Understanding Gratuity Calculation for Kingdom of Saudi Arabia

A gratuity is a cash benefit that an employee is entitled to as a lump sum at the end of his or her period of service if the period of service exceeds two years. Gratuity payment is a liability to the employer which accrues as the employee service period progresses. Gratuity is a token of appreciation for all the hard work and commitment an employee has shown towards one’s workplace. It is usually calculated at the time of resignation or termination. In Saudi Arabia, an employee is entitled to an end-of-service benefit upon completion of two years of service if he is resigning from work.

HR Chronicle is the Leading Cloud-based HR and Payroll Management Solution in the Kingdom of Saudi Arabia Region which automatically calculates the end-of-service gratuity and helps you do the final settlement of the employee without any manual calculations.

The law in Saudi Arabia entitles every worker to receive Gratuity, provided he/she has worked with the employer for a minimum period of two years.

The calculation is done as below:

Scenario 1:  Employee was Resigned

Upon the end of the service, the employer shall pay the worker an end-of-service award equal to a half-month wage for each of the first five years and a one-month wage for each year of the following years and pro-rated thereafter for subsequent periods. The end-of-service award shall be calculated on the basis of the last drawn wage.

• If the service period is below two years (less than 2) – No gratuity is paid.
• If the service period is between 2 years to 5 years (2-5) – then the employee will get a gratuity equivalent to 1/3 of the half salary (Basic Salary x 1/2 x 1/3)   (i.e. approximately 5 days accrual per year)
• If the service period is above 5 years and less than 10 years (5-10) – then the employee will get a gratuity equivalent to 1/3 of his full basic salary for the first five years, and thereafter following years 2/3 of his full basic salary.
• If the service period is above 10 years – then the employee will get the gratuity equivalent to 50% of his full basic salary for the first 5 years and thereafter following years full monthly basic salary.

Scenario 2:  Employee was Terminated. 

When the separation is by termination, the employee is entitled to a full monthly basic salary per year as gratuity, if the employee has completed probation.

Under this separation type, the gratuity entitlement is the following:

• During Probation – no gratuity.
• If the service period is less than five years– half a month’s basic salary per year.
• If the service period is above five years – full month basic salary entitlement.

Reference for Gratuity Formula:https://laboreducation.hrsd.gov.sa/en/labor-education/317
Reference for Gratuity Formula:https://laboreducation.mlsd.gov.sa/en/calc

For legal advice always consult a legal professional like a lawyer or the Ministry. The contents of this article do not constitute legal advice.

With HR Chronicle, there is no need to worry about these manual calculations and spend your precious time on the same.  Get peace of mind and focus on running your business. HR Chronicle is the leading HR and payroll management Solution for Saudi Arabia.

HR Chronicle is the best HR Software that automates your entire HR and Payroll Process. No manual calculations, no paperwork, no last-minute confusion.  With HR Chronicle manage your company’s HR and payroll processes efficiently.

Have a question, want to get started on your HR automation journey. Please contact our team for any inquiries on pricing and licensing.  We will be glad to assist you.  You can also visit us at https://www.hrchronicle.com  or email us at: info@hrchonicle.com. You can also call us +971 4 3383775 or Whatsapp +971 55 650 6260.