What is End-of-Service Benefits (EOSB)?
End-of-service benefits (EOSB) are statutory severance payments owed to employees in Saudi Arabia upon termination of employment, calculated based on length of service and final basic salary. The Saudi Labor Law sets the formula, while IAS 19 governs accounting recognition as a defined-benefit obligation that must be accrued over the employee’s service period.
How It Works
- Half a month’s wage for each of the first five years of service.
- One full month’s wage for each subsequent year, prorated for partial years.
- Final wage means the last basic salary plus regular monthly allowances per the labor contract.
- Recognize the obligation under IAS 19 using actuarial assumptions (discount rate, salary increases, turnover).
- Disclose the EOSB liability and the year’s service and interest costs in the financial statements.
Saudi Context
Saudi Labor Law Articles 84-87 govern EOSB. Saudi listed companies record EOSB under IAS 19 using actuarial valuations (typically by external actuaries). Discount rates are based on SAR government sukuk yields. Late payment of EOSB exposes employers to MHRSD penalties and labor court claims. Qoyod tracks EOSB accruals per employee.
Example
An employee with a final basic salary of SAR 10,000 leaves after 7 years. EOSB = (5 * 0.5 * 10,000) + (2 * 1 * 10,000) = 25,000 + 20,000 = SAR 45,000. The employer must pay within two weeks of contract end and recognize the obligation throughout the service period in the books.