Direct Answer / Quick Summary:

In Saudi Arabia, the End of Service Benefit (ESB)—known as Mukafaa Nihiyat Al-Khidma (مكافأة نهاية الخدمة)—is a mandatory statutory severance award governed by Articles 84, 85, 87, and 88 of the Saudi Labor Law and integrated directly into the Qiwa Platform.

Standard Termination Rate (Article 84): Half a month's gross wage (15 days) for each of the first 5 years* of service, plus one full month's gross wage (30 days) for each year thereafter (Year 6+), prorated down to the exact day.

Resignation Tiers (Article 85): If an employee resigns, entitlement depends on length of service: 0% for under 2 years; One-third (33.33%) for 2 to 5 years; Two-thirds (66.67%) for 5 to 10 years; and 100% (Full payout)* for 10 or more years.

Statutory Wage Basis: ESB must be calculated on the employee's last gross wage* (Basic Salary + Housing Allowance + Transportation Allowance + guaranteed recurrent fixed stipends). Non-regular bonuses and overtime are excluded.

Disbursement Deadlines (Article 88): Sponsoring employers must pay the final financial settlement within 7 calendar days if the contract was terminated by the employer, or within 14 calendar days* if the worker resigned.

The Legal Foundation: Chapter 5 of the Saudi Labor Law

Under Royal Decree No. M/51, every employment relationship in Saudi Arabia—whether fixed-term (Muqayyad) or indefinite-term (Ghair Muqayyad)—is legally bound by statutory severance rules upon termination.

Historically, manual payroll accounting created widespread labor disputes over salary basis definitions and resignation deductions. Today, the Qiwa platform's Contract Management System automatically calculates statutory severance entitlements during contract termination workflows, reconciling data with the General Organization for Social Insurance (GOSI) and the Mudad Wage Protection System (WPS).

Step 1Qiwa Portal

Termination Event Logged

Sponsoring employer or employee submits contract termination request with reason

Step 2Automated Audit

Automated ESB Calculation

Qiwa engine audits tenure, gross wage, and applies Article 84 vs 85 formulas

Step 3Mutual Clearance

Settlement Agreement Issuance

Both parties review digital breakdown: ESB, unused annual leave, and pending wages

Step 47 to 14 Days

Bank Disbursement (WPS)

Employer settles total dues via corporate payroll bank account within statutory deadline

What Constitutes the "Final Wage" (Al-Ajr Al-Akheer)?

One of the most litigated questions in Saudi labor courts is what salary elements must be included in the severance calculation.

Under Article 2 and Article 84 of the Saudi Labor Law, the award must be computed based on the last gross wage drawn by the employee before contract termination:

Compensation ComponentIncluded in ESB Calculation?Legal Justification & Precedents
Basic Salary (*Al-Rātib Al-Asāsi*)YES (Mandatory)Primary core element of remuneration under labor contract.
Housing Allowance (*Badal Sakan*)YES (Mandatory)Fixed contractual allowance, whether paid as cash or provided as company housing (equivalent value).
Transportation Allowance (*Badal Muwasalat*)YES (Mandatory)Regular, recurring monthly stipend tied to employment.
Fixed Monthly AllowancesYES (Mandatory)Fixed position stipends, risk allowances, or guaranteed monthly supervisory allowances.
Overtime Payments (*Kharji*)NO (Excluded)Variable remuneration dependent on ad-hoc supplementary hours worked.
Discretionary Performance BonusesNO (Excluded)Contingent payments not guaranteed by fixed contract terms.
Sales CommissionsCONDITIONALIf variable, calculated based on the monthly average earned over the preceding 12 months.
Mandatory Regulatory Requirement

Company-Provided Accommodation:

If an employer provides company-owned physical housing instead of a cash allowance, the monetary value of that housing (commonly assessed at 25% of basic salary unless defined otherwise in the employment contract) must be included when determining the gross final wage for ESB computation.

