The Base Formula (Article 84)
Article 84 of the Labor Law bases the end-of-service benefit on the employee's last wage, using a two-tier rule:
- For the first 5 years: half a month's wage for each year of service.
- For every year after that (from year 6 onward): a full month's wage for each year.
Partial years are paid pro-rata to the actual time worked, whether months or days — there is no rounding up to whole years.
Worked example: an employee with a last wage of SAR 10,000 and 8 years of service. First 5 years: 5 × half a month = SAR 25,000. Next 3 years: 3 × a full month = SAR 30,000. Gross total before any reduction = SAR 55,000.
To get your exact figure from your wage and your start and end dates, use the free end-of-service calculator: rw.sa/knowledge/tools/end-of-service-calculator
Resignation and the Reduction Scale (Article 85)
When the employee ends the contract of their own will (resignation), the amount calculated under Article 84 is reduced by total continuous service, per Article 85:
- Under 2 years: no benefit.
- From 2 to under 5 years: one third of the benefit.
- From 5 to under 10 years: two thirds of the benefit.
- 10 years and above: the full benefit.
Using the earlier example (SAR 55,000 for 8 years of service): if the contract ends by resignation, the employee falls in the "5 to under 10" band and is entitled to two thirds — about SAR 36,667. If the employer ends the contract, they receive the full SAR 55,000.
Employer Termination vs. Resignation, and Contract Type
Who ends the contract, and how, drives the final number:
- Employer termination or a contract reaching its natural end: the worker receives the full Article 84 amount, and the Article 85 reduction scale does not apply. It still requires actual accrued service on which the benefit is computed; there is no 2-year floor on this side.
- Resignation by the employee: the Article 85 reduction applies as above.
Contract type does not change the core rule: the resignation scale (one third / two thirds / full) applies whenever the ending is a resignation by the employee. A fixed-term contract that runs to its natural end is not a resignation, so it is calculated on the full Article 84 basis, not on the reduction scale.
Note: dismissal for an Article 80 cause (gross misconduct) is a separate matter. The general rule that termination gives the full benefit assumes ordinary, lawful termination, not the narrow disqualifying cases.
Which Wage Counts, and the Leave Payout
The benefit is calculated on the full last wage, not the basic wage alone:
- It includes the basic wage plus fixed, recurring allowances — such as housing and transport allowances — and regularly paid commissions.
- Where pay varies (e.g. commission), practice is to base the wage on an average of recent actual earnings rather than a single month. This is a practitioner convention, not a statutory number.
- Occasional or discretionary bonuses and non-fixed, non-recurring payments are excluded.
The leave balance is a separate item, paid in addition to the benefit, not part of it:
- Cash is paid for accrued, untaken annual leave.
- Annual leave is 21 days per year, rising to 30 days per year after 5 years with the same employer.
- It is calculated on your wage, with allowances included where they are a fixed, monthly part of pay. Sources differ on this (basic-only vs. full wage), so confirm against your own contract.
When the Full Benefit Is Paid Despite Resigning (Article 87)
Article 87 sets out exceptions in which the worker receives the full benefit even though they ended the contract, without the Article 85 reduction:
- Force majeure beyond the worker's control that forces them to leave.
- A female worker who ends her contract within 6 months of her marriage date, or within 3 months of childbirth, is entitled to the full benefit regardless of years served.
These rules cover the private sector under the Labor Law and differ from public-sector pension and GOSI arrangements. If you manage several contracts and different end-of-service scenarios, getting the calculation right and documented reduces disputes before the labor office and the labor courts.