How to Calculate End-of-Service Benefits and Final Settlements in Saudi Arabia

Last updated: September 22, 2026

How to Calculate End-of-Service Benefits and Final Settlements in Saudi Arabia

End-of-service benefits are an important part of Saudi payroll processing. When an employee's employment relationship ends, employers need to calculate the employee's end-of-service award, outstanding salary, unused leave, notice-related amounts, and other applicable contractual or statutory entitlements.

Saudi Labour Law provides a specific formula for the end-of-service award and different rules can apply depending on whether employment ends through resignation, termination, expiry of a contract, or another legally recognized circumstance.

1. What Is the End-of-Service Award?

The end-of-service award is a statutory entitlement paid when an employment relationship ends, subject to the applicable Labour Law provisions.

Under Article 84, the award is calculated using the employee's last wage:

  • First five years: half a month's wage for each year
  • Each subsequent year: one full month's wage
  • Fractions of a year are calculated proportionately.

The Ministry of Human Resources and Social Development (MHRSD) also provides an official end-of-service calculator that uses actual wage, contract type, reason for termination, and service years, months, and days.

2. Basic End-of-Service Calculation

A simplified formula is:

EOSB = 0.5 × Last Wage × First 5 Years + 1 × Last Wage × Subsequent Years

Example: 4 Years of Service

Suppose an employee's last wage is SAR 10,000 and the employee completes four years of service.

The calculation would be:

SAR 10,000 × 0.5 × 4 = SAR 20,000

Therefore, the illustrative end-of-service award is SAR 20,000.

Example: 8 Years of Service

For eight years:

First 5 years:
SAR 10,000 × 0.5 × 5 = SAR 25,000

Next 3 years:
SAR 10,000 × 3 = SAR 30,000

Total EOSB:
SAR 55,000

These examples assume the full award is applicable and use a constant last wage for illustration.

3. What Wage Is Used?

The end-of-service award is based on the employee's last wage. Saudi Labour Law defines wage more broadly than basic salary, and the MHRSD guidance explains that wage can include the basic wage and applicable increases determined in return for work or under the employment contract or labour regulations.

Certain variable components, such as commissions or sales percentages that naturally fluctuate, may be excluded from the EOSB calculation if the applicable requirements and agreement allow this.

Payroll teams should therefore avoid automatically using only the basic salary without reviewing the employee's applicable compensation structure.

4. Resignation and End-of-Service Benefits

When an employee resigns, the amount of the end-of-service award depends on the employee's continuous service period.

Under Article 85:

Continuous Service EOSB on Resignation
Less than 2 years Generally no EOSB
2 to 5 years One-third of the award
More than 5 but less than 10 years Two-thirds of the award
10 years or more Full award

These rules apply to resignation situations covered by Article 85. Certain circumstances have separate statutory treatment.

Example

Suppose the full EOSB calculated for an employee is SAR 60,000, and the employee resigns after six years of continuous service.

The applicable two-thirds entitlement would be:

SAR 60,000 × 2/3 = SAR 40,000

The example assumes Article 85 applies and there are no other circumstances affecting entitlement.

5. Situations Where Full EOSB May Apply

Saudi Labour Law contains circumstances in which an employee can receive the full end-of-service award despite the ordinary resignation rules.

For example, Article 87 provides for the full award where the worker leaves because of force majeure beyond their control. It also provides special treatment for a female worker who terminates the contract within six months of marriage or within three months of giving birth.

Payroll teams should therefore record the reason for termination before calculating the final settlement.

6. Final Settlement Is More Than EOSB

A final settlement should not be confused with the end-of-service award alone.

Depending on the circumstances, the final settlement can include:

  • Outstanding salary
  • End-of-service award
  • Payment for eligible unused annual leave
  • Notice-period salary or compensation, where applicable
  • Approved overtime
  • Unpaid allowances or other contractual earnings
  • Other amounts legally or contractually due
  • Lawful deductions or work-related debts

MHRSD guidance notes that workers can be entitled to payment for unused leave, and the Labour Law requires the employer to settle the worker's wages and entitlements after the employment relationship ends.

7. Unused Annual Leave

Unused annual leave should be included in the final settlement where the employee has an entitlement to payment for accrued unused leave.

For example:

  • Monthly wage: SAR 9,000
  • Unused eligible leave: 10 days

The employer should calculate the applicable leave payment using the employee's wage and the relevant payroll calculation method.

Payroll should maintain a clear record of:

  • Annual leave entitlement
  • Leave already taken
  • Remaining balance
  • Accrued leave at termination
  • Leave payment included in final settlement

8. Outstanding Salary and Allowances

The final payroll calculation should identify any salary that remains unpaid up to the employee's final working date.

This can include:

  • Basic salary
  • Housing allowance
  • Transport allowance
  • Other contractual allowances
  • Approved incentives
  • Overtime
  • Other earned compensation

The payroll team should calculate these amounts based on the employee's effective termination date and applicable employment terms.