Article 84: Employer Termination & Contract Expiration

When an employment contract ends due to contract expiration, mutual agreement, employer termination under Article 75, redundancy, or retirement, the employee is entitled to the full statutory award without deductions:

ESB (First 5 Years) = ≤ ft((Last Gross Monthly Wage ÷ 2)) × Years of Service
ESB (Years 6+) = Last Gross Monthly Wage × Years of Service beyond 5

Proration for Fractional Years

The Saudi Labor Law does not round years up or down. Any fractional period of a year (months and days) must be calculated proportionately:

Fractional ESB = Daily Wage Rate × Applicable Entitlement Days × ≤ ft((Days Worked in Partial Year ÷ 365))

Article 85: Resignation Deduction Tiers

When the employee initiates contract termination by tendering a voluntary resignation (Istiqaala), the statutory entitlement is scaled according to total completed tenure:

Completed Continuous ServicePercentage of Full ESB PaidDeducted by EmployerNet Formula Applied
Under 2 Years0% (Zero)100%Employee receives SAR 0.00
2 Years to 5 Years33.33% (One-Third)66.67%$(1 ÷ 3) × ≤ ft(Years × 0.5 × Monthly Gross)$
5 Years to 10 Years66.67% (Two-Thirds)33.33%$(2 ÷ 3) × ≤ ft[(2.5 × Monthly Gross) + (Years above 5 × Monthly Gross)\right]$
10 Years or More100% (Full Award)0%Full Article 84 calculation without any penalty deduction

Statutory Exceptions: 100% ESB on Resignation (Articles 87 & 81)

Under specific statutory circumstances, an employee who voluntarily resigns is exempt from Article 85 penalty deductions and receives the 100% full severance award:

Statutory Safeguards & Rights Protection

Mandatory protections enforced by MHRSD & Saudi Labor Law

1
Female Employee Family Protections (Article 87)A female worker who terminates her contract within 6 months of marriage or within 3 months of giving birth is entitled to 100% full ESB, regardless of tenure length.
2
Force Majeure Resignation (Article 87)Resignation caused by unforeseen events beyond the employee's control (e.g., total medical incapacity, government shutdown) entitles the worker to full severance.
3
Employer Contract Breach (Article 81)If an employee resigns because the employer failed to pay wages for 3+ consecutive months, subjected the employee to assault, or committed recruitment fraud, the employee receives 100% ESB plus wrongful termination compensation.
4
Military Service EnlistmentVoluntary termination by Saudi national employees to enter compulsory or national military defense service.

Three Practical Worked Calculation Examples

Example 1: Employer Non-Renewal after 4 Years (Article 84)

Monthly Salary: Basic SAR 8,000 + Housing SAR 2,000 + Transport SAR 1,000 = SAR 11,000 Gross.
Reason for Separation: Employer non-renewal of fixed-term contract.
Tenure: Exactly 4 years.
Calculation:
ESB = 4 × ≤ ft((SAR 11,000 ÷ 2)) = 4 × SAR 5,500 = SAR 22,000

Example 2: Employee Resignation after 7 Years (Article 85)

Monthly Salary: Basic SAR 10,000 + Housing SAR 2,500 + Transport SAR 1,000 = SAR 13,500 Gross.
Reason for Separation: Voluntary Resignation.
Tenure: Exactly 7 years.
Step 1 - Calculate Full Baseline Award (Article 84):

* First 5 years: $5 × (0.5 × 13,500) = 5 × 6,750 = SAR 33,750$

* Next 2 years (Years 6 & 7): $2 × 13,500 = SAR 27,000$

* Total Baseline: $33,750 + 27,000 = SAR 60,750$

Step 2 - Apply Resignation Tier (5 to 10 Years = (2 ÷ 3)):
Net Payable ESB = (2 ÷ 3) × SAR 60,750 = SAR 40,500

Example 3: Employee Resignation after 12 Years (Article 85)

Monthly Salary: Basic SAR 12,000 + Housing SAR 3,000 + Transport SAR 1,500 = SAR 16,500 Gross.
Reason for Separation: Voluntary Resignation.
Tenure: Exactly 12 years.
Calculation:

