If you work in Saudi Arabia, you may have an entitlement to an end-of-service benefit (ESB) when your contract ends. This is a payment that rewards you for your service to your employer. But how you can calculate it and who can get it? First you will need a Saudi labor law end of service calculator.

In this article, we will explain the basics of gratuity calculation in the KSA and the eligibility criteria for receiving ESB. Also, we will how you can calculate an estimation.

What is gratuity calculation in the KSA?

Gratuity calculation is the process of determining how much ESB you will receive based on your contract type, salary, and duration of service. The Saudi labor law regulates the ESB and provides different formulas for fixed-term contracts and unlimited-period contracts. The reason for termination of the contract can affect the ESB.  For example, resignation, dismissal, or expiry. Knowing these facts will make it easier to use a Labor law end of service calculator.

Who is eligible for receiving gratuity benefits after the termination of a contract?

According to the Saudi labor law, any worker who has been working at least two years of continuously with the same employer is eligible for ESB. Regardless of their nationality, gender, or occupation. This is where an end of service benefits Saudi Arabia labor law calculator 2020 comes handful. However, there are some exceptions and conditions that may affect your eligibility, such as:

• Resigning before completing two years of service, you will not receive any ESB.
• If you resign after completing two years but less than five years of service, you will receive half of the ESB.
• Resigning after completing five years or more of service, you will receive the full ESB.
• If your employer dismisses you for a valid reason, such as misconduct or poor performance, you will not receive ESB.
• Your employer dismissing you without a valid reason, will make you receive the full ESB.
• If your contract expires and it does not come to renovation by mutual consent, you will receive the full ESB.

What do the end-of-service benefits include?

You can calculate your ESB with a basis on your last basic salary and your years of service. The basic salary is the amount that you receive monthly without any allowances or bonuses. The years of service count from the date of joining until the date of termination. The ESB does not include any other benefits or entitlements that you receive during your employment. Such as, annual leave, medical insurance, or housing allowance.

The formula for calculating the ESB depends on whether you have a fixed-term contract or an unlimited-period contract. A fixed-term contract is one that has a specific duration and an expiry date. An unlimited-period contract does not have a specific duration and can terminate by either party with a notice period. This is important to know before using a UAE labor law end of service calculator.

For fixed-term contracts, the ESB is equal to half a month’s salary for each of the first five years of service and one month’s salary for each year thereafter. For example, if your basic salary is 10,000 SAR and you have been working for seven years under a fixed-term contract, your ESB will be:

(10,000 x 0.5 x 5) + (10,000 x 1 x 2) = 40,000 SAR

For unlimited-period contracts, the ESB is equal to one third of a month’s salary for each of the first five years of service and two thirds of a month’s salary for each year thereafter.

You can find a Saudi labor law end of service calculator online for your ESB. Enter your details and get an approximate result. You can also find them on the websites of the Ministry of Human Resources and Social Development or Labor Education.

Key factors in the gratuity calculation process in Saudi Arabia

The gratuity calculation process in Saudi Arabia has its basis on the Labor Law of 2005. This regulates the rights and obligations of employers and employees in the private sector. According to the Labor Law, the EOSB or gratuity is a lump sum payment that employers must pay to employees. This is valid for employers working for at least two years of continuous service. However, it changes if the contract terminates for a valid reason or if they resign without completing the notice period. However, you can still take everything in account and use an end of service calculator Saudi labor law.

The amount of gratuity depends on several factors, such as:

• The duration of service:

The longer the employee has worked for the employer, the higher the gratuity amount. The Labor Law specifies different rates of gratuity for different periods of service, as follows:

For the first five years of service, the employee has a right to half a month’s wage for each year of service.

For each subsequent year of service, the employee has an entitlement to one month’s wage for each year of service.

The maximum amount of gratuity cannot exceed two years’ wages.

• The type of contract:

The type of contract affects the calculation of gratuity in two ways. First, it determines whether the employee have a right to gratuity at all. Second, it affects the basis of calculation of gratuity.

Having all this information will be extremely necessary for when you an end of service calculator Saudi labor law.

Specifically for employees

• For employees on fixed-term contracts, gratuity is payable only if the contract came into renovation by mutual consent. Also, it applies if the employer terminates the contract before its expiry without a valid reason. If the employee terminates the contract before its expiry, he or she does not have an entitlement to gratuity.
• The ones on indefinite-term contracts, gratuity is payable regardless of who terminates the contract. Unless the employee terminates it for a valid reason or resigns without completing the notice period.
• For employees on fixed-term contracts, you can calculate it having in mind the last wage the employee receives. For employees on indefinite-term contracts, gratuity calculates on basis of the average wage received by the employee during the last two years of service.

The wage components include the basic salary and any allowances or benefits that are agreed upon in the contract or are customary in the industry. You can also contemplate through an end of service benefits Saudi Arabia labor law calculator

However, not all wage components can take part in the calculation of gratuity. According to the Labor Law, only the following components are eligible for gratuity calculation:

• Basic salary
• Housing allowance
• Transportation allowance
• Cost of living allowance

How should employers in Saudi Arabia calculate gratuity payments for employees?

To calculate gratuity payments for employees in Saudi Arabia, employers should follow these steps:

• Determine if the employee is eligible taking in account the type and duration of contract and the termination reason.
• Identify the relevant wage components that are included in the calculation of gratuity.
• Calculate the average wage or the last wage the employee receives according their type of contract.
• Apply the appropriate rate of gratuity according the duration of service.
• Multiply the average wage or the last wage by the rate of gratuity and by the number of years (or fractions thereof) of service.
• Compare the calculated amount with the maximum limit of two years’ wages and choose the lower amount as the final gratuity payment.

How can we help you accurately calculate gratuity in Saudi Arabia?

Calculating gratuity payments for employees in Saudi Arabia can be a complex and time-consuming task for employers. Especially if they have a large and diverse workforce. Moreover, any errors or delays in gratuity calculation and payment can result in legal disputes and penalties from labor authorities.

That is why our team offers a comprehensive and reliable service to help employers. They accurately calculate and pay gratuity to their employees in Saudi Arabia. Also, we offer compliance solutions to clients across various industries in Saudi Arabia and other GCC countries.

With us, you can benefit from:

• A professional team of experts who are well-versed in Saudi labor law and payroll regulations
• User-friendly online platform that allows you to easily manage your payroll data and generate reports
• Secure and timely payment process that ensures your compliance with labor authorities
• A transparent and competitive pricing structure that suits your budget and needs

Conclusion

The end-of-service benefit is a valuable right that you should be aware of if you work in Saudi Arabia. It is a way of rewarding you for your loyalty and contribution to your employer. However, it is not a simple calculation and it depends on many factors. Such as, your contract type, salary, service duration, and termination reason.

Therefore, it is important to understand the rules and formulas of the ESB. That is how you can check your eligibility and entitlements before you leave your job. You can use a Saudi labor law end of service calculator to estimate of your ESB and contact us too.