The Saudi Labor Law states laws and regulations for employment. The law has articles and clauses which define the rights of the employer and employee. It is very necessary for both the employer and employee to understand the labor law before starting work in the Kingdom of Saudi Arabia. A large number of people working in Saudi Arabia are expatriates who usually find it convenient to keep notable human resource consulting companies in loop for various HR solutions.
Article 84 of the Saudi labor law states the right of employees to receive end of service awards, also commonly known as gratuity. It says that after the end of service tenure, the employer should pay an amount to the employee as an end of service award. According to the law, this amount is calculated as the accumulation of half salary per each month for the first five years of employment and full salary per each month for the following years of service.
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What is Gratuity?
Gratuity is a monetary token of acknowledgment paid to an employee by the company for their commitment, diligence, and efforts they have contributed during the tenure of service. This amount is usually paid after the employment ends – whether the employee resigns or gets terminated by the company. According to Saudi labor law, if an employee wishes to resign, he is entitled to receive gratuity from the company after completion of two years in the same company. However, if the employee is terminated, he is entitled to receive a full accumulation of gratuity in case of serving more than a year in the same company. Gratuity is considered a liability to the employer.
Who is Eligible for Gratuity in Saudi Arabia?
The calculation and entitlement of gratuity according to Saudi labor law starts from the first day of service till the last day of employment of the worker. However, there are some factors that affect the calculations, which we will discuss below.
What are the factors affecting the gratuity calculations in Saudi Arabia?
The Saudi labor law has defined two types of contracts of employment – a fixed contract and an open-ended contract. The type of contract does not affect the amount of gratuity to be paid, however, the way an employment ends affects the gratuity amount i.e. Resignation or Termination.
In case of Resignation
The Saudi labor law states:
“If the work relation ends due to the worker’s resignation, he shall, in this case, be entitled to one-third of the award after a service of not less than two consecutive years and not more than five years, to two thirds if his service is in excess of five successive years but less than ten years and to the full award if his service amounts to ten or more years.”
This means:
- If the service tenure is less than two years then no gratuity shall be paid.
- If the service tenure is between two and five years, then one-third of the gratuity shall be paid
- If the service tenure is between five and ten years, two-thirds of the gratuity shall be paid.
- If the service period is more than 10 years then a complete gratuity shall be paid.
In case of Termination
The Saudi labor law states:
“As an exception to the provisions of Article (85) of this Law, the worker shall be entitled to the full award if he leaves the work due to a force majeure beyond his control.”
This means:
- If the service tenure is under one year then no gratuity shall be paid.
- If the service tenure is between one and five years, half salary per month per year shall be paid.
- If the service tenure is more than five years, full gratuity shall be paid.
How to calculate the gratuity?
Here is an example of a gratuity calculating chart for an employee with a last salary of SAR 10,000.
In this chart we have shown calculations for both cases – service tenure being under 5 years and above 5 years.
| Gratuity | ||
| Service Tenure | Less than 5 years | 5 years and above |
| Monthly Salary (SAR) | 10,000 | 10,000 |
| Payroll Month | Nov-19 | Nov-19 |
| No. of years worked | 4.5 | 7.5 |
| Wage per day | 333.33 | 333.33 |
| Gratuity days | 62.05 | 151.5 |
| First 5 years (1/2 monthly salary per year) | 20,671.23 | 25,000 |
| 5+ years (1 monthly salary per year) | NIL | 25500 |
| Total Gratuity | 20,671.23 | 50,500 |
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