Understanding Saudi Arabia's Mandatory End-of-Service Benefits (Gratuity)

For HR professionals and business leaders expanding into Saudi Arabia, navigating the local labor landscape is essential for successful market entry. As a key destination along the Belt and Road Initiative, Saudi Arabia offers significant opportunities, but compliance with local employment regulations is non-negotiable. The End-of-Service Benefit, commonly known as Gratuity, represents a critical legal requirement that directly impacts both employee rights and employer financial planning.

What is End-of-Service Gratuity in Saudi Arabia?

End-of-Service Gratuity is a statutory benefit mandated by Saudi Labor Law to recognize employee service and provide financial security upon employment termination. Article 84 of the Saudi Labor Law requires employers to pay this lump-sum amount when an employment contract concludes, except in cases of termination for gross misconduct as defined in Articles 80 and 81.

This benefit applies to all employees—both Saudi nationals and expatriates—and is calculated based on length of service and final actual salary. It serves as a fundamental component of Saudi Arabia's labor market stability under Vision 2030.

Legal Framework and Eligibility Criteria

Core Provisions Under Article 84

Minimum Service: One year of continuous service required for eligibility
First 5 Years: Half-month's salary for each year of service
Beyond 5 Years: Full month's salary for each additional year
Partial Years: Pro-rated calculation for incomplete years

The calculation basis includes basic salary and fixed allowances (housing, transportation), excluding variable components like overtime or bonuses.

Resignation Scenarios Under Article 85

Less than 2 years: No gratuity entitlement
2-5 years: One-third of full gratuity amount
5-10 years: Two-thirds of full gratuity amount
Over 10 years: Full gratuity payment

Special Circumstances

Termination due to force majeure (company closure)
Female employees resigning within 6 months of marriage or 3 months of childbirth
Resignation due to employer misconduct

Payment Timelines

Employer-initiated termination: Within one week
Employee resignation: Within two weeks

Practical Calculation Examples

Case Study 1: Service Under 5 Years

Employee with 4 years, 8 months, 10 days service at SAR 10,000 monthly salary:

Total service days: 1,700 days
Daily rate: SAR 13.89
Full gratuity: SAR 23,613
Resignation scenario: SAR 7,871 (one-third)

Case Study 2: Service Over 5 Years

Employee with 7 years, 3 months, 20 days at SAR 15,000 monthly salary:

First 5 years: SAR 37,494
Additional period: SAR 34,586
Full gratuity: SAR 72,080
Resignation scenario: SAR 48,053 (two-thirds)

Strategic Implications for International Employers

Gratuity represents a significant financial commitment that requires proactive planning. Companies expanding into Saudi Arabia should:

Accurately define salary components in employment contracts
Maintain precise service duration records
Utilize platforms like Qiwa or GOSI for compliance verification
Budget for gratuity liabilities as part of total employment costs

Professional HR services like SailGlobal can provide essential support in navigating these requirements, ensuring compliance while optimizing workforce management strategies.

Frequently Asked Questions

Who qualifies for gratuity in Saudi Arabia?

All employees working under Saudi Labor Law, regardless of nationality.

Is gratuity taxable in Saudi Arabia?

No, end-of-service benefits are tax-exempt.

What happens if an employer refuses payment?

Employees can file complaints with the Ministry of Human Resources and Social Development (MHRSD).

Can gratuity be waived?

Only in cases of serious misconduct as defined by law.

Saudi Arabia End-of-Service Gratuity Guide 2024: HR Compliance & Calculation