End-of-service in Saudi Arabia: how to calculate and provide

How is end-of-service calculated in Saudi Arabia?

Article 84 of the Labour Law sets the award when employment ends: half a month's wage for each of the first five years and a month's wage for each year after. The last wage is the basis, and part years count in proportion to the time worked.

• Years 1 to 5: half a month's wage for each year.
• Year 6 onwards: a full month's wage for each year.
• Part of a year: in proportion to the time worked.
• Wage: the last wage the employee received.

Which wage? Article 2 says that wherever the law mentions the wage it means the actual wage: the basic wage plus the other increases due to the employee, such as commissions and certain allowances. Article 86 lets employer and employee agree to leave all or part of commissions and sales percentages out of the wage used for the award. Which allowances count is a frequent source of disputes, so define the end-of-service wage clearly in contracts and payroll, and take advice where it is unclear.

How does resignation change the award?

When employment ends because the employee resigns, Article 85 pays only a share of the award, set by continuous service:

Article 87 sets exceptions where the full award is due even though the employee left: when the employee leaves because of force majeure beyond their control, and when a female employee ends the contract within six months of her marriage contract or within three months of giving birth.

Article 80 lists the cases in which an employer may end the contract without an award, notice or compensation, such as specific forms of misconduct. Each case has conditions, so take legal advice before treating a termination as one of them.

How does the calculation work in practice?

1. Fix the datesTake the start date and the last day of service, and work out continuous service in years and part years.
2. Confirm the wageUse the last wage as the contract and payroll define it for end-of-service, including the components the law and the contract require.
3. Apply the formulaHalf a month for each of the first five years, a full month for each year after, and a proportion for any part year.
4. Apply the resignation shareIf the employee resigned, apply the Article 85 share for their service band, unless an Article 87 exception gives the full award.
5. Settle and payAdd the other amounts due, such as wages to the last day, deduct any debt owed to the employer because of the work, and pay within the Article 88 deadline.

When must the award be paid?

Article 88 requires the employer to pay the employee's wage and settle their entitlements within one week at most of the end of the contractual relationship. If the employee ended the contract, the employer must settle in full within no more than two weeks. The employer may deduct any debt owed to it because of the work.

Large settlements, such as a long-serving manager leaving, move cash noticeably. Put known leavers into the 13-week cash flow forecast as soon as notice is given.

Did the 2025 Labour Law amendments change end-of-service?

The amendments that took effect on 19 February 2025, under Royal Decree M/44, changed 38 articles of the Labour Law, deleted 7 and added 2, according to the Ministry of Human Resources and Social Development. The consolidated text on the Bureau of Experts' laws site, read on 9 October 2026, shows no 2025 change to Articles 84 to 88. The formula, the resignation shares and the payment deadlines above therefore still apply.

The amendments did change other parts of the law that affect how employment ends, including resignation procedures, so check the current text for the steps around a resignation or termination.

How do you provide for end-of-service in the books?

The award is earned as the employee works, so its cost belongs in every month of service, not in the month someone leaves. Book a provision each month and charge payouts against it:

• Each month: debit employee benefits expense and credit the end-of-service provision for the increase in the obligation.
• On payment: debit the provision and credit the bank for the amount paid.
• At each reporting date: bring the provision to the measured obligation and explain the movement.

Under IFRS, end-of-service is a post-employment benefit. The employer pays the award itself rather than paying fixed contributions into a separate fund, so it is a defined benefit plan: IAS 19 defines a defined benefit plan as any post-employment plan other than a defined contribution plan.

IAS 19 measures the obligation with an actuarial technique, the projected unit credit method: it estimates the benefit employees have earned using actuarial assumptions, then discounts it to present value. The discount rate is set by reference to market yields on high quality corporate bonds at the end of the period, or on government bonds where there is no deep market in such bonds, with a currency and term consistent with the obligation. Service cost and net interest go to profit or loss. Remeasurements go to other comprehensive income.

Whether a qualified actuary performs the measurement is a decision to take with your auditors. A useful monthly check alongside it is the amount payable if every employee left at the reporting date, using the Article 84 formula. That figure is not the IAS 19 measure, but a sudden change in the gap between the two is worth explaining.

What should you check at each month end?

• Joiners, leavers and wage changes from payroll are in the calculation.
• The monthly provision entry was posted, for every company.
• Payouts in the month were charged to the provision, not to expense.
• The provision in the ledger agrees to the calculation by employee, and any difference is explained.
• Final settlements were paid within the Article 88 deadlines.

These checks sit naturally in the month-end close checklist, next to payroll.

Questions people ask