Gratuity on Resignation

What gratuity on resignation is

Gratuity on resignation is the part of the end of service award (مكافأة نهاية الخدمة) that a worker in Saudi Arabia is entitled to when the employment relationship ends by the worker’s own resignation. The award is set by the Saudi Labor Law (نظام العمل), and resignation is one of the endings for which that Law adjusts the amount.

The word gratuity, used without a qualifier in this sense, means the end of service award and not a discretionary bonus. It is an entitlement the Labor Law establishes when the relationship ends, not a payment an employer decides to make as a reward for performance or in recognition of effort. The distinction matters because Article 2 of the Labor Law uses a similar word for something quite different. Among the elements of the actual wage (الأجر الفعلي), it lists a grant or bonus (المنحة أو المكافأة), and counts it only where it is stipulated in the contract or in the establishment’s work regulation (لائحة تنظيم العمل), or where it has been customarily granted until workers came to regard it as part of the wage rather than as a gift. That bonus is an input to the wage. The gratuity on resignation is an entitlement calculated on the wage. The two cannot be treated as a single term.

Gratuity on resignation is not governed by a single rule

The amount due on resignation is governed by Article 85 of the Labor Law, which reduces the award according to the length of continuous service:

• Under two years. Article 85 of the Labor Law gives the resigning worker no share of the award.
• Not less than two consecutive years and not more than five. One third of the award.
• More than five consecutive years and less than ten. Two thirds of the award.
• Ten years or more. The full award.

The award these shares are taken from is the one Article 84 of the Labor Law sets: half a month’s wage for each of the first five years and a month’s wage for each later year, with the last wage as the basis, and an award for parts of a year in proportion to the time spent at work in them. The calculation itself is covered under end of service calculation.

Relying on the Article 85 scale alone gives the wrong answer in three situations, because two other provisions of the Labor Law set the scale aside. Those provisions are Article 87 and Article 81 of the Labor Law, both set out below.

Where the bands of gratuity on resignation begin and end

The wording of Article 85 of the Labor Law fixes the edges of each band, and the edges are where a calculation can go wrong. The one third band covers service of not less than two consecutive years and not more than five, so a worker who resigns after exactly five years remains within it. The two thirds band begins only once service exceeds five consecutive years, and it lasts while service has not reached ten. The full award is due on resignation once service reaches ten years. Two resignations a few days apart, one on each side of a threshold, can therefore produce different shares of what is otherwise the same award.

A worked example of gratuity on resignation

Take a worker whose last actual wage is SAR 10,000 a month, an assumed figure used only for illustration, and whose continuous service on the date the relationship ends is seven whole years. Under Article 84 of the Labor Law the full award is:

• The first five years: 5 × SAR 5,000 (half a month’s wage) = SAR 25,000.
• The sixth and seventh years: 2 × SAR 10,000 (a month’s wage) = SAR 20,000.
• The full award: SAR 45,000.

Seven years is more than five and less than ten, so on resignation Article 85 of the Labor Law gives two thirds of that award, which is SAR 30,000. Had the same worker resigned after four whole years, the full award would have been 4 × SAR 5,000, which is SAR 20,000, and the resignation share one third of it, SAR 6,666.67. After one year and eleven months, Article 85 of the Labor Law gives no share at all.

Those figures hold only for a plain resignation. Had the worker with four years of service left in one of the cases in Article 87 of the Labor Law, the full SAR 20,000 would be due rather than SAR 6,666.67, and a departure under Article 81 of the Labor Law is not treated as a plain resignation when the Article 85 reduction is applied.

Article 87 of the Labor Law: the stated exception to gratuity on resignation

Article 87 of the Labor Law opens by declaring itself an exception to what is provided in Article 85 of the Labor Law. It is drafted as an express exception to the resignation scale, so it is examined alongside that scale, not apart from it. It makes the award due in full, whatever the length of service, in two cases:

1. The worker leaves the work as a result of force majeure beyond their control.
2. A female worker ends the contract within six months of the date of her marriage contract, or within three months of the date she gives birth.

The date each period runs from deserves attention. Article 87 of the Labor Law ties the first period to the date of the marriage contract, not the date of the wedding celebration, and the second to the date of giving birth. Counting either period from another date can deny a right that exists or grant one that does not.

