What payment in lieu of notice is
Payment in lieu of notice (التعويض عن فترة الإشعار), also searched for as pay in lieu of notice, is the sum owed by the party that ends an employment contract of indefinite duration without observing the notice period, and it is paid to the other party. Under the Saudi Labor Law (نظام العمل), the obligation can fall on either side of the contract: on an employer who ends the contract without giving the required notice, and on a worker who leaves without giving it.
The obligation is set by Article 76 of the Labor Law, which ties it to the notice period in Article 75 of the Labor Law. Both articles concern a contract of indefinite duration. A fixed term contract has no notice period under Article 75 of the Labor Law. It ends when its term expires, and ending it before then without a legitimate reason gives rise to compensation under Article 77 of the Labor Law, not to payment in lieu of notice.
How payment in lieu of notice is calculated
Under Article 76 of the Labor Law, the sum due is equal to the worker’s wage for the notice period that was not observed, unless the two parties agreed on more. The amount therefore follows the length of the period, and the length of the period follows two facts: which party ended the contract, and whether the wage is paid monthly. Article 75 of the Labor Law sets the notice as follows:
- Ended by the employer, wage paid monthly. The notice is at least 60 days.
- Ended by the worker, wage paid monthly. The notice is at least 30 days.
- Wage not paid monthly. The notice is at least 30 days, whichever party ends the contract.
Article 75 of the Labor Law sets each of these periods for a termination based on a legitimate reason, and each is a period of written notice: the party ending the contract sends the other party notice in writing at least that many days before the date of termination. The periods are stated as minimums.
The two monthly periods are not equal. That asymmetry comes from the amendment made by Royal Decree M/44, in force since 19 February 2025. Before it, Article 75 of the Labor Law set at least 60 days on either party where the wage was paid monthly. Under the text now in force, the employer’s period is 60 days and the worker’s is 30, so the sum owed in one direction is twice the sum owed in the other for the same monthly wage.
The measure in Article 76 of the Labor Law is the worker’s wage in both directions. Where the worker is the party who owes payment in lieu of notice, the sum is still the worker’s wage for the period that was not observed; the text names one wage for both parties, and it is the worker’s. The words “unless the two parties agreed on more” allow the parties to raise the sum by agreement; the provision speaks of more, not of less.
Because the obligation runs both ways, a worker who leaves the work without giving notice owes payment in lieu of notice just as an employer owes it in the opposite case. Where the wage is paid monthly, the worker owes the wage for 30 days, against the wage for 60 days when the employer is the party that did not give notice. The Labor Law qualifies that rule in two articles. Article 80 of the Labor Law lists the cases in which the employer may end the contract without award, notice or compensation, on condition that the worker is given the opportunity to state objections to the rescission. Article 81 of the Labor Law lists the cases in which the worker may leave the work without notice while retaining all statutory rights. Both articles are explained in our guide to dismissal without an award and leaving work without notice.
What payment in lieu of notice is not
Payment in lieu of notice is not compensation for the termination itself, and it is not a substitute for the end of service award (مكافأة نهاية الخدمة). It remedies a breach of procedure, the failure to allow the notice period, and it says nothing about whether ending the contract was lawful. That question is the subject of a different entitlement. A termination without a legitimate reason gives rise to separate compensation under Article 77 of the Labor Law, in addition to whatever else is due, and each of these amounts rests on a separate cause.
So one ending can give rise to both amounts, or to one of them without the other. How that compensation is measured is set out under unlawful termination compensation. The end of service award rests on separate provisions of the Labor Law, and its method is explained under end of service calculation.
Why payment in lieu of notice is confused with other amounts
Payment in lieu of notice, the end of service award and, where it applies, compensation for unlawful termination are paid at the same moment and appear together in the final settlement. That shared timing can lead them to be treated as one sum. They are three entitlements, each with a separate cause and a separate basis of calculation, so each is shown as a separate item in the final release (المخالصة) rather than merged into a single line.
When payment in lieu of notice is paid
What a worker is owed when the relationship ends is settled within a fixed deadline. Under Article 88 of the Labor Law, when a worker’s service ends, whatever the reason it ended, the employer must pay the wage and settle the worker’s entitlements within one week at most of the date the contractual relationship ended. Where the worker is the one who ended the contract, the entitlements must be 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.
Where payment in lieu of notice is due to the worker, it forms part of that settlement and is not an exception to it. One week is the general rule for every ending of a worker’s service, including a termination by the employer, and two weeks is a single exception confined to an ending that comes from the worker. The one week deadline runs from the date the contractual relationship ended. How the deadline is counted is set out in our guide to wage payment dates and the final settlement, and the obligation itself is defined under settlement of entitlements.
Payment in lieu of notice and the notice period
The notice period is an obligation to act: to give the other party warning in advance. Payment in lieu of notice is an obligation to pay money, which takes the place of that warning when it has not been given. The first is the primary obligation, and the second is the consequence of failing to meet it.
The provisions relied on are those of the Saudi Labor Law as published by the Ministry of Human Resources and Social Development: Article 75 (the notice periods and the written notice), Article 76 (payment in lieu of notice), Article 77 (compensation for unlawful termination), Article 80 (ending the contract without award, notice or compensation), Article 81 (leaving without notice with rights retained) and Article 88 (the settlement deadline and set off). Royal Decree M/44 of 8/2/1446H amended Article 75 of the Labor Law. That decree did not amend Articles 76, 77, 80 or 81 of the Labor Law.
This is an explanation of the concept and of the statutory provisions cited, not legal advice.
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