End of Service Benefits in Saudi Arabia: Article 84 & 85 Explained with Calculation Examples
End of Service Benefits (EOSB) are among the most important employment rights under Saudi Labor Law. Whether an employment relationship ends because of resignation, employer termination, or the expiry of a contract, understanding how these benefits are calculated is essential for both employees and employers.
Many employees assume that calculating EOSB is simply a matter of multiplying years of service by salary. In reality, entitlement depends on several legal factors, including the reason for termination, the employee's length of service, the applicable provisions of Articles 84 and 85 of the Saudi Labor Law, and the concept of the employee's actual wage.
This guide explains how Articles 84 and 85 operate, how End of Service Benefits are generally calculated, the difference between resignation and employer termination, and common issues that frequently arise in practice.
Quick Answer
- Article 84 establishes the general method for calculating End of Service Benefits.
- Article 85 addresses how resignation may affect entitlement depending on the employee's circumstances.
- The amount payable depends on the employee's length of service and the legal reason for ending the employment relationship.
- In many cases, calculating EOSB also requires determining what constitutes the employee's actual wage under Saudi Labor Law.
- Each case should be assessed based on the employment contract, payroll records, and the surrounding facts.
What Are End of Service Benefits (EOSB)?
End of Service Benefits are statutory financial entitlements provided under Saudi Labor Law when an employment relationship comes to an end. Their purpose is to compensate employees for their period of service while establishing a clear framework for employers to calculate final employment entitlements.
EOSB applies to Saudi nationals and expatriate employees working under the Saudi Labor Law, although entitlement may differ depending on the circumstances surrounding the termination of employment.
The calculation is not based solely on years of service. Other factors—including whether the employee resigned, whether the employer terminated the contract, and how the employee's wage is legally defined—may also influence the final amount.
Need legal advice regarding your final settlement?
If you are unsure whether your End of Service Benefits have been calculated correctly, obtaining legal advice before signing a final settlement may help identify potential issues and reduce future disputes.
Contact Law Firm in Jeddah for legal guidance tailored to your employment situation.
Saudi Labor Law Article 84 Explained
Article 84 establishes the general legal framework for calculating End of Service Benefits. In principle, the calculation is linked to the employee's length of service and wage, forming the basis for determining the financial entitlement due when employment ends.
Although the legal formula appears straightforward, its practical application often requires examining the employee's employment contract, payroll structure, and the legal circumstances surrounding termination.
In many employment disputes, disagreement does not arise from the mathematical calculation itself but from determining which wage components should be considered and whether the employee satisfies the legal conditions for receiving the benefit.
Saudi Labor Law Article 85 Explained
Article 85 addresses situations where an employee resigns. Unlike employer-initiated termination, resignation may affect the level of End of Service Benefits depending on the employee's period of service and the applicable legal provisions.
For that reason, resignation should not automatically be treated in the same manner as dismissal or contract expiry. The legal consequences depend on the specific facts of each employment relationship and the provisions of Saudi Labor Law applicable at the time employment ends.
What Is the Difference Between Articles 84 and 85?
| Article 84 | Article 85 |
|---|---|
| Provides the general framework for calculating End of Service Benefits. | Addresses the legal effect of resignation on entitlement. |
| Primarily focuses on the calculation method. | Focuses on entitlement following resignation. |
| Applies when determining the basic EOSB calculation. | Requires consideration of the employee's service period and the circumstances of resignation. |
How Are End of Service Benefits Calculated in Saudi Arabia?
The calculation of End of Service Benefits (EOSB) under Saudi Labor Law is generally based on two key elements: the employee's length of service and the wage used for calculation. However, determining the final entitlement may also require considering the legal reason why the employment relationship ended.
In practice, the calculation itself is often straightforward. Most disputes arise because the parties disagree on the wage components included in the calculation or whether the employee qualifies for the full benefit under the applicable legal provisions.
For that reason, employers should review payroll records and employment documents carefully before preparing the employee's final settlement, while employees should verify that the calculation reflects the applicable provisions of Saudi Labor Law.
