Article 84 Saudi labor law is considered one of the most important articles that protect workers’ rights upon the termination of their employment relationship, as it obliges the employer to grant the worker an end-of-service gratuity calculated based on the length of his service. This gratuity is not just a financial right, but rather an expression of appreciation for the worker’s efforts and contribution to the organization. In this article, we will take you on a detailed journey to understand how to calculate the end-of-service gratuity according to Article 84, starting from the legal basis and ending with practical examples that clearly explain the steps.
المحتويات
Article 84 Saudi Labor Law
Article 84 Saudi labor law stipulates that upon termination of the employment relationship, the employer shall be obliged to grant the worker a gratuity calculated based on the length of his service. The gratuity is calculated on the basis of half a month’s salary for each of the first five years, while the worker receives a full month’s salary for each additional year thereafter. The calculation of the gratuity is based on the last salary the worker received, and he is also entitled to a proportional gratuity for any part of the year he spent working.
Explanation of Article 84 Saudi labor law
Except for the cases specified in Article 80 of the Labor Law, which we will discuss in detail in another article, the employer is obligated to pay the end-of-service gratuity to the worker upon termination of the employment relationship, according to the following controls:
- The gratuity is calculated based on the last actual salary received by the worker before the end of his contract.
- The actual wage includes the basic salary plus any other financial benefits, such as commissions, allowances, bonuses, and any in-kind privileges.
- The methods of calculating the gratuity vary according to the nature of the work, but it is necessary that it be calculated accurately by the competent authorities, such as the Human Resources or Accounting Department, to ensure its compliance with the provisions of Article 84 Saudi labor law.
Check out: Saudi Labor Law Vacation Pay: A Comprehensive Guide
Method of calculating the end-of-service gratuity
First: If the service period is five years or less
The gratuity is calculated on the basis of half a month’s wage for each year of service, taking into account any partial period of the year.
Example:
If an employee has worked for four years, eight months and ten days, and his last actual salary was 4000 riyals, the calculation is as follows:
- Total number of days of service: (4 years x 360 days) + (8 months x 30 days) + (10 days) = 1700 days.
- Daily bonus value: (2000 riyals) half the actual salary ÷ 360 days = 5.55 riyals.
- Total bonus: (1700 days x 5.55 riyals) = 9,435 riyals.
Read also: Article 74 Saudi Labor Law: Contract Termination Reasons
Second: If the service period exceeds five years
In this case, the bonus is calculated on the basis of half a month of salary for each of the first five years, and a full month for each additional year after that, with parts of the year calculated proportionally.
Example:
If the employee continued to work for seven years, three months and 20 days, and his last salary was 7000 riyals, the calculation is as follows:
- Calculating the bonus for the first five years:
- Total number of days: (5 years x 360 days) = 1800 days.
- Daily bonus value: (3500 riyals) half the wage ÷ 360 days = 9.72 riyals.
- Bonus for the first five years: (1800 days x 9.72 riyals) = 17,496 riyals.
- 2.Calculating the bonus for the additional period (two years, 3 months and 20 days):
- Total number of days: (2 years x 360 days) + (3 months x 30 days) + (20 days) = 830 days.
- Daily bonus value: (7000 riyals) full salary ÷ 360 days = 19.44 riyals.
- Overtime bonus: (830 days x 19.44 riyals) = 16,135 riyals.
- 3.Total bonus due:17,496 riyals + 16,135 riyals = 33,631 riyals.
In this way, the worker ensures that he obtains his financial rights according to the labor system, while the employer is obligated to apply the calculations accurately to avoid any legal disputes.
Article 84 Saudi labor law plays a pivotal role in protecting workers’ rights, ensuring that they receive a fair and regular end-of-service gratuity based on their length of service. At Etqan law firm, we are keen to provide accurate legal advice and specialized services that help you understand and apply these provisions correctly. Whether you are an employer seeking full compliance with the regulations or an employee looking to protect your rights, our specialized team is ready to help you every step of the way.
The Etqan Al Mutamayza Law Firm can provide the necessary support. You can contact their team through the following mobile numbers: 056113776, 0541110440, 504315333
Alternatively, you can visit our branches:
Learn about: Notice Period In Saudi Arabia: Laws, Rights & Best Practices
- Jeddah: Al-Aziziyah District–Mohammed bin Abdulaziz Street (Tahlia)
- Riyadh: King Abdulaziz Street – In front of Kingdom
- Dammam: Al-Ashri’a Street, Al-Badeea, Dammam 32415.
FAQ
What is the basis for calculating the end-of-service gratuity according to Article 84 Saudi labor law?
The gratuity is calculated based on the worker’s length of service. For the first five years, the worker is entitled to half a month’s salary for each year. After five years, the gratuity increases to a full month’s salary for each additional year. The calculation is based on the last salary the worker received, including all financial benefits.
How is the gratuity calculated if an employee has worked for less than five years?
If the service period is five years or less, the gratuity is calculated at half a month’s wage for each year of service. Any partial period of a year is also considered proportionally. For example, if an employee worked for four years, eight months, and ten days with a last salary of 4000 riyals, the total gratuity would be approximately 9,435 riyals.
What happens if an employee works for more than five years?
If an employee has worked for more than five years, the gratuity is calculated as half a month’s salary for each of the first five years and a full month’s salary for each additional year. Any partial period of a year is also considered. For instance, an employee who worked for seven years, three months, and 20 days with a last salary of 7000 riyals would receive a total gratuity of 33,631 riyals.