How To Compute End Of Service Benefits In Saudi Arabia
End of Service Benefits (EOSB) in Saudi Arabia is an important aspect of the country's labor laws. It is a mandatory severance pay granted to employees upon the termination of their employment contracts. Saudi Labour Law is very helpful for labour when calculating End Service Benefits. ESB is the same as gratuity. In Saudi Arabia, a proper document is distributed by the Ministry of Labour about Labour Law. In labour law, there are five articles (84-88) dedicated only to end service benefits. As Saudi Arabian market observed some downfall due to a decrease in oil prices and it is hard for the smaller companies to sustain themselves. That’s why most of people are worried about their End Services Benefits in case their organization got bankrupt. End Service Benefits are the money that an expat is left with normally as he/she may not save during the course of his job. This article will provide a comprehensive understanding of EOSB in Saudi Arabia, including its calculation and rules, ensuring that both employers and employees are well-informed about their rights and responsibilities.
How EOSB (End of Service Benefits) is calculated
The calculation of EOSB depends on the duration of the employee's service with the company and the type of contract (fixed-term or indefinite). The calculation is as follows:
- For employees who have worked for less than two years, no EOSB is granted.
- For employees with two to five years of service, are entitled to half a month's salary for each year of service.
- For employees with more than five years of service, are entitled to a full month's salary for each year of service after the initial five years.
- The salary used for calculation includes the employee's basic salary and any legally mandated allowances. It is essential to note that the maximum EOSB an employee can receive is equivalent to their salary for two years.
Rules for EOSB:
The following rules govern the provision of EOSB in Saudi Arabia:
1. EOSB is applicable to all employees, regardless of their nationality, working in the private sector under Saudi labor law.
2. The EOSB should be paid within seven days of the employee's termination of employment.
3. In case of employee Resignation, EOSB is granted as follows:
Rule 1: If the employee resigns within the first two years of service, no EOSB is granted.
Rule 2: If the employee resigns after completing more than two years but less than five years of service, they are entitled to one-third of the EOSB.
Rule 3: If the employee resigns after completing more than five years but less than ten years of service, they are entitled to two-thirds of the EOSB.
For example:
In case your salary is 10,000 SAR per month & you have served the organization for 6 years and 2 months, then end of service benefit is calculated as below;
First five years = (5 x 10,000)/2 = 25,000 SR.
Next 1 years = (1 x 10,000) = 10,000 SR.
For, the extra 2 months we need to calculate like below:
Calculate the benefit by day = 10,000 SAR / 365 days = 27.40 SAR
Now, calculate the days for 2 months = 2 month x 30 days per month = 60 days
Multiply the benefit by day by the remaining days = 27.40 SR x 60 days = 1643.85 SAR.
Now, the is Total 25,000 + 10,000 + 1643.85 = 36,643.84 SAR
Rule 4: If the employee resigns after completing ten or more years of service, they are entitled to the full EOSB.
For Terminated Employees
If the employee is terminated, their EOSB is calculated as follows:
Rule 1: For employees with less than two years of service, they are not entitled to EOSB.
Rule 2: For employees with more than two years but less than five years of service, they are entitled to half a month's basic salary for each year of service.
Rule 3: For employees with five or more years of service, they are entitled to a full month's basic salary for each year of service.
Below we have given some examples to understand how to calculate EOSB in Saudi Arabia:
Calculating End of Service Benefits (EOSB) in Saudi Arabia involves taking into account the duration of an employee's service, their salary, and the type of contract they have. Below are some examples of how EOSB is calculated based on different employment scenarios:
Example 1:
An employee has worked for three years on a fixed-term contract with a basic monthly salary of SAR 5,000.
Since the employee has worked for more than two years but less than five years, they are entitled to half a month's salary for each year of service.
EOSB = (Basic Salary x 0.5) x Years of Service
EOSB = (5,000 x 0.5) x 3
EOSB = SAR 7,500
Example 2:
An employee has worked for seven years on an indefinite contract with a basic monthly salary of SAR 6,000.
For the first five years, the employee is entitled to half a month's salary for each year of service. For the additional two years, the employee is entitled to a full month's salary for each year of service.
EOSB = (Basic Salary x 0.5 x 5) + (Basic Salary x 2)
EOSB = (6,000 x 0.5 x 5) + (6,000 x 2)
EOSB = 15,000 + 12,000
EOSB = SAR 27,000
What if the company refuses to pay the EOSB to the employee:
In cases where a company refuses to pay the EOSB to an employee, the employee has several options to resolve the issue:
1. Communicate with the employer: The employee should first discuss the matter with the employer, clarifying their understanding of the labor law and the EOSB calculation.
2. File a complaint with the Ministry of Labor: If the employer still refuses to pay the EOSB, the employee can file a complaint with the Ministry of Labor, which oversees the enforcement of labor laws in Saudi Arabia. The Ministry will investigate the claim and take necessary action against the employer if the complaint is found to be valid.
3. Seek legal assistance: In cases where the dispute remains unresolved, the employee may consider hiring a lawyer who specializes in labor law to represent their interests and ensure their rights are protected.
It is essential for employees to be aware of their rights and understand the EOSB calculation to ensure they receive their rightful compensation upon the termination of their employment contracts.
Conclusion: End of Service Benefits is a crucial aspect of Saudi Arabia's labor law, designed to ensure financial stability for employees after their employment ends. It is essential for employees to be aware of their rights and understand the EOSB calculation to ensure they receive their rightful compensation upon the termination of their employment contracts. It is vital for both employees and employers to understand the calculation and rules of EOSB to ensure compliance with the law and to promote fair practices in the workplace. By familiarizing yourself with the information provided in this article, you will be better equipped to navigate the EOSB landscape in Saudi Arabia.