In Kind Benefits

What in kind benefits are

In kind benefits (الميزات العينية) are what an employer gives a worker in return for work in a form other than cash: housing the employer provides, meals, a means of transport, or travel tickets. Under the Saudi Labor Law (نظام العمل) the term has a narrower meaning than this general use. Article 2 of the Labor Law makes in kind benefits the fifth of the items listed in the actual wage (الأجر الفعلي), and defines them as the benefits the employer is bound to provide to the worker in return for work, by stipulation in the employment contract or in the work regulation. It values them at a maximum equal to the basic wage for two months for each year, unless the contract or the work regulation values them at more.

The term matters to the human resources officer who drafts a contract containing housing or an annual ticket, and to the accountant who calculates the end of service award, because counting a benefit in the actual wage changes the figure on which other entitlements are built. What matters is when an in kind benefit is counted, how it is valued, and what the text leaves open about it.

Where an in kind benefit sits within pay

Article 2 of the Labor Law defines the basic wage as everything given to the worker in return for work under a written or unwritten employment contract, whatever the type of wage or the way it is paid, with the periodic increments added. It then defines the actual wage as the basic wage with all the other due increases added that are established for the worker in return for effort spent in the work, for risks the worker faces in performing it, or for the work under the employment contract or the work regulation. After words that introduce examples, it lists five items: commission and percentage of sales or profits, allowances, increases tied to the cost of living or family burdens, the grant or bonus, and in kind benefits.

An in kind benefit therefore appears in the definition of the actual wage and is absent from the definition of the basic wage. Where the Labor Law uses the word wage without a qualifier, Article 2 of the Labor Law itself provides that the wage means the actual wage. The reference here is to the fifth item of the five. The whole list is not meant.

What governs whether a benefit counts

The fifth item sets a condition for counting a benefit and a condition for valuing it. The first condition is that the employer is bound to provide the benefit, and that the obligation is written in the employment contract or the work regulation. What an employer gives out of generosity once or twice does not fall within this item, because the obligation is the condition and the mere giving is not. The second condition is the valuation, which the next section covers.

The fourth item, the grant or bonus, adds a second route beside a stipulation in the contract or the regulation: what it has been customary to grant until workers came to regard it as part of the wage rather than as a gift. That route does not appear in the fifth item. On our reading of the two texts, an in kind benefit that is customary without being written does not fall within the fifth item by its wording, and that is our reading, not the wording of Article 2 of the Labor Law. It does not mean the benefit lies outside the actual wage, because the opening of the definition covers what is established for the worker for the work under the employment contract or the work regulation, and we found no text that explains how that opening relates to each of the five items.

How the cap on valuation works

An in kind benefit is valued at a maximum equal to the basic wage for two months for each year, unless the contract or the work regulation values it at more. The cap is therefore a valuation rule with a starting figure and an increase: the starting figure is two months of basic wage, and the contract or the regulation may value the benefit at more than that.

Here is the calculation with hypothetical figures. A worker’s basic wage is SAR 6,000 a month, so the cap of two months is 2 × 6,000 = SAR 12,000 a year. Each benefit is valued separately in the following cases.

• An annual travel ticket written in the contract. Its value is SAR 3,600 a year. That is below the cap, so it is counted at its value, on the reading that the cap is a maximum and carries no fixed value.
• Housing written in the contract with no valuation. Its market value is SAR 30,000 a year, so its valuation stops at the cap of SAR 12,000.
• The same housing, with the contract valuing it at SAR 30,000. The contract values it at more than the cap, so it is counted at the contract’s valuation of SAR 30,000.

An annual value enters the monthly wage only by being spread, and the text does not state how. The examples that follow assume that it is divided over 12 months, and that is our reading.

In the sources we reviewed, we found no provision on three points of valuation. The first is whether the cap of two months applies to each benefit separately or to all the benefits together. In the same example, suppose the worker has the ticket at SAR 3,600 and the housing at SAR 30,000 with no valuation in the contract. If there is one cap for the total, SAR 12,000 is counted. If there is a cap for each benefit, 3,600 + 12,000 = SAR 15,600 is counted, and the difference is SAR 3,600. The second point is how an annual value is spread over the months, as noted above. The third is whether a benefit below the cap is valued at its cost to the employer or at its value to the worker. Each of these points changes a figure in the actual wage, and we do not answer them by inference. The assumption on which a calculation is built is stated and written down.

What counting a benefit does to the end of service award

Article 84 of the Labor Law calculates the end of service award on the basis of half a month’s wage for each of the first five years and a month’s wage for each year after that, and it takes the last wage as the basis of the calculation. The wage in Article 84 of the Labor Law carries no qualifier, so it is the actual wage under the rule in Article 2 of the Labor Law. An in kind benefit that enters the actual wage therefore enters the basis of the award, and the calculation is set out under end of service calculation.

