End-of-service benefits (EOSB) play a crucial role in Saudi labor law, ensuring that employees receive financial compensation upon the conclusion of their employment. This system provides a safety net for workers, granting them a financial cushion based on their duration of service. However, understanding the complexities of EOSB regulations is essential, as they are subject to legal updates and amendments. Employers must remain compliant with these laws, while employees should be aware of their rights to secure their financial future.

This article provides an in-depth look into EOSB in Saudi Arabia, including eligibility criteria, payment calculations, various types of EOSB, and employer obligations.

Grounds for Termination of Employment

1. Termination by Mutual Agreement

Employment contracts can be terminated by mutual consent between the employer and the employee. This agreement should be documented in writing to prevent future disputes.

2. Termination with Just Cause

An employer may terminate an employee’s contract without notice if the employee commits a severe violation, such as:

• Gross misconduct
• Disclosure of confidential company information
• Failure to perform job duties despite warnings
• Engaging in fraudulent activities
• Violating workplace safety regulations

3. Termination Without Just Cause

If an employer terminates an employee without a valid reason, the employee may be entitled to compensation. This ensures that workers are not unfairly dismissed and have financial support while seeking new employment.

4. Resignation by the Employee

Employees have the right to resign from their positions, provided they adhere to the notice period stipulated in their employment contracts. Failure to do so may lead to penalties or forfeiture of certain benefits.

5. Termination Due to Redundancy or Business Closure

Companies may terminate employees due to economic downturns, restructuring, or business closure. In such cases, employees are entitled to their full end-of-service benefits as per labor law.

Understanding End-of-Service Benefits (EOSB)

End-of-service benefits refer to the compensation that employees receive from their employers upon the termination of their contract. These benefits are legally mandated and serve as financial support for employees moving out of their jobs. In Saudi Arabia, EOSB is governed by the Labor Law, which clearly outlines the rights and responsibilities of both employers and employees regarding these benefits. EOSB regulations aim to ensure fair treatment and financial security for workers after employment ends.

Who is Eligible for EOSB in Saudi Arabia?

EOSB applies to both Saudi nationals and expatriates working under Saudi labor laws. To qualify, employees must complete a specified period of continuous service, and their eligibility depends on the reason for termination, whether it be resignation, dismissal, or retirement. The minimum service period varies according to the circumstances of termination.

Minimum Service Duration

The minimum duration required to qualify for EOSB in Saudi Arabia depends on the nature of termination:

• Termination by Employer (Without Misconduct):
  • Less than 1 year: No EOSB entitlement.
  • 2-5 years: Half a month’s salary per year of service.
  • More than 5 years: Full EOSB entitlement.
• Resignation by Employee:
  • Less than 2 years: No EOSB entitlement.
  • 2-5 years: One-third of the total EOSB.
  • 5-10 years: Two-thirds of the total EOSB.
  • More than 10 years: Full EOSB entitlement.

Factors Affecting EOSB Eligibility

The reason for termination also impacts EOSB eligibility:

• Employer-Initiated Termination (Without Misconduct): Employees qualify for EOSB based on the length of service.
• Employer-Initiated Termination (With Misconduct): Employees lose their EOSB entitlement if dismissed for valid disciplinary reasons.
• Mutual Agreement: If both parties agree to end the employment, EOSB eligibility depends on their agreement terms.

How is EOSB Calculated?

EOSB calculations in Saudi Arabia are based on two key principles: the half-month salary rule and the length of service.

Half-Month Salary Rule

Employees on unlimited-term contracts are entitled to half a month’s salary for each of their first five years of service, and a full month’s salary for each subsequent year. For limited-term contracts, EOSB is calculated based on the agreed contract period.

Length of Service

The longer an employee has worked for a company, the higher their EOSB entitlement. EOSB calculations take into account full years and additional months of service.

Example Calculation

Consider an employee, Ahmed, who has been with a company for 8 years and 3 months, earning a monthly basic salary of 10,000 SAR.

• First 5 years: 5 years × 0.5 × 10,000 SAR = 25,000 SAR
• Next 3 years: 3 years × 1 × 10,000 SAR = 30,000 SAR
• Additional 3 months: 0.5 × 10,000 SAR = 5,000 SAR
• Total EOSB: 25,000 + 30,000 + 5,000 = 60,000 SAR

Different Types of End-of-Service Benefits

EOSB includes different forms of compensation, primarily:

1. End-of-Service Gratuity: This is the core financial compensation granted based on salary and service years.
2. Accrued Leave Pay: Employees are compensated for any unused leave days, calculated by multiplying the number of unused days by their daily wage.

Employer and Employee Responsibilities

Employer Obligations

• Inform Employees: Employers must clearly communicate EOSB entitlements to employees per labor law and contractual agreements.
• Accurate Calculation & Payment: EOSB must be calculated and paid accurately and on time.
• Compliance with Deadlines: Employers must meet legal deadlines to process EOSB payments.

Employee Responsibilities

• Understanding Entitlements: Employees should be aware of their EOSB rights.
• Providing Required Documents: Employees must submit necessary documents for EOSB processing.
• Following Exit Procedures: Employees must comply with company exit procedures, including paperwork completion.

Strengthening Employee Financial Stability

A structured EOSB framework ensures financial security for employees while promoting fair employment practices. Employers who comply with these regulations foster trust and stability in the workplace.

For expert legal guidance on EOSB compliance and labor law in Saudi Arabia, Batic Law Firm is here to assist. Contact our legal team today to ensure your business adheres to labor laws and safeguards employee rights.

Notice Period Requirements

Saudi Labor Law mandates specific notice periods for employment termination:

• For fixed-term contracts, either party must provide written notice if they do not intend to renew the contract.
• For indefinite contracts, a 60-day notice is required for employees paid monthly, while a 30-day notice applies to those paid on a different basis.
• Employers who fail to provide the required notice must compensate the employee for the notice period.

Compensation for Unlawful Termination

If an employee is terminated without legal justification, they may file a labor complaint and seek compensation, which can include:

• Salary for the remainder of the contract (for fixed-term agreements)
• Severance pay
• Compensation for damages due to wrongful termination

Legal Dispute Resolution

Employees facing unfair termination or unpaid ESB can approach the Saudi Ministry of Human Resources and Social Development (MHRSD) for mediation. If a resolution is not reached, the case may proceed to labor courts for further legal action.