End-of-Service Benefits (EOSB)

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 on the employee’s length of service and final wage. 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.
• Reduce the award for a resignation under Article 85: nothing under two years, one third from two up to five, two thirds over five and under ten, and the full award at ten years or more. No reduction applies where the employer ended the contract.
• Article 87 overrides Article 85: the full award is due whatever the length of service where the worker leaves because of force majeure beyond their control, or where a female worker ends the contract within six months of the date of her marriage contract or three months of the date of giving birth.
• The base is the final wage (الأجر الأخير). Article 84 says “wage” without a qualifier, and Article 2 of the Saudi Labor Law expressly provides that an unqualified “wage” means the actual wage (الأجر الفعلي) — the basic wage plus the components Article 2 lists, not the basic wage alone and not a definition set by the 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 wage of SAR 10,000 resigns after 7 years. The Article 84 award is (5 × 0.5 × 10,000) + (2 × 1 × 10,000) = 25,000 + 20,000 = SAR 45,000. Because this is a resignation at over five and under ten years, Article 85 entitles the employee to two thirds: 45,000 × ⅔ = SAR 30,000. Had the employer ended the contract instead, no Article 85 reduction would apply and the full SAR 45,000 would be due. Article 88 sets the settlement window: one week at most from the end of the contractual relationship whenever the worker’s service ends, whatever caused it to end, and no more than two weeks where the worker is the one who ended the contract. The obligation is recognized throughout the service period in the books.