Calculating the Benefit Is Different from Determining Entitlement
A common misunderstanding is that calculating End of Service Benefits automatically determines how much an employee is legally entitled to receive. These are two separate legal questions.
The first step is calculating the benefit using the applicable wage and the employee's length of service. The second step is determining the employee's legal entitlement based on the circumstances in which the employment relationship ended.
For example, employer termination, resignation, mutual agreement, or other legally relevant circumstances may each require separate legal consideration. As a result, two employees with identical salaries and service periods may not necessarily receive identical End of Service Benefits.
Basic Salary or Actual Wage?
One of the most frequently disputed issues concerns the wage used to calculate End of Service Benefits.
Many employees assume that the calculation is always based solely on the basic salary, while employers sometimes take different positions depending on the structure of the employee's compensation package. In reality, the legal assessment depends on how the employee's wage is defined under Saudi Labor Law and on the nature of the payments received during employment.
Determining the actual wage may require reviewing the employment contract, payroll records, company policies, and the employee's regular compensation structure. For that reason, there is no universal answer that applies to every employment relationship.
Do Allowances Count Toward End of Service Benefits?
Another issue that frequently gives rise to employment disputes is whether housing allowances, transportation allowances, commissions, or other regular payments should be included in the wage used for calculating End of Service Benefits.
The answer depends on the legal classification of each payment and the surrounding contractual arrangements. Different wage components may be treated differently depending on their legal nature and the facts of the employment relationship.
Accordingly, employees and employers should avoid relying on general assumptions. Instead, each payment should be assessed individually in light of the employment contract and the applicable provisions of Saudi Labor Law.
Review your final settlement before signing.
A legal review of your employment documents may help identify calculation issues before a final settlement is signed. Early legal advice can often reduce future employment disputes.
Contact Alshangiti Law Firm to discuss your employment matter with a lawyer familiar with Saudi Labor Law.
Practical Examples of End of Service Benefit Calculations
The following examples illustrate how End of Service Benefits may be calculated under different employment scenarios. These examples are intended for educational purposes only. Actual entitlement may vary depending on the employee's contract, payroll records, applicable legal provisions, and the specific facts of each case.
| Employment Scenario | Legal Consideration |
|---|---|
| Employer terminates the employment contract | The employee's entitlement is generally assessed under the applicable provisions of Saudi Labor Law based on the reason for termination and the employee's length of service. |
| Employee resigns | The legal effect of resignation should be evaluated under Article 85 together with the employee's period of service. |
| Fixed-term contract expires | The employee's entitlement depends on the circumstances surrounding the end of the contractual relationship and the applicable provisions of Saudi Labor Law. |
| Disagreement over salary components | The actual wage used for calculation may require reviewing the employment contract, payroll records, and the legal nature of each wage component. |
Resignation vs Employer Termination
One of the most common misconceptions is that resignation and employer termination always produce the same End of Service Benefit. Under Saudi Labor Law, this is not necessarily the case.
The legal outcome depends on several factors, including the employee's length of service, the reason for ending the employment relationship, and the applicable legal provisions. Accordingly, each situation should be evaluated individually rather than relying on general assumptions.
Common Mistakes When Calculating End of Service Benefits
- Assuming that years of service alone determine the final amount.
- Using the wrong wage as the basis for calculation.
- Ignoring contractual amendments that may affect the employee's compensation.
- Signing a final settlement without verifying the calculation.
- Relying on online calculations without reviewing the employment contract and payroll records.
When Should You Consult a Lawyer?
Legal advice may be appropriate whenever there is uncertainty regarding the calculation of End of Service Benefits or disagreement over the employee's legal entitlement.
A lawyer may assist in reviewing employment contracts, payroll records, final settlements, and other employment documents before legal action is considered. Early legal review can often reduce misunderstandings and help both employers and employees assess their legal position more accurately.
Need Advice on End of Service Benefits?
Whether you are an employee seeking to verify your final settlement or an employer reviewing employment obligations, legal advice can help clarify your position under Saudi Labor Law.
Contact Mahmoud Alshangiti Law Firm to discuss your employment matter with an experienced legal team.