9. Notice Period and Final Settlement

Notice requirements can also affect a final settlement.

For an indefinite-term contract where wages are paid monthly, Article 75 generally provides for:

  • 30 days' written notice by the worker
  • 60 days' written notice by the employer

Where the required notice is not observed, Article 76 provides for compensation corresponding to the wage for the notice period, unless the parties have agreed to a greater amount.

Payroll should therefore verify:

  1. Contract type
  2. Party ending the employment
  3. Notice given
  4. Notice served
  5. Notice compensation, if applicable

10. Time Limit for Final Settlement

Article 88 requires the employer to pay the worker's wages and settle entitlements within a maximum of one week after the contractual relationship ends.

Where the worker is the party who ended the contract, the employer has up to two weeks to settle the worker's entitlements. The employer may deduct a work-related debt owed by the worker from amounts due, subject to the applicable rules.

This makes final-settlement scheduling an important payroll control.

11. Example of a Final Settlement

Consider an employee with:

  • Last wage: SAR 10,000
  • Service: 6 years
  • Unused eligible leave: 10 days
  • Outstanding salary: SAR 5,000
  • Approved overtime: SAR 1,000

First calculate the full EOSB:

First 5 years:
SAR 10,000 × 0.5 × 5 = SAR 25,000

Sixth year:
SAR 10,000 × 1 = SAR 10,000

Full EOSB:
SAR 35,000

If the employee's resignation falls under Article 85 and qualifies for two-thirds:

SAR 35,000 × 2/3 = SAR 23,333.33

The final settlement would then additionally include applicable:

  • Outstanding salary
  • Unused-leave payment
  • Approved overtime
  • Other contractual/statutory entitlements

The exact final amount depends on the employee's termination circumstances and applicable payroll rules.

12. Termination Under Article 80

Payroll teams should pay particular attention when employment is terminated under Article 80 because the Labour Law contains specific circumstances in which an employer may terminate without award, notice, or compensation, subject to the statutory requirements and safeguards.

HR should therefore confirm the legal basis for termination before payroll automatically calculates the standard EOSB.

This is an area where payroll should work closely with HR and legal/compliance teams.

13. Recommended Final-Settlement Workflow

A structured process can reduce errors:

  1. Confirm termination date: Establish the employee's official last working or employment date.
  2. Confirm termination reason: Determine whether the employee resigned, was terminated, reached contract expiry, or left under another circumstance.
  3. Calculate EOSB: Use the last applicable wage and completed service period.
  4. Calculate unused leave: Determine the employee's eligible accrued leave balance.
  5. Calculate outstanding earnings: Include unpaid salary, allowances, overtime, and other earned amounts.
  6. Review notice requirements: Calculate any applicable notice-period compensation.
  7. Apply lawful deductions: Check approved and legally permissible deductions.
  8. Review the settlement: HR and payroll should reconcile the calculation.
  9. Process payment: Complete the final settlement within the applicable statutory period.
  10. Retain records: Keep the calculation, approvals, payroll records, and supporting documentation.

14. Using Payroll Software for Final Settlements

Automated payroll software can simplify final-settlement processing by maintaining employee service dates and compensation history.

Useful features include:

  • Automatic EOSB calculation
  • Service-period calculation
  • Resignation rules
  • Termination reason selection
  • Unused-leave calculation
  • Notice-period calculations
  • Outstanding salary calculation
  • Allowance reconciliation
  • Overtime integration
  • Final payslip generation
  • Audit trails

MHRSD itself provides an online End of Service Benefit Calculator, which accepts actual wage, contract type, termination reason, and service duration as inputs.

15. Final Settlement Checklist

Before releasing the final payment, payroll teams should verify:

  • Final employment date
  • Termination reason
  • Contract type
  • Last applicable wage
  • Total service period
  • EOSB calculation
  • Resignation entitlement, if applicable
  • Unused annual leave
  • Outstanding salary
  • Allowances
  • Overtime
  • Notice-period compensation
  • Lawful deductions
  • Final settlement approval
  • Payment date
  • Employee settlement statement

Conclusion

Calculating end-of-service benefits in Saudi Arabia requires payroll teams to consider the employee's last wage, length of service, reason for termination, and applicable statutory entitlement. Under the general Article 84 formula, employees receive half a month's wage for each of the first five years and one month's wage for each subsequent year, with proportional treatment for partial years.

A complete final settlement can include much more than EOSB, including outstanding salary, unused leave, overtime, notice-related amounts, allowances, and other applicable entitlements. Employers should also observe the statutory settlement deadlines under Article 88.

For accurate payroll processing, businesses should connect HR records, contract information, attendance, leave balances, salary data, and termination details before generating the final settlement. Because individual circumstances can change the calculation, employers should verify the current Saudi Labour Law and MHRSD requirements before processing a termination.

End-of-service benefits and final settlements can be processed in InnBuilt Payroll Software using service history, eligible salary components, leave balances, unpaid earnings, and deductions. The system produces a transparent calculation for review and employee communication.