End of service Benefit (ESB) Rules & Computation in Saudi Arabia..

This article describes the End of SERVICE Benefits which expatriates working in Saudi Arabia are entitled when they complete their contract."

Much has been written about the tax-free salary in Saudi Arabia and Gulf in particular. However, not much information is available about the benefits expats are entitled to receive upon completion of their work contract. This article tries to throw some light on this.

Expatriates planning to work in Saudi Arabia usually pay attention to their contract terms and conditions, but most of them focus only on the salary package and benefits such as housing, etc. I would like to specifically point out that when you sign a contract with your employer, you must also pay close attention to your gratuity or what is officially known as End of Service Benefits (ESB). When you complete your contract and are ready to leave the kingdom for good, you are entitled to certain monetary compensation which is directly related to the amount of time you had spent with your employer.

Saudi Labor Law has specific provisions for End of Service Benefits. Article 84 of the labor law explicitly states these. For the first five years of service which an expatriate puts in with an employer, he/she is entitled to half a month's salary for each completed year. Beyond the fifth year, this becomes one month's salary. The word "salary" in this context has also been clearly defined in the Saudi Labor Law. 

Employees in the Kingdom of Saudi Arabia are entitled to End of SERVICE Be an Endiof SERVICE These are benefits given to employees at the time they leave the company. Entitlement to End of Service Benefits, however, varies depending on the status of the worker, such as if he resigned or he was terminated. The benefits also depend on the length of year the worker stays in the company.

In Case of Resignation of Employee..

When an employee resigns, there are four possible cases which serve as a basis of the End of SERVICE Benefit an employee may receive.

1. Case 1: An employee who joins the company or organization for less than two years is not entitled to an End of Service Benefit.
2. Case 2: An employee who works for the company for more than 2 years but less than 5 years is entitled to 1/3 of his or her ESB award, which is halfSALARY. For instance, an employee resigns after working for 3 years in a company, the last totalPAY CHECK received was SAR15,000. Therefore, the worker receives 7,501.50 as end of service benefit. That is, the employee’sPAYCHECK multiplied by halfSALARY of the entitlement (1/3 divided by 2 is 16.67%) multiplied by number of years in the company. In figures, it is SAR15,000 x 16.67% x 3 = SAR7501.50
3. Case 3: An employee who stays in the company for more than 5 years but less than 10 years receives 2/3 entitlement and an ESB award of half SALARY for the first five years and full salary for the next five years. For instance, an employee resigns after working for 7 years in a company receiving a total of SAR20,000 as his or her last salary, takes home an end of service benefit amounting to SAR60,003. That is, salary multiplied by five divided by 2 plus salary multiplied by 2, the sum of this is multiplied by 66.67%, since 7 years fall under the bracket of the next five years. In figures, {(SAR20,000 * 5/2)+(20,000 * 2)} * 66.67% = 60,003. Meanwhile, if the employee worked for exactly 5 years, he or she only gets 33.33% as end of service benefit.
4. Case 4: An employee who stays with the company for 10 years or more receives a full entitlement and a half salary for the first five years and full salary for the succeeding years as ESB award. For instance, an employee resigns after working for 15 years in a company receives SAR10,000 as his or her last salary, and brings home an end of service benefit amounting to 125,000. That is, salary multiplied by 5 years divided by 2 plus salary multiplied by 10 years. In figures, (SAR10,000 * 5/2) + (SAR10,000 * 10) =  SAR125,000.

Notes:

• As an exception, the employee may be entitled to the full award if he or she leaves the work due to a force majeure outside of his or her control.
• If a female worker ends her contract within six months from the date of her marriage or three months from the date of giving birth, she may be entitled to the full award.
• The employer mayDEDUCT any work-related debt due to him or her from the worker’s entitlements. Other deductions are done according to the law.
• If the employee has not worked for a full year, a prorated amount is paid.
• There is no maximum number of years for EOSPAYMENT award.
• EOS does not include all or some of the commission, sales percentage, and similar wage components that are subject to increase and decrease.

In Cases of Forced Termination of Employee..

When an employee is terminated, there are two possible cases which serve as a basis of the End of SERVICE Benefit an employee may receive.

1. Case 1:  An employee who is terminated from an organization before completing a 5-year stay in the company receives a full entitlement and halfSALARY as ESB award. For instance, an employee finished his or her job after 3 years in service and receives 5,000 as his or her lastPAYCHECK, gets SAR7,500. That is,SALARYmultiplied by number of years divided by 2. In figures, (SAR5,000 * 3) / 2 =  SAR7500.
2. Case 2: An employee who is terminated from an organization after completing a 5-year stay in the company receives a full entitlement and half salary for the first 5 years and full salary for the succeeding years as ESB award. For instance, an employee is terminated after 9 years in service, and receives SAR20,000 as his or her last paycheck, gets SAR130,000. That is, salary multiplied by 5 and divided by 2 plus salary multiplied to 4. In figures, (SAR20,000 * 5/2)+(SAR20,000×4)= SAR130,000.

Exception to the Rule..

A female worker who decides to resign 6 months prior her date of marriage or 3 months prior to giving birth will be given a full award end ofSERVICE benefits. Although she has resigned, the computation of her End of SERVICE Benefit will be that of a Termination by an Employer.

Another exception to the rule is when an employee resigns due to inability to work such instances as death, permanent mental or physical disability, a full award end of SERVICE benefits shall also be

granted.

What is Included in ESB PAYMENT

Only the basicSALARY, housing allowance and transportation allowance are included in the end of service benefits. Phone and food stipend are excluded.

End of Service Benefit When Given in Kind..

There are instances when benefits are paid in kind, such as a car given to an employee in place of transportation and food allowance. However, the employee who is given with a car would receive lesserCASH than those who gets all benefits in cash.

Important Points for ESB Calculation..
1. It is assumed that employees have completed consecutive years in the organization.
2. End ofSERVICE Benefit is based on the latest SALARY received by the employee.
3. The ESB of an employee who does not complete an entire year is computed proportionally.

Domestic Workers End of Service Benefits..
Following the new law passed by the Ministry of Labor, a domestic worker receives end of SERVICE benefits as well. However, the calculation of the ESB differs from that of other workers. For every four consecutive years, a domestic helper is entitled to a one month salary.

An End of Contract: Is it Resignation or Termination..
The boundaries and limits of an end of contract can vary depending on who denies the renewal of the contract. It is ‘resignation’, if the employee does not want his or her contract to be renewed. On the other hand, it is classified as TERMINATION’ if the employer is the one who denies contract extension.

Link: End of Service Award Calculator

Prepared & Collection by M.Ajmal Khan.