Gratuity days12.0034.6498.40
        One day salary333.33333.33333.33
        Gratuity Accrued
            For the first five years (1/2-month salary per year)11,547.9525,000.00
            Five years and above (Full month salary per Year)N/AN/A15,600.00
        Gratuity AmountNo gratuity is paid11,547.9540,600.00


    Is there a specific provision for female employees relating to gratuity?
    Article 87 states that female workers are entitled to full gratuity accrued under the following scenarios.

    • If she terminates her contract within six months after her marriage.
    • If she terminates her contract three months after giving birth.

    When should gratuity payment be done?
    Upon end of service, the employer is mandated to settle the employee’s gratuity and other settlements within a period of one week from the date of end of such a relation. If the employee ends the contract the employer shall settle all the employee entitlements within a period not exceeding two weeks. Any debts and deductions due from the employee may be deducted from his end of service.

    What is the effect of unpaid leave taken during the period of service?
    Any period taken by the employee as unpaid leave is excluded when determining the service period. That means unpaid leave days are excluded when accruing gratuity. The period of service is reduced by the number of days served as unpaid leave.

    How is Maternity unpaid leave and sick unpaid leave treated when determining the service period?
    The period taken as either maternity unpaid leave or sick unpaid leave do count as part of the service period. The period of service is not affected by any period taken during tenure by employees for these two types of leaves.

    Knowing how to calculate gratuity will be highly beneficial to employees and it eradicates any chances of error and confusion. It is equally important to keep yourself updated on any changes in gratuity policies/calculation criteria in KSA.

    For information on the payroll process in KSA click on this link

    Payroll Service in KSA

    The process of payroll is little complicated and time-consuming; hence it is always recommended to outsource your company’s payroll function. Outsourcing payroll will ensure the assistance of a team of trained payroll professionals and it frees up the time of the organization, helping them focus on other projects that add value to their business.

    One should be extra vigilant while selecting their payroll provider, as payroll data is highly sensitive, and one should opt for a provider that can ensure high levels of data security.

    As a leading payroll outsourcing company, HLB HAMT can help solve your payroll complexities through customized strategies. We take care of our clients’ entire payroll cycle that includes preparation of payroll reports, processing salary payment with WPS compliance, accrual management including Gratuity, pension funds, an online portal for accessing payslips, and many more. Our leadership team spends the necessary hours in every project, ensuring our clients get refined consulting services to take your business forward.

    Whilst every effort has been made to ensure the accuracy of this information, HLB HAMT will not accept any liability arising out of errors or omissions. Please note that this blog is not all-inclusive. Our guidance is designed only to give general information on the issues/topics covered. It is subjected to change and not intended to be a comprehensive summary of all laws which may be applicable to your situation, treat exhaustively the subjects covered, provide legal advice, or render a legal opinion.

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