End of Service Pay is a financial benefit that Saudi employers must provide to employees when their service ends. The Saudi Labor Law clearly defines the rules for calculating this payment. Employees in Saudi Arabia are entitled to receive End of Service Pay based on their salary and the duration of their employment.
Key Elements of EOS Calculation
Several factors directly affect the End of Service Pay calculation. These include the employee’s last drawn salary, total years of service, and the reason for termination. EOS calculation is not the same in every case. The Saudi Labor Law provides different formulas based on the reason for the end of the employment contract.
Termination Reasons and Their Impact
The reason for termination is the most important factor in calculating End of Service Pay. Saudi Labor Law divides termination reasons into categories that directly affect how much an employee should receive.
Resignation by the Employee
If an employee resigns, the Saudi Labor Law applies specific rules. An employee who resigns after serving less than two years is not entitled to End of Service Pay. If the employee resigns after two years but before completing five years, they are entitled to one-third of the EOS benefit. If the employee resigns after five years but before completing ten years, they receive two-thirds of the EOS benefit. Full End of Service Pay is given only if the employee resigns after ten years of continuous service.
Termination by the Employer Without Cause
If an employer ends the contract without a valid reason, the employee is entitled to the full End of Service Pay. In this case, Saudi Labor Law protects the employee’s right to receive the maximum EOS benefit based on their years of service and final wage.
Termination by the Employer for a Valid Reason
Saudi Labor Law allows employers to terminate employees for valid reasons such as misconduct or violation of company rules. In these cases, the employee may lose the right to receive End of Service Pay. The law lists specific violations that can lead to the loss of this benefit, such as assaulting the employer, dishonesty, or repeated absences without permission.
Contract Expiry
If the employment contract ends naturally without renewal, the employee is eligible for full End of Service Pay. The Saudi Labor Law considers this a normal end of employment, and the employee should receive their EOS pay based on the total duration of service.
Termination Due to Force Majeure
Sometimes, termination occurs due to events beyond the control of both the employer and the employee. These events include natural disasters, company closure, or government orders. In such cases, the employee is still entitled to receive End of Service Pay, according to the Saudi Labor Law.
Termination Due to Employee’s Death or Disability
If an employee dies or becomes permanently disabled, the Saudi Labor Law requires the employer to pay the full End of Service Pay, regardless of the length of service.
Calculation Formula Based on Saudi Labor Law
The formula for calculating End of Service Pay is clearly defined under Saudi Labor Law. For the first five years of continuous service, an employee is entitled to half a month’s wage for each year worked. After completing five years, the entitlement increases to a full month’s wage for each additional year. This structured approach ensures fair compensation and recognizes employee loyalty over time.
To simplify this process, many professionals and HR departments use tools like the Saudi Arabia End of Service Calculator to ensure accurate and compliant calculations. This online tool helps employees and employers alike determine the correct compensation based on years of service, salary, and contract type. By using a reliable calculator, organizations can avoid manual errors and ensure transparency, while employees can confidently understand their financial entitlements when exiting a job.
If the termination reason qualifies the employee for full End of Service Pay, the calculation follows this rule:
- Half month’s wage per year for the first five years
- One month’s wage per year after five years
If the employee resigns before completing five or ten years, the EOS pay is reduced based on the fractions explained in the resignation rules.
Practical Examples of EOS Calculation
Example 1: Resignation After Three Years
An employee resigns after working for three years. The final wage is 5,000 Saudi Riyals per month. The total benefit calculation would be:
- 5,000 x 0.5 x 3 = 7,500 Saudi Riyals
Since the resignation is after two years but before five years, the employee is entitled to one-third of the calculated amount:
- 7,500 ÷ 3 = 2,500 Saudi Riyals
Example 2: Termination Without Cause After Seven Years
An employee is terminated after working for seven years, with a final wage of 6,000 Saudi Riyals per month. The calculation would be:
- First five years: 6,000 x 0.5 x 5 = 15,000
- Additional two years: 6,000 x 1 x 2 = 12,000
- Total EOS Pay: 15,000 + 12,000 = 27,000 Saudi Riyals
The employee will receive the full amount because the termination was without cause.
Example 3: Contract Ends After Ten Years
An employee completes ten years of service with a final wage of 4,000 Saudi Riyals per month. The calculation would be:
- First five years: 4,000 x 0.5 x 5 = 10,000
- Next five years: 4,000 x 1 x 5 = 20,000
- Total EOS Pay: 10,000 + 20,000 = 30,000 Saudi Riyals
The employee will receive the full EOS pay because the contract ended naturally.
Importance of Accurate Termination Classification
Incorrect classification of the termination reason can lead to wrong EOS calculations. Employers must properly identify whether the end of employment is due to resignation, contract expiry, termination with cause, termination without cause, or other reasons allowed by Saudi Labor Law. Accurate records protect both employers and employees from future disputes.
Legal Responsibility of Employers
Saudi Labor Law requires employers to pay End of Service Pay correctly and on time. Failure to pay the correct amount can lead to legal action. Employees can report unpaid or incorrect EOS payments to the Saudi Ministry of Human Resources and Social Development.
Employee Rights
Employees should understand their rights related to End of Service Pay. They must keep track of their service duration and final wage. If they believe the EOS calculation is incorrect, they have the right to ask their employer for a detailed explanation. Employees can also file complaints if their EOS pay is not provided correctly.
Conclusion
The calculation of End of Service Pay under Saudi Labor Law depends heavily on the reason for termination. Whether the employee resigns, is terminated, or the contract ends naturally, each case affects the EOS calculation differently. Employers and employees must understand these rules to ensure proper payment. Accurate classification and clear records help avoid payment mistakes and future disputes. By following the guidelines in Saudi Labor Law, both parties can complete the end of service process fairly and correctly.
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