02 · Practitioner
Three Common Saudi End-of-Service Calculation Mistakes
A practical review of last wage, service bands and partial years under Articles 84–86, with a fictional worked example and audit controls.
My HR Balance Editorial
Contextual photograph of calculation review; it contains no employee data and implies no statutory result.
Start with an assumptions sheet, not a final number
This guide covers Saudi private-sector Labour Law as displayed by the Ministry of Human Resources and Social Development when checked on 27 October 2026. Before calculating, evidence the start date, final service day, end reason and wage components using the contract and payroll records. Automation cannot repair a legal misclassification or incomplete data; the examples are fictional and are not legal advice on an employee file.
- Separate source data, formula and result.
- Record the statutory basis or assumption beside each field.
- Use a second reviewer for disputed cases.
Mistake 1: automatically using basic salary
Article 84 uses the last wage as the award basis, while the Law defines “wage” as actual wage. The official definitions say actual wage starts with basic wage and includes other due components under the contract, work rules or nature of entitlement, including certain allowances and commissions. Basic salary alone is therefore not an automatic answer. Conversely, Article 86 permits an agreement excluding all or some commissions, sales percentages and similar inherently variable elements. Review each component, its evidence and any valid agreement; do not automatically include or exclude every payment.
- Extract the components of the evidenced last wage.
- Classify each item: basic wage, due allowance, commission, bonus, benefit in kind or discretionary payment.
- Tie inclusion or exclusion to the Law, contract and work rules, and record the rationale.
Mistake 2: applying one accrual rate to every year
Article 84 builds the base award at half a month's wage for each of the first five years, then one full month's wage for each later year. Applying half a month to all service understates years after five; applying a full month throughout overstates the first five years. Show the two bands on separate lines so a reviewer can see the five-year boundary rather than hiding it inside one cell.
- Band one: up to five years × half a month's wage.
- Band two: service above five years × one month's wage.
- Do not mix the resignation factor into the base; apply it after showing the Article 84 base.
Mistake 3: dropping months and days
Article 84 expressly provides a pro-rata award for fractions of a year worked. Rounding six years and four months down to six loses four months; rounding up to seven adds service that was not worked. Preserve the source dates, identify the day-count and calendar method used by the contract or work rules, and display the fraction transparently. Do not claim that one daily method is legally mandated where the source does not say so.
Fictional example: SAR 12,000 and 6 years 4 months
Assume, for teaching only, a reviewed eligible last wage of SAR 12,000, service of six years and four months, and ordinary employer termination with no exception. First five years: 5 × SAR 6,000 = SAR 30,000. Sixth year: 1 × SAR 12,000 = SAR 12,000. The next four months, using the simplified teaching assumption 4÷12, add SAR 4,000. The Article 84 base is SAR 46,000. Dropping the months gives SAR 42,000; applying half a month throughout gives SAR 38,000. This compares errors, not an actual settlement.
- Show the wage basis before the arithmetic.
- Show each service band and fraction separately.
- Apply the end reason and exceptions after the base.
- Retain intermediate figures before final rounding.
The exact five-year boundary and close-out checklist
For ordinary resignation, Article 85 applies a factor to the Article 84 base: one third from two through five years inclusive, while two thirds begins only when service exceeds five years and remains below ten. Exactly five years is not two thirds. Before approval, reperform the calculation from source records, review the end reason and Articles 80, 81 and 87 where relevant, and keep leave encashment, wages and other compensation separate from EOSB.
- Last wage and its components are evidenced and justified.
- The two accrual bands are shown separately.
- Partial years are not removed or rounded without a method.
- End reason, factor and exception are documented.
- A second reviewer can reproduce the result.
Scope: Saudi Arabia, private sector. The wage definitions and Articles 84–88 were checked against HRSD on 27 October 2026. The example is fictional and simplified; it does not replace review of the contract, facts, or qualified legal advice.
General professional guidance—check local law and approved company policy before implementation.