How to Calculate End-of-Service Benefits (ESB) in Saudi Arabia: A Complete Guide  

End-of-service benefits (ESB) in Saudi Arabia are a fundamental right for employees when their employment contract ends, as per the Saudi Labor Law. These benefits serve as financial compensation, ensuring job security and acknowledging employees’ contributions.

Whether you are an employee or an employer, understanding the ESB calculation process is crucial to avoid disputes and ensure compliance with Saudi regulations. In this comprehensive guide, we will cover everything you need to know about ESB in Saudi Arabia, including calculation methods, eligibility criteria, legal updates, and tools for automated calculations.  

What is End-of-Service Benefits (ESB) in Saudi Arabia?

End-of-service benefits ( مكافأة نهاية الخدمة ) are lump-sum payments that employees receive at the end of their employment. These payments are mandated under Saudi labor law and are based on the employee’s salary and years of service. The purpose of ESB is to recognize employees' service and provide financial security after leaving a job.

Who is Eligible for End-of-Service Benefits?

According to Saudi Labor Law, ESB applies to all employees, whether they are on a fixed-term or indefinite contract. However, the amount of compensation depends on various factors, including:

• The length of service
• The reason for termination (resignation, employer termination, force majeure, etc.)
• The type of contract (fixed-term or unlimited) 
  
  

How to Calculate End-of-Service Benefits in Saudi Arabia?

The calculation of ESB follows a structured formula under Saudi labor regulations. The rules for calculating ESB are as follows: 

1. If an Employee Resigns:

• Less than 2 years of service → No ESB entitlement
• Between 2 and 5 years of service → Entitled to 1/3 of ESB
• Between 5 and 10 years of service → Entitled to 2/3 of ESB
• More than 10 years of service → Entitled to full ESB 
  
  

2. If the Employer Terminates the Employee:

• Full ESB entitlement, regardless of the length of service, unless the termination is due to disciplinary reasons. 
  
  

3. General ESB Calculation Formula: 

• For the first five years, Half a month’s salary for each year
• After five years: One full month’s salary for each additional year 
  
  

Example Calculation:

Let’s assume an employee has a basic salary of SAR 10,000 and has worked for 7 years:

• For the first 5 years:

• 5 × (10,000 ÷ 2) = SAR 25,000

• For the additional 2 years:

• 2 × 10,000 = SAR 20,000

• Total ESB = SAR 45,000

If the employee resigns after 2 to 5 years, they only get 1/3 of the ESB:

• 45,000 × (1 ÷ 3) = SAR 15,000

If they resign after 5 to 10 years, they get 2/3 of the ESB:

• 45,000 × (2 ÷ 3) = SAR 30,000
  
  

Special Cases & Legal Considerations

1. End-of-Service Benefits for Female Employees

Women employees receive full ESB if they resign within:

• 6 months of marriage
• 3 months after childbirth
  
  

2. End-of-Service Benefits in Force Majeure Situations

Saudi labor laws protect employees in force majeure cases, which may include:

• Salary reductions aligned with actual working hours.
• Paid leave from the employee’s annual leave balance.
• Unpaid leave in exceptional cases.
• Illegal termination if the employer benefits from government financial aid.
  
  

3. End-of-Service Benefits for Fixed-Term Contracts

• If an employee completes a fixed-term contract, they are entitled to full ESB.
• If they resign before completing the contract, they may lose ESB depending on contract terms.
  
  

4. End-of-Service Benefits for Employees on Probation

Employees dismissed during probation are not entitled to ESB, as probation periods do not count toward the service period.

How to Automate End-of-Service Benefits Calculation Using ZenHR?

Manually calculating ESB can be complicated, especially for large companies. ZenHR’s HR software simplifies the process, ensuring compliance with Saudi labor law.

Benefits of Using ZenHR for End-of-Service Benefits Calculation:

✅ Automated calculations to ensure accuracy and compliance.
✅ Integration of allowances and benefits into ESB computation.
✅ Detailed reports to provide employees with transparency on their entitlements.
✅ Customizable settings for different employment contracts and policies.

Frequently Asked Questions (FAQs)

1. What happens if an employee is terminated due to misconduct?

Employees dismissed for disciplinary reasons may lose their right to ESB, depending on the severity of the case and labor regulations.

2. Are bonuses and allowances included in ESB calculations?

No, ESB is calculated only on the basic salary and does not include allowances such as housing, transportation, or bonuses.

3. How are End-of-Service Benefits paid out?

Employers must pay ESB immediately upon contract termination. Delayed payments may lead to legal penalties.

4. Can an employer deny End-of-Service Benefits?

Employers cannot deny ESB unless the employee:

• Resigns before 2 years
• Is dismissed due to misconduct
• Violates contractual terms
  
  

5. How can employees ensure they receive the correct End-of-Service Benefits?

Employees should:

• Keep records of their service period and salary details
• Refer to Saudi labor laws or consult a legal expert
• Use HR systems like ZenHR for accurate ESB tracking

Understanding end-of-service benefits in Saudi Arabia is crucial for both employees and employers to ensure compliance and financial fairness. With automated tools like ZenHR, companies can streamline ESB calculations and maintain transparency.

By knowing your rights and obligations, you can ensure you receive your entitled benefits when your employment ends. For further details, consult Saudi labor law or seek professional HR advice.