Settlement of Entitlements

What settlement of entitlements means

Settlement of entitlements (تصفية حقوق العامل), also searched for as the final settlement, is the payment of everything that has fallen due to a worker when the employment relationship ends, worked out item by item rather than as a single figure. It is an obligation with a statutory deadline under the Saudi Labor Law (نظام العمل), not a form to be signed or an internal process to be completed.

Settlement of entitlements, final release and exit clearance

Three terms meet at the end of the employment relationship, and confusing them is where disputes can start:

• Settlement of entitlements. It is the obligation itself, and the Labor Law sets the date by which it must be met.
• The final release (المخالصة النهائية). It is the document in which each party acknowledges what it has paid and what it has received. It records what has been done; it is not the source of the right.
• Exit clearance (إخلاء الطرف). It is the internal procedure through which the employee’s ties to the establishment are closed: equipment and other property in their custody, system access, and the handover of work.

A release is also limited by the Labor Law. Article 8 of the Labor Law voids any release of, or settlement over, rights the Labor Law gives the worker if it is given while the employment contract is in force, unless it is more favourable to the worker. The same Article 8 of the Labor Law voids any contractual term that contradicts the Law.

The deadline for settlement of entitlements: Article 88 of the Labor Law

Under Article 88 of the Labor Law, when a worker’s service ends, the employer must pay the wage and settle the worker’s entitlements within one week at most of the date the contractual relationship ended, whatever the reason the service 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.

So one week is the general rule for every ending of a worker’s service, including the expiry of a fixed term, an ending by mutual agreement and a termination by the employer. Two weeks is a single exception, confined to an ending that comes from the worker. Reading the provision as two parallel branches, one for each party, and then setting aside the employer’s branch leaves only the worker’s two weeks, which doubles the deadline for an ending the statute gives one week. A term agreeing a settlement date later than the deadline in Article 88 of the Labor Law contradicts the Law, and Article 8 of the Labor Law voids any such term.

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 runs from the end of the relationship, not from the completion of exit clearance. How the deadline is counted, and how it differs from the monthly payroll cycle, is set out in our guide to wage payment dates and the final settlement.

Settlement of entitlements and the service certificate: Article 64 of the Labor Law

A second obligation sits alongside the settlement. Under Article 64 of the Labor Law, when the employment contract ends, the employer must give the worker, at the worker’s request and free of charge, a service certificate stating the date the worker joined, the date the relationship ended, the worker’s occupation and the amount of the last wage. The certificate may not contain anything that could harm the worker’s reputation or reduce the worker’s chances of finding work. Article 64 of the Labor Law also requires the employer to return to the worker all the certificates and documents the worker deposited with it.

That obligation stands independently. Article 64 of the Labor Law does not make it conditional on the worker signing a final release.

The end of service award in a settlement of entitlements: Article 84 of the Labor Law

The end of service award can be the largest item in a settlement. Article 84 of the Labor Law computes it on four elements: half a month’s wage for each of the first five years of service, a month’s wage for each year after that, the last wage as the basis of the calculation, and an award for parts of a year in proportion to the time worked in them. Article 84 of the Labor Law says the last wage without a qualifier, and Article 2 of the Labor Law provides that an unqualified wage means the actual wage (الأجر الفعلي), not the basic wage.

Take an employee whose last wage is SAR 10,000, whose continuous service is eight years and six months, and whose contract the employer ended:

• The first five years. 5 × half a month = 2.5 months.
• The next three years. 3 × one month = 3 months.
• The remaining six months. They are part of a year falling in the full month stage: 0.5 × one month = half a month.
• The total. 6 months, so 6 × 10,000 = SAR 60,000.

One error is to apply the half month rate to the whole period, which gives 8.5 × half a month = 4.25 months, or SAR 42,500, a shortfall of SAR 17,500. The text sets two stages, not one, and the boundary between them is the completion of the fifth year. The same calculation is worked through step by step under end of service calculation.

Article 86 of the Labor Law adds room for agreement. By way of exception to Article 8 of the Labor Law, the parties may agree that all or some of the commissions, percentages of the price of sales and similar wage elements that by nature rise and fall are left out of the wage on which the award is calculated. It is an exception that depends on an agreement, not a default to be assumed. The variable pay it covers is explained under commission pay.

Settlement of entitlements on resignation: Articles 85 and 87 of the Labor Law

Where the relationship ends because the worker resigns, Article 85 of the Labor Law scales the award by continuous service: nothing for less than two years, one third for at least two years and no more than five, two thirds for more than five years and less than ten, and the full award for ten years or more.

That scale is incomplete by itself. Article 87 of the Labor Law is drafted as an express exception to Article 85 of the Labor Law, and it makes the full award due, whatever the length of service, in two cases:

• Force majeure. The worker leaves the work as a result of force majeure beyond the worker’s control.
• Marriage or childbirth. A female worker ends the contract within six months of the date of her marriage contract, or within three months of the date she gave birth.

In the second case the dates that count are the date of the marriage contract, not the date of the wedding celebration, and the date of the birth. Both periods run from those dates. Separately, Article 81 of the Labor Law allows the worker to leave without notice while keeping all statutory rights in the seven cases it lists, so a departure under Article 81 of the Labor Law is not treated as a resignation when the reduction in Article 85 of the Labor Law is applied.