Take the same figures for a worker who completes five years and is entitled to the full award. On the basic wage alone of SAR 6,000, the award for one year is 0.5 × 6,000 = 3,000, and for the five years it is SAR 15,000. If the benefits are added, the result changes by case.

• The ticket. 3,600 ÷ 12 = 300, so the actual wage is 6,300, the award for one year is 3,150, and for the five years it is SAR 15,750, an increase of 750.
• Housing at the cap of two months. 12,000 ÷ 12 = 1,000, so the actual wage is 7,000, the award for one year is 3,500, and for the five years it is SAR 17,500, an increase of 2,500.
• Housing at the contract’s valuation. 30,000 ÷ 12 = 2,500, so the actual wage is 8,500, the award for one year is 4,250, and for the five years it is SAR 21,250, an increase of 6,250.

The difference between housing valued at the cap and housing valued by the contract is SAR 3,750 in the calculation, and its cause is that the contract valued the benefit itself. The example assumes the worker is entitled to the full award. If the relationship ended by the worker’s resignation, Article 85 of the Labor Law would apply, which makes the entitlement a fraction of the award according to the length of service, and its detail lies outside this term. The example is not a calculation of an actual case.

How an in kind benefit differs from a cash allowance

An in kind benefit is a performance other than payment of money, and an allowance is a sum that is paid. Article 2 of the Labor Law gives each a separate item in the actual wage. Allowances, at the second item, are limited to those due in return for effort a worker spends or risks the worker faces in performing the work. In kind benefits, at the fifth item, are limited by the obligation and by the cap on valuation. The question put to each is therefore different, as an annual air ticket, which is an in kind benefit, differs from a communication allowance, which is a sum of money.

If a sum of cash replaces an in kind benefit, where does the sum fall within the actual wage? In the sources we reviewed, we found no text that settles this. Article 2 of the Labor Law names neither housing nor transport, and we do not infer the answer from the neighbouring items. We suggest that the contract or the establishment’s regulation state the intended form expressly: an in kind benefit with its conditions, or a cash allowance with its amount.

How legal duties on housing and transport sit alongside the benefit in Article 2 of the Labor Law

The benefit that Article 2 of the Labor Law deals with draws its obligation from the contract or the regulation, and other obligations come from the Labor Law itself. Article 61 of the Labor Law obliges the employer to provide suitable housing for its workers, and permits it to substitute a suitable cash allowance paid with the wage. It also obliges the employer to provide a suitable means of transport from the place of residence to the place of work, with the same permission to substitute a suitable cash allowance. These obligations are set out under employer obligations.

Some work sites carry other duties in kind. Article 146 of the Labor Law obliges an employer whose workers work in places far from urban areas to provide, in whole or in part as the Minister determines, shops, recreation, medical arrangements, schools, prayer places and literacy programmes. Article 147 of the Labor Law obliges an employer working in such places, and in mines, quarries and oil exploration centres, to provide housing, camps and meals. Article 148 of the Labor Law obliges the employer to provide workers with means of transport from their place of residence or a fixed gathering point to the places of work and back daily, where those places are not reached by regular transport at times that match working hours. Each of these duties rests on a different provision, and we do not count any of them as a benefit in the sense of Article 2 of the Labor Law.

If a benefit is provided in performance of these legal duties and is not written in the contract or the regulation, does it enter the actual wage? In the sources we reviewed, we found no text that settles this, so we say neither that it enters nor that it does not. We suggest that the contract write down what the establishment provides, even where its origin is a legal duty, so that its status is known from the text and is not left to argument.

Whether social insurance counts a benefit by the same rule

Social insurance has its own contribution base, the contributory wage, so a rule from the Labor Law is not carried over to social insurance, or the reverse.

What to write in the contract or the establishment’s regulation

We suggest that the text state the name of the benefit and its description, and that the establishment’s undertaking be an obligation, with no element of gift. It can also state a valuation as an annual sum, if the establishment wants a valuation higher than the cap of two months, who is entitled to the benefit and on what condition, when it ends, and whether it is replaced by a sum of cash and who holds the choice. This is a practical recommendation and not a requirement found in the Article.

Writing it down has two benefits. It proves the condition of obligation that the fifth item requires, and it avoids a dispute over valuation when the worker’s entitlements are calculated. Total rewards presents in kind benefits as part of the package of what an employee receives, which is a management view and does not change the rule in Article 2 of the Labor Law.

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