How to Calculate Gratuity in Saudi Arabia: A Complete Guide

Gratuity, also known as end-of-service benefits (EOSB), is an essential right for employees in Saudi Arabia. The Saudi Labor Law mandates that an employee receives financial compensation for their years of service. You can ensure you receive what you’re entitled to by understanding the process of calculating gratuity.

In this guide, we’ll explain the rules governing gratuity, how it’s calculated, and how to use a gratuity calculator KSA for accurate results.

What Is Gratuity in Saudi Arabia?

Employers in Saudi Arabia are legally required to provide financial benefits, known as gratuities, to their employees at the termination of their contracts. It acts as a token of appreciation for the employee’s service. The amount of gratuity varies based on factors such as the employee’s resignation or termination.

• Length of service.
• Reason for termination.
• Basic salary.

Key Rules for Gratuity Under Saudi Labor Law

To calculate gratuity in Saudi Arabia, it’s essential to understand the regulations:

• Eligibility for Gratuity
• Employees are entitled to gratuity if they complete at least 2 years of continuous service.
• Resigning before 2 years of service disqualifies an employee from receiving gratuity unless agreed otherwise.

Components of Gratuity Calculation

Gratuity is based on the basic salary only, excluding allowances such as housing, transportation, and bonuses.

Length of Service Tiers

• First 5 Years: Employees receive half of one month’s salary for each year of service.
• Beyond 5 Years: Employees receive one full month’s salary for each additional year of service.

Resignation vs. Termination

Resignation: The gratuity amount depends on the length of service. Employees with more than 2 but less than 5 years of service receive a reduced gratuity.

Termination: Employees terminated without valid cause are entitled to the full gratuity amount.

Step-by-Step Gratuity Calculation

To manually calculate gratuity, follow these steps:

• Determine Your Basic Salary
• Example: SAR 10,000 (monthly basic salary).

Calculate Gratuity for the First 5 Years

• Multiply half of the monthly salary by the number of years worked (up to 5 years).
• Example: (SAR 10,000 ÷ 2) × 5 = SAR 25,000.

Add Gratuity for Additional Years

• Multiply the full monthly salary by the number of years beyond 5.
• Example: For 3 additional years, SAR 10,000 × 3 = SAR 30,000.

Combine Both Amounts

• SAR 25,000 (first 5 years) + SAR 30,000 (additional years) = SAR 55,000 total gratuity.

Adjust for Resignation

Employees resigning before 5 years may receive a prorated amount (e.g., 1/3 or 2/3 based on length of service).

Using a Gratuity Calculator in KSA

For precise and hassle-free calculations, you can use an online gratuity calculator KSA. These tools are designed to compute gratuity quickly by taking into account the following inputs:

• Basic monthly salary.
• Total years of service.
• Reason for leaving (resignation or termination).

Benefits of Using a Gratuity Calculator:

• Accuracy: Reduces the risk of errors in manual calculations.
• Time-Saving: Generates results instantly.
• User-Friendly: Most calculators require only basic input details.

You enter the details into the calculator, and it computes the gratuity amount for you.

Practical Example

Scenario:

Basic Salary: SAR 12,000.

Length of Service: 7 years.

Reason for Leaving: Termination.

Calculation:

Gratuity for the first 5 years:

(SAR 12,000 ÷ 2) × 5 = SAR 30,000.

Gratuity for the additional 2 years:

SAR 12,000 × 2 = SAR 24,000.

Total Gratuity:

SAR 30,000 + SAR 24,000 = SAR 54,000.

Factors That May Affect Gratuity

Probation Period

Gratuity calculations do not include the probation period.

Unjustified Resignation

Employees resigning without completing the minimum service duration may forfeit their gratuity rights.

End-of-Service Disputes

In cases of disagreement, employees can file a complaint with the Saudi Labor Office to resolve the issue.

Conclusion

Understanding and calculating gratuity in Saudi Arabia ensures employees receive fair compensation at the end of their service. By familiarizing yourself with labor laws, following the calculation process, or using a gratuity calculator KSA, you can confidently determine your entitlement.

Gratuity is more than just a financial benefit—it’s a recognition of your hard work and dedication. Ensure you’re informed to make the most of what you’ve earned.