Key Factors That Influence End of Service Payouts in Saudi Arabia

Leaving a job is never easy, but the financial aspect can be even more challenging. End of service payout is a crucial benefit for employees in Saudi Arabia, ensuring financial security after termination or resignation. However, many employees are unaware of the various factors that influence their final compensation.

What if you receive a lower payout than expected? Can your years of service or contract type impact the amount? Understanding these factors is essential to avoid surprises. In this article, we’ll explore all the key elements that determine your end of service payout so you can plan ahead and secure what you rightfully deserve.

1. Type of Employment Contract

Your employment contract plays a major role in calculating your end of service payout. In Saudi Arabia, there are two main types of contracts:

• Fixed-term contract: Ends on a specific date or project completion.

• Indefinite contract: Continues until terminated by either party.

For fixed-term contracts, employees are entitled to full benefits if the contract is completed. Early termination by the employer often results in additional compensation. However, if the employee resigns before completion, payout eligibility may decrease significantly.

For indefinite contracts, payout varies based on resignation timing and total service years, making it a critical factor to consider.

2. Length of Service

The longer you work, the higher your end of service payout. Saudi labor laws specify different payout percentages based on service duration:

• Less than 2 years: No payout entitlement.

• Between 2 to 5 years: 1/3 of a month’s wage per service year.

• Between 5 to 10 years: 2/3 of a month’s wage per service year.

• More than 10 years: Full month’s wage per service year.

Employees with extended service periods receive higher payouts, making loyalty to an employer financially beneficial.

3. Reason for Termination or Resignation

Your end of service payout depends on whether you resigned or were terminated.

• Employer termination (without valid reason): Full payout based on years of service.

• Employee resignation: Reduced payout depending on service years.

• Termination due to misconduct: No payout entitlement.

Understanding these conditions helps employees negotiate fair compensation when exiting a company.

4. Basic Salary and Allowances

Your final payout is calculated based on your basic salary, excluding bonuses and incentives. However, some companies include regular allowances (housing, transportation) in the calculation.

For example:

• If your basic salary is SAR 10,000 and you worked for 6 years, your end of service payout will be:

  • First 5 years: (1/3 of a month’s wage) x 5 = SAR 16,667

  • Additional year: (2/3 of a month’s wage) x 1 = SAR 6,667

  • Total payout: SAR 23,334

Check your contract to determine if allowances are included in your calculations.

5. Employer's Financial Condition

Some companies delay or reduce end of service payout due to financial issues. If an employer struggles financially, employees may face difficulties in receiving their rightful compensation.

To avoid complications:

• Keep all employment records and salary slips.

• File a legal complaint if the employer refuses to pay.

Labor laws in Saudi Arabia protect employees, but timely legal action is crucial to securing your payout.

6. Unused Leave and Other Benefits

Did you know that unused leave can impact your end of service payout? Employees are entitled to compensation for:

• Unused annual leave.

• Unpaid wages or bonuses.

• Overtime or unpaid commissions.

Ensure your employer settles all outstanding dues before processing your final settlement.

7. Gratuity Calculation Methods

Employers may use different methods to calculate end of service payout, which can lead to variations in the final amount. Saudi labor law provides a standard method, but companies sometimes use different formulas based on their policies.

• Standard calculation: Based on basic salary and service years.

• Modified calculation: Includes allowances or performance-based components.

Employees should verify their payout calculation method to ensure compliance with labor laws.

8. Legal Disputes and Claims

If there’s a dispute over your end of service payout, you can:

• File a claim through Saudi labor courts.

• Seek assistance from legal advisors.

• Report to the Ministry of Human Resources and Social Development (MHRSD).

Legal intervention can help recover unpaid dues, ensuring a fair resolution.

Final Thoughts

Your end of service payout is an important financial benefit, but various factors can affect the final amount. Understanding contract type, service duration, resignation reasons, salary structure, and legal protections can help employees receive the compensation they deserve.