What is End of Service Calculation?
End of service benefit (ESB) is a lump-sum payment that Saudi labour law requires private-sector employers to pay employees on separation. It is calculated based on the employee’s final wage and total years of continuous service.
How It Works
- Determine the employee’s final wage (الأجر الأخير). Article 84 says “wage” without a qualifier, and Article 2 of the Saudi Labour 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.
- Apply half a month’s wage for each of the first five years of service.
- Apply a full month’s wage for each year of service after the fifth year.
- Pro-rate partial years.
- Adjust the amount for the reason of termination — resignation versus dismissal — under articles 84 and 85 of the Saudi Labour Law.
Saudi Context
The calculation is governed by the Saudi Labour Law issued by the Ministry of Human Resources and Social Development. The accounting recognition follows IAS 19, and the present-value liability is reflected on the balance sheet as ‘end of service benefits provision’.
Example
An employee with eight years of service and a final wage of SAR 12,000 whose contract is ended by the employer receives the full Article 84 award: (5 × 0.5 × 12,000) + (3 × 1 × 12,000) = 30,000 + 36,000 = SAR 66,000. Had the same employee resigned instead, Article 85 would cut it to two thirds at over five and under ten years’ service: 66,000 × ⅔ = SAR 44,000.