Saudi Arabia End-of-Service Gratuity (ESG) Rules & Statutory Calculation Framework (2026)
Authored By: Zafco Payroll & Statutory Labor Audit Division
Technical Reviewer: Head of Middle East Legal & Payroll Compliance
Regulatory Basis: Saudi Labor Law Articles 84 & 85 (MHRSD / Qiwa Standard)
1. Executive Summary: What is End-of-Service Gratuity?
End-of-Service Gratuity (ESG) is a mandatory statutory severance benefit under Saudi Labor Law. Every employer operating in KSA must pay ESG upon employment termination or contract completion. Understanding proper contract structures during initial candidate deployment is key—review our Saudi Work Visa & QVP Guide and master Saudi Visa Framework 2026 to ensure contract setup alignment on Qiwa.
Interactive End-of-Service Gratuity Calculator (Article 84 & 85)
Under Article 84, fixed housing and transportation allowances MUST be included in the calculation base.
Total Estimated Statutory Payout
SAR 42,000
Base Salary Considered (Sf)
SAR 12,000
Gratuity — First 5 Years (Tier 1)
SAR 30,000
Gratuity — Subsequent Years (Tier 2)
SAR 12,000
Applied Settlement Percentage (Ra)
100%
Disclaimer: Final settlements must be logged on Mudad Wage Protection System within 7–14 days of contract end to avoid Nitaqat rating penalties.
2. Statutory Wage Basis for Gratuity Calculations
Under Article 84 of the Saudi Labor Law, End-of-Service Gratuity must be calculated based on the Last Drawn Actual Wage (Sf).
- Included: Basic Salary + Fixed Monthly Housing Allowance + Fixed Monthly Transportation Allowance.
- Excluded: Variable sales commissions, discretionary annual bonuses, and overtime allowances (unless contractually defined as a fixed wage component).
3. Formal Statutory Mathematical Formulas
A. Base Gratuity Calculation (Gbase)
The gross accumulated base gratuity (Gbase) is calculated across two distinct tenure tiers:
Where:
- Sf = Total final monthly wage (Basic + Fixed Allowances).
- T1 = Length of continuous service in months for the first 5 years (up to 60 months).
- T2 = Length of continuous service in months beyond the 5th year (T2 = max(0, Total Months − 60)).
B. Termination Multiplier vs. Resignation Scale (Article 85)
If employment ends due to Employer Termination, Contract Expiry, or Force Majeure, the employee is entitled to 100% of Gbase (provided service is at least 1 year):
If the employee voluntarily resigns, the statutory payout ratio (Ra) is scaled per Article 85 based on total service duration:
Where the Resignation Adjustment Ratio (Ra) is defined as:
4. Worked Calculation Scenarios
Scenario Assumptions: Final monthly base wage Sf = SAR 12,000 (Basic: SAR 8,000 + Housing: SAR 3,000 + Transport: SAR 1,000). Total service = 6 Years (72 months).
Step 1: Calculate Gbase
- First 5 years (60 months): 60 × 0.5 × (12,000 / 12) = 5 × 6,000 = SAR 30,000
- 6th year (12 months): 12 × 1.0 × (12,000 / 12) = 1 × 12,000 = SAR 12,000
- Total Base Gratuity Gbase = 30,000 + 12,000 = SAR 42,000
Step 2: Apply Settlement Scenario
| End-of-Service Reason | Applicable Ratio (Rₐ) | Final Net Payout |
|---|---|---|
| Employer Termination / Non-Renewal | 1.0 (100%) | SAR 42,000 |
| Employee Resignation (6 years tenure) | 2/3 (~66.67%) | SAR 28,000 |
5. Mudad & Qiwa Contract Alignment Audit
Saudi labor authorities cross-verify end-of-service settlement bank transactions uploaded into the Mudad Wage Protection System (WPS) against digital employment contracts on Qiwa. Any under-reporting of fixed housing or transportation allowances in Mudad will flag non-compliance penalties on the employer's Nitaqat rating. Contract registration workflows are covered in the Work Visa & QVP deployment guide.
Need Enterprise Mobility or Visa Stamping Assistance?
Zafco provides MEA-licensed end-to-end recruitment, QVP attestation, and consular deployment for Saudi Arabia.
Frequently Asked Questions
Is End-of-Service Gratuity tax-free in Saudi Arabia?
Yes. ESG payouts are free from personal income tax in Saudi Arabia.
How long does an employer have to settle final ESG payouts?
Under Saudi law, upon termination, the employer must settle all entitlements within 1 week. In case of resignation, settlement must be finalized within 2 weeks.