Because the employee completed over 10 years of service, they receive 100% full entitlement:

* First 5 years: $5 × (0.5 × 16,500) = SAR 41,250$

* Subsequent 7 years: $7 × 16,500 = SAR 115,500$

Total Payable ESB: $41,250 + 115,500 = SAR 156,750*$

Article 88: Statutory Payment Deadlines & Penalties

Employers cannot delay the disbursement of severance benefits once the employment contract concludes. Under Article 88 of the Saudi Labor Law:

Step 1Day 0

Notice Period Conclusion

Employee completes statutory notice period; final clearance handover is conducted

Step 2Statutory Window

Statutory Grace Window

Employer has 7 days (employer termination) or 14 days (resignation) to settle all financial dues

Step 3Bank Transfer

Mudad WPS Verification

Payment is processed via Mudad Wage Protection System; zero wage deduction flags verified

Step 4Labor Court

Labor Office Enforcement

If payment is delayed past statutory deadline, worker files summary claim via Qiwa / Wedy

Employer-Initiated Termination: The employer must pay all wages and ESB within 1 week (7 calendar days) from contract end.
Employee-Initiated Resignation: The employer must pay all dues within 2 weeks (14 to 15 calendar days).

Allowable Deductions Under Article 92

The employer may only deduct debts legally owed by the employee from their final settlement under strict statutory caps:

Documented personal company loans or cash advances (capped at 1/6th of total wage unless agreed in writing).
Legally enforceable court garnishments (Tanfeez rulings).
Documented unreturned company property or proven inventory losses.

How to Audit Your ESB Calculation on Qiwa

Both corporate human resources managers and employees can verify official calculation figures directly through Qiwa:

Step 1: Open Qiwa Labor Office Calculator

1Visit the official Qiwa End of Service portal at https://qiwa.sa or access the MHRSD Labor Calculator.
2Select End of Service Calculator (*حاسبة مكافأة نهاية الخدمة*).

Step 2: Input Contractual Parameters

1Contract Type: Select Fixed Term or Indefinite Term.
2Reason for Termination: Choose Termination by Employer, Resignation, Mutual Consent, or Force Majeure.
3Salary Details: Enter the Gross Monthly Salary (confirm that basic wage and all regular allowances are combined).
4Dates of Service: Input exact contract start and end dates according to your Qiwa digital contract.

Step 3: Reconcile With Digital Contract

If the employer's proposed settlement figure differs from Qiwa's automated calculator:

1Check whether the employer improperly used the Basic Salary rather than the Gross Salary.
2Audit the GOSI wage registration history to ensure past wage increases were correctly registered.
3If an unresolved shortfall persists, submit an inquiry through the Qiwa Dispute Resolution & Labor Relations (*Wedy*) service.

Frequently Asked Questions (FAQ)

Is End of Service calculated on basic salary or full gross salary?

Under Articles 2 and 84 of the Saudi Labor Law, ESB is strictly calculated on the gross salary (*Al-Ajr Al-Akheer*), which includes basic salary plus guaranteed regular monthly allowances (housing, transportation, and fixed position stipends). Employers who calculate ESB on basic salary alone are violating labor regulations.

Does an employee get End of Service if they resign before 2 years?

No. Under Article 85 of the Saudi Labor Law, an employee who voluntarily resigns with less than 2 consecutive years of service is entitled to 0% (zero) of the End of Service gratuity.

Can an employer withhold End of Service benefits as a penalty?

No. An employer cannot arbitrarily forfeit an employee's ESB. The only grounds for complete forfeiture is summary dismissal under Article 80 with documented statutory evidence (e.g., physical assault, forgery, trade secret disclosure, or willful damage).

When is the employer legally required to disburse the ESB payment?

Under Article 88, if the employer terminates the employee, the final settlement must be paid within 7 days. If the employee resigns, the employer must settle all entitlements within 14 days.

Does a resigned female employee receive full ESB?

Yes, provided she resigns within 6 months of marriage or within 3 months of giving birth under Article 87. Under these statutory exceptions, she receives 100% of the award without Article 85 deductions.