Understanding Gratuity in Saudi Arabia: A Comprehensive Guide

Gratuity is a monetary reward given to employees as a token of appreciation for their dedication and hard work throughout their tenure. In Saudi Arabia (KSA), the end-of-service benefit, commonly known as gratuity, is calculated based on the duration of service and is payable upon resignation or termination. This guide delves into the intricacies of the KSA gratuity policy, including eligibility, calculation methods, and factors affecting the final pay-out.

What is Gratuity?

Gratuity is a lump sum payment provided to an employee at the end of their tenure, provided they have completed at least one year of service. It is a liability for the employer that accrues over the employee's service period.

Eligibility for Gratuity Accrual

Gratuity accrues from the first day of employment until the last working day. The entitlement depends on the type of separation and the length of service.

Who Qualifies for Gratuity?

The Saudi labour law does not explicitly specify which workers are eligible for gratuity, leaving it open to interpretation that all workers in KSA, regardless of nationality, are entitled to gratuity.

Gratuity Calculation and Limits

Gratuity is calculated based on the last paid wage at the time of settlement. There is no legal limit to the amount of gratuity that an employee can receive.

The accrual period for gratuity is determined as follows:

• For service periods less than five years, the gratuity is calculated at half a month’s salary per year.
• For service periods exceeding five years, the gratuity is calculated at a full month’s salary per year.

Example of Gratuity Calculation

Consider two employees:

• Employee A has a service period of 4.75 years, with a monthly salary of SAR 12,000.
• Employee B has a service period of 6.09 years, with a monthly salary of SAR 12,000.

For Employee A:

• Gratuity Days for the first 5 years: 71.30 days.
• Total Gratuity Amount: SAR 28,520.55.

For Employee B:

• Gratuity Days for the first 5 years: 75.00 days.
• Additional Gratuity Days beyond 5 years: 32.63 days.
• Total Gratuity Amount: SAR 43,052.05.

Factors Affecting Gratuity Payable

Resignation:

• If an employee resigns after completing less than two years of service, no gratuity is paid.
• For service periods between two to five years, one-third of the gratuity is paid.
• For service periods between five to ten years, two-thirds of the gratuity is paid.
• For service periods exceeding ten years, the full gratuity is paid.

Termination:

• If an employee is terminated after completing their probation period, they are entitled to full accrual.
• If terminated during probation, no gratuity is paid.
• For service periods less than five years, gratuity is calculated at half a month’s salary per year.
• For service periods exceeding five years, gratuity is calculated at a full month’s salary per year.

Special Provisions for Female Employees

Female workers are entitled to full gratuity in the following cases:

• Termination of the contract within six months after marriage.
• Termination of the contract within three months after childbirth.

Gratuity Payment Timeline

Upon the end of service, the employer is required to settle the gratuity within one week. If the employee initiates the termination, the settlement must be completed within two weeks. Any outstanding debts or deductions may be deducted from the gratuity.

Impact of Unpaid Leave on Gratuity

Unpaid leave taken during the service period does not count towards the accrual of gratuity. However, maternity and sick unpaid leave do count towards the service period and do not affect gratuity accrual.

The Importance of Accurate Gratuity Calculation

Understanding how to calculate gratuity accurately is crucial for employees to avoid errors and confusion. It is also important to stay informed about any changes in gratuity policies in KSA.