Back to the example. Had the same employee resigned, eight and a half years of service would fall in the band of more than five years and less than ten, so the entitlement would be two thirds: 60,000 × 2 ÷ 3 = SAR 40,000. If instead a female worker with the same service and the same wage had ended the contract within three months of giving birth, Article 87 of the Labor Law would give her the full SAR 60,000. The gap between the two readings of the same facts is SAR 20,000, and it comes from a provision without which the scale in Article 85 of the Labor Law cannot be applied correctly.

Settlement of entitlements for workers who are not Saudi nationals: Article 40 of the Labor Law

Article 40 of the Labor Law carries obligations that surface when the relationship ends and that a settlement template can leave out:

• Paragraph 1. The employer bears the recruitment fees, the residence permit (iqama) and work permit fees and their renewals, fines arising from delay in those where the employer caused them, the fees for changing the profession, the exit and return fees, and the worker’s ticket home after the relationship between the parties ends.
• Paragraph 2. The worker bears the cost of returning home in two cases only: where the worker is unfit for the work, or where the worker wishes to return without a legitimate reason. These are two named cases, not a general rule.
• Paragraph 3. The employer to whom a worker wishes to transfer services bears the transfer fees. That is the receiving employer, so the charge falls on someone other than the employer carrying out the settlement. Merging paragraph 3 with paragraph 1 produces a general rule that the employer bears every fee, which is wrong in the transfer case: the fees for changing the profession fall on the current employer, and the transfer fees fall on the receiving establishment.
• Paragraph 4. The employer bears the cost of preparing the worker’s body and of transporting it to the place where the contract was concluded or from which the worker was recruited, unless the worker is buried in the Kingdom with the family’s consent. The employer is relieved of this where the General Organization for Social Insurance (GOSI) is bound to meet it.

Leave balance in a settlement of entitlements: Article 111 of the Labor Law

Under Article 111 of the Labor Law, a worker who leaves before taking accrued leave is entitled to pay for the days of that leave, for the period in respect of which leave was not taken. The worker is also entitled to leave pay for parts of a year, in proportion to the time worked in them. The proportional part is explained further under pro rata salary.

Article 111 of the Labor Law is examined alongside Article 109(2) of the Labor Law, which bars the worker, while in service, from giving up leave or taking cash in place of it. The bar during service and the payment on exit are consistent rules, and applying the first alone states half the position.

The size of the balance at exit also depends on two further provisions. Article 110 of the Labor Law allows the worker, with the employer’s consent, to defer leave to the following year. It allows the employer, where the circumstances of the work require it, to defer leave for no more than ninety days after the end of the year in which it accrued; any further deferral needs the worker’s written consent and may not go beyond the end of the year following the year of accrual. Article 109 of the Labor Law sets the annual leave at no fewer than 21 days, rising to no fewer than 30 days once the worker has completed five continuous years with the employer.

The balance that appears in a settlement therefore has to be traced through those rules: the deferral rules govern how leave moves between years, and the annual entitlement changes when five years are completed. In the text of Article 110 of the Labor Law we found no statement that days deferred outside those limits are lost, and Article 111 of the Labor Law pays for the period in respect of which leave was not taken. Working out the whole balance at the lower rate alone, or at the higher rate alone, misstates it either way.

Settlement of entitlements after a change of ownership: Article 18 of the Labor Law

Under Article 18 of the Labor Law, when an establishment passes to a new owner or its legal form changes, the employment contracts remain in force and the service is treated as continuous. For the rights that arose before the change, whether wages, an end of service award treated as falling due on the date ownership passed, or other rights, the successor and the predecessor are jointly and severally liable.

The same provision has a narrow way out. Only where a sole proprietorship passes to a new owner may the predecessor and the successor agree that all the earlier rights of the workers move to the new owner, and only with each worker’s written consent. A worker who does not consent may ask for the contract to be ended and collect the amounts due from the predecessor.

That last rule is where Article 18 of the Labor Law has its practical effect on a settlement. A worker who has not consented is not left suspended between two owners; the text gives that worker a set route, directed at the predecessor.

What a settlement of entitlements does not include

Amounts a worker may be owed by GOSI, such as the lump sum compensations paid under its pensions and occupational hazards branches, are not items in a settlement that the establishment carries out. They are the obligation of another body under another law, the Social Insurance Law, and the end of service award under the Labor Law is not a GOSI benefit. Entering them on a document the worker signs with the establishment places one body’s obligation on the other.

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 unqualified wage), Article 8 (void terms and releases), Article 18 (change of ownership), Article 40 (fees and costs for workers who are not Saudi nationals), Article 64 (the service certificate and returned documents), Article 81 (leaving without notice with rights kept), Articles 84 to 87 (the end of service award, its reduction on resignation, the agreed exclusion and the exceptions), Article 88 (the settlement deadline and set off) and Articles 109 to 111 (annual leave, deferral and payment for untaken leave). Royal Decree M/44 of 8/2/1446H, in force since 19 February 2025, amended Article 40 of the Labor Law. That decree did not amend Articles 81, 84, 87, 109 or 111 of the Labor Law.

Before a settlement of entitlements is closed

The order that can prevent errors is to fix first the date the relationship ended and which party ended it, because the deadline runs from that date and more than one item is calculated on those facts. Exit clearance and the other internal steps then run alongside the entitlement, rather than as a condition that must be met before it.

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

Related terms

• End of Service Calculation
• Layoff
• Exit Interview
• Outplacement