ESBs, or gratuities, are one of the most important aspects of Saudi Arabian employment. Employees with a certain length of service are entitled to this compensation under Saudi Labor Law. To participate effectively in the process, employers and employees need to understand the rules, eligibility criteria, and calculations.
In this article, we will provide a comprehensive guide to End of Service Benefits in KSA, helping you understand the calculations, eligibility requirements, and other important details.
What Are End of Service Benefits?
End of Service Benefits (ESB) in Saudi Arabia are a form of compensation paid to an employee when their employment contract ends. It is a financial sum that the employer pays to the employee for the work performed over the years. This benefit serves as a reward for the employee’s service and is mandatory under the Saudi Labor Law, regardless of whether the employee leaves voluntarily or is terminated by the employer.
Gratuity is generally calculated based on the employee’s basic salary and the number of years they have worked for the employer.
Eligibility for End of Service Benefits
- Minimum Service Period: Employees are entitled to ESB if they have worked for a minimum of two years with the employer. If an employee has worked for less than two years, they are not eligible for gratuity benefits.
- Termination or Resignation:
- Employees who are terminated by the employer without a valid reason are entitled to the full end-of-service benefit.
- Employees who resign may still be eligible for gratuity, but the amount can be reduced depending on the length of service. For instance, employees who resign after completing at least two years of service are entitled to a partial gratuity. The gratuity calculation changes if an employee resigns before completing five years or after.
- Death or Disability: In cases of the employee’s death or permanent disability, the employee’s heirs or legal representatives are entitled to the full gratuity, regardless of the length of service.
How to Calculate End of Service Benefits
Gratuity is calculated based on the employee’s basic salary and the length of service. The basic salary does not include bonuses, allowances, or benefits such as housing or transportation. Here’s a step-by-step breakdown of how the gratuity calculation works:
1. For the First Five Years
For the first five years of service, the employee is entitled to half a month’s salary for each year worked.
2. For Service Beyond Five Years
For each additional year of service after five years, the employee is entitled to one month’s salary for every year worked.
3. Example Calculation
Let’s assume an employee has a basic monthly salary of SAR 10,000 and has worked for 7 years with their employer.
- Gratuity for the first 5 years:
Half of the monthly salary (SAR 10,000 ÷ 2 = SAR 5,000) is given for each of the first 5 years.- SAR 5,000 × 5 years = SAR 25,000.
- Gratuity for the remaining 2 years:
One full month’s salary (SAR 10,000) is given for each of the remaining 2 years.- SAR 10,000 × 2 years = SAR 20,000.
- Total Gratuity:
- SAR 25,000 + SAR 20,000 = SAR 45,000.
So, in this example, the employee will be entitled to SAR 45,000 in End of Service Benefits.
What Affects End of Service Benefits?
Several factors can affect the amount of End of Service Benefits an employee is entitled to:
1. Reason for Termination or Resignation
- Termination by Employer: If the employee is dismissed without a valid reason, they are entitled to the full gratuity. However, if an employee is terminated for a justified reason, such as misconduct, they may forfeit their entitlement to ESB.
- Resignation: Employees who resign before completing five years may receive a reduced gratuity.
- Resigning within the first 2 years: No gratuity is given.
- Resigning after 2 years but before 5 years: Partial gratuity is paid.
- Resigning after 5 years: Full gratuity is paid.
2. Salary Structure
The gratuity calculation is based on the basic salary, which means that any allowances such as housing, transportation, or bonuses are not included.
3. Partial Service Year
The salary of an employee who works a partial year is generally prorated based on the number of months worked.
Employees who work for six months in the final year are entitled to half of their monthly salary.
What Happens if an Employer Does Not Pay End of Service Benefits?
Under Saudi Labor Law, employers are obligated to pay End of Service Benefits on time. If an employer fails to pay these benefits, employees have the right to file a complaint with the Saudi Labor Office. The employer can be fined, and the employee can pursue legal action to receive the payment.
Conclusion
End of Service Benefits (gratuity) are an important part of the labor rights in Saudi Arabia. They provide a financial cushion for employees after leaving a company, whether due to resignation, termination, or the end of their contract. By understanding how these benefits are calculated and what affects the final amount, employees can ensure that they receive the compensation they deserve.
For employers, adhering to Saudi Labor Law and ensuring that gratuity payments are made on time is crucial to maintaining a positive relationship with employees and avoiding legal issues. Whether you are an employee or employer, understanding End of Service Benefits is essential to navigating the employment landscape in Saudi Arabia successfully.
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