Comprehensive Guide to End of Service Benefits in Saudi Arabia: Articles 84 & 85 Explained
End of Service Benefits (ESB) are an inherent right of the employee, not a "grant" from the employer. However, through our review of numerous labor cases, we find that many employees and employers fall into costly calculation errors due to misunderstanding the subtle differences between Article 84 (Full Benefit Calculation) and Article 85 (Resignation Calculation).
In this practical guide from Mahmoud Alshangiti Law Firm, we deconstruct the texts of the Saudi Labor Law and explain by numbers how to calculate your dues down to the last Riyal, based on the "Actual Wage" not just the Basic Salary, to avoid future labor disputes.
First: General Rule for Calculation (Article 84)
According to Article 84 of the Labor Law, the employee is entitled to an end-of-service benefit upon the termination of the contractual relationship (whether by expiration of the term or termination by the employer), calculated based on the last actual wage received. The formula is as follows:
- For the first five years: Half a month's wage for each year.
- For the following years (after the fifth): A full month's wage for each year.
- Fractions of a year: The employee is entitled to a benefit for fractions of the year in proportion to the period spent in work.
Second: Calculation in Case of Resignation (Article 85)
If the contract termination is based on the employee's desire (Resignation), the calculation method changes drastically according to Article 85, where the benefit value is linked to the service duration as shown in the following table:
| Service Duration | Entitled Benefit |
|---|---|
| Less than 2 years | No benefit entitled. |
| From 2 to less than 5 years | Entitled to one-third (1/3) of the benefit. |
| From 5 to less than 10 years | Entitled to two-thirds (2/3) of the benefit. |
| 10 years or more | Entitled to the full benefit. |
Third: What is the "Wage" Used for Calculation?
One of the most common mistakes is calculating based on the "Basic Salary." Legally, the benefit must be calculated based on the Last Actual Wage, which includes: Basic Salary + all continuous allowances (such as Housing Allowance, Transport Allowance, and Communication Allowance if applicable).
Fourth: Practical Example (Case Study)
Suppose an employee served for 8 years, their last actual wage is 6,000 SAR, and the contract was terminated by the company. The calculation is as follows:
- First 5 years: (6,000 ÷ 2) × 5 = 15,000 SAR.
- Next 3 years (exceeding 5): 6,000 × 3 = 18,000 SAR.
- Total Benefit: 15,000 + 18,000 = 33,000 SAR.
Important Note: If the case was "Resignation," they would be entitled to "two-thirds" of this amount only (approx. 22,000 SAR) because service is between 5 and 10 years.
Fifth: Deprivation of Benefit (Article 80)
Be careful, an employee may be deprived of the benefit entirely even after serving many years, in specific cases stipulated in Article 80 of the Labor Law, most notably: if the employee is dismissed for committing serious violations, such as disclosing trade secrets, forgery, or physical assault.
Doubts about your dues calculation?
Calculating End of Service Benefits can be complex with commissions or overlapping contracts. Let Mahmoud Alshangiti Law Firm experts audit your calculations and ensure you get your full rights without deduction.