Understanding employee benefits is crucial for both employers and employees. In Saudi Arabia, the End of Service Benefit (EOSB) is a significant part of the employment package. It ensures that employees receive fair compensation when their service ends. This benefit is governed by Saudi labor laws and is designed to protect workers’ rights. Different types of EOSB benefits exist, depending on factors like the length of service and the reason for termination. 

Today, we will explore the different types of EOSB benefits in Saudi Arabia and how they impact both employers and employees.

1. Understanding the Basic EOSB Calculation

The basic calculation of the End of Service Benefit in Saudi Arabia is based on the employee’s last drawn wage and the duration of their service. The general formula considers half a month’s salary for each of the first five years, and a full month’s salary for each year thereafter. “Wage” includes basic salary plus any fixed allowances. Understanding this calculation helps both parties know what to expect at the end of the employment period. Employers should maintain accurate records of wages and allowances. Employees should keep track of their service duration and any changes in their compensation.

2. EOSB for Resignation Before Completing Two Years

Employees who resign before completing two years of service are generally not entitled to any EOSB. This rule encourages longer-term employment and reduces turnover. However, exceptions may apply if the contract specifies otherwise. Employers should clearly communicate this policy to new hires to avoid misunderstandings. For expatriate workers, this period is crucial as they often face additional costs when changing jobs. Understanding this rule can help employees make informed decisions about their career moves.

3. EOSB for Resignation After Two Years of Service

Once an employee completes two years but less than five years of service, they are entitled to one-third of the EOSB. If they resign after five years but before ten years, they receive two-thirds of the benefit. Employees who resign after ten years of service are entitled to the full EOSB amount. This graduated scale incentivizes employees to stay longer with their employers. It also rewards loyalty and long-term commitment.

The EOSB entitlement upon resignation is as follows:

• 2 to 5 years of service: One-third of the EOSB
• 5 to 10 years of service: Two-thirds of the EOSB
• More than 10 years: Full EOSB amount

Employees should be aware of these thresholds when planning their careers. Employers can use this structure to retain valuable staff by offering additional incentives.

4. EOSB in Case of Termination by Employer

If an employer terminates the employee without cause, the employee is entitled to the full EOSB regardless of the length of service. This policy protects employees from unjust dismissal. Employers must provide valid reasons for termination to avoid legal complications. In cases of gross misconduct, the employee may forfeit their right to EOSB. Employers should document any performance issues or misconduct carefully. Employees should understand their rights if facing termination.

5. Special Cases Affecting EOSB Benefits

Certain circumstances can affect the calculation and entitlement of EOSB benefits. For instance, if an employee leaves due to a force majeure, they may receive full benefits regardless of service length. Female employees who resign within six months of marriage or three months of childbirth are entitled to full EOSB. Understanding these exceptions is important for fair treatment. Employers should be aware of these rules to ensure compliance with labor laws.

Special cases include:

• Resignation due to force majeure: Full EOSB entitlement
• Female employees resigning after marriage or childbirth: Full benefits if within specified timeframes
• Termination due to misconduct: Possible forfeiture of EOSB

6. How Changes in Employment Contracts Affect EOSB

Changes in employment contracts, such as shifts from fixed-term to indefinite contracts, can influence EOSB calculations. Employees should review any contract amendments carefully. Employers should ensure that contract changes comply with labor laws to prevent disputes over EOSB entitlements. Clear communication between employers and employees is essential. Both parties should seek legal advice if unsure about the implications of contract changes.

7. The Importance of Keeping Accurate Records

Maintaining accurate records is vital for correct EOSB calculations. Employers should keep detailed records of wages, allowances, and service durations. Employees should also maintain personal copies of contracts and payslips. This practice helps prevent disputes when employment ends. Proper documentation ensures transparency and fairness for both parties.

Conclusion

Understanding the different types of EOSB benefits in Saudi Arabia is essential for both employers and employees. It ensures fair treatment and compliance with labor laws. By being aware of how EOSB is calculated and the factors that influence it, both parties can plan better for the future.

Mithras Consultants is an independent actuarial and insurance consultancy firm providing qualitative financial and insurance solutions to its clients. Our goal is to provide business solutions customized to clients’ needs, helping them make the best possible decisions on their financial, insurance, and risk management programs.