Article 81 of the Labor Law and gratuity on resignation: leaving without notice, all rights kept

Article 81 of the Labor Law allows the worker to leave the work without notice, while retaining all their statutory rights, in seven cases. In summary, they are where:

• the employer fails to meet its essential contractual or statutory obligations towards the worker;
• the employer or its representative is shown to have deceived the worker, at the time of contracting, about the terms and conditions of the work;
• the employer assigns the worker, without the worker’s consent, work materially different from the agreed work, contrary to Article 60 of the Labor Law;
• the employer, a member of the employer’s family or the responsible manager commits a violent assault, or conduct offending public decency, against the worker or a member of the worker’s family;
• the employer or the responsible manager treats the worker with cruelty, injustice or insult;
• a grave danger at the workplace threatens the worker’s safety or health, where the employer knew of it and took no step indicating its removal;
• the employer or its representative, by its conduct and in particular by unjust treatment or breach of the contract terms, drove the worker into appearing to be the party that ended the contract.

Where Article 81 of the Labor Law applies, the departure is not treated as a plain resignation when the reduction in Article 85 of the Labor Law is applied. The cases and their conditions are covered in our guide to Articles 80 and 81 of the Labor Law.

Recording the reason before calculating gratuity on resignation

It follows that the reason for the end of service cannot be entered as the single word resignation and the amount then calculated from that word automatically. The reason as written down is what the figure is measured against, so settling it comes before the calculation, not after it. A record that says resignation for a worker who left within three months of giving birth applies the Article 85 scale to a case that Article 87 of the Labor Law takes out of it.

How a resignation takes effect, and on what date the contract then ends, is set out in Article 79 bis of the Labor Law, which Royal Decree M/44 added. That procedure is covered in our guide to resignation under the Labor Law.

The wage gratuity on resignation is calculated on

Article 84 of the Labor Law calculates the award on the last wage, with no qualifier. Article 2 of the Labor Law settles the meaning expressly: the wage means the actual wage. So wherever the Labor Law says wage without a qualifier, it is taken as the actual wage and not the basic wage (الأجر الأساسي). As Article 2 of the Labor Law defines it, the actual wage is the basic wage plus the other increases due to the worker for effort in the work, for risks met in performing it, or for the work under the contract or the work regulation.

The choice of base changes the figure. In the example above, an award wrongly calculated on an assumed basic wage of SAR 6,000, rather than on the actual wage of SAR 10,000, would come to SAR 27,000 in full instead of SAR 45,000. The two thirds due on resignation would then be SAR 18,000 instead of SAR 30,000, which is SAR 12,000 less than the worker is owed.

There is one opening, in Article 86 of the Labor Law. By exception to Article 8 of the Labor Law, the parties may agree that all or some commissions, percentages of the sales price and similar elements of the wage, which by their nature can rise or fall, are not counted in the wage on which the end of service award is settled. The exclusion does not arise from custom or from an internal label. It requires an agreement that exists. How a wage of that kind is structured is set out under commission pay.

When gratuity on resignation is paid

Article 88 of the Labor Law requires the employer, whenever the worker’s service ends, to pay the wage and settle the worker’s entitlements within one week at most of the date the contractual relationship ends. Where the worker is the one who ended the contract, as on a resignation, the entitlements are settled in full within a period of no more than two weeks. Article 88 of the Labor Law also allows the employer to deduct, from the amounts due to the worker, any debt owed to the employer that arose from the work. The deadline and the set off are covered in our guide to wage payment dates and the final settlement, and the full set of items due at the end of service under settlement of entitlements.

The award is shown as a separate item in the final release (المخالصة النهائية), not merged into a single line with other amounts, because each item rests on a different cause and a different basis of calculation.

Payment of what is due is not made conditional on the completion of exit clearance (إخلاء الطرف). Article 88 of the Labor Law counts its period from the date the contractual relationship ends, not from the completion of an internal form.

The provisions relied on are those of the Saudi Labor Law as published by the Ministry of Human Resources and Social Development: Article 2 (the actual wage, and the grant or bonus as one of its elements), Article 79 bis (how a resignation takes effect, cited only to direct the reader to the guide), Article 81 (leaving without notice with rights retained), Article 84 (the award and its wage base), Article 85 (the reduction on resignation), Article 86 (the agreed exclusion of commissions), Article 87 (the exceptions to the reduction) and Article 88 (the settlement deadline and set off). Royal Decree M/44 of 1446H, in force since 19 February 2025, added Article 79 bis to the Labor Law. That decree did not amend Articles 81, 84 or 87 of the Labor Law.

Checking a gratuity on resignation figure

Four questions, answered in writing before the figure is calculated, can prevent a dispute about it. Was the departure a plain resignation, or does one of the exceptions apply? How long was the continuous service on the date the relationship ended, and which band does that place it in? Is the base the actual wage, and has any agreed exclusion been recorded? And has the payment deadline been counted from the end of the relationship rather than from an internal step?

This is an explanation of the concept and of the statutory provisions cited, not legal advice.