How to calculate the end-of-service benefit step by step in Saudi Arabia and Bahrain

The end-of-service benefit (EOSB) is one of the entitlements most often calculated incorrectly when an employee's final settlement is worked out, because the amount depends on four things: the wage it is calculated on, the length of service in days, why the employment ended, and the country the employee works in.

This guide walks through the calculation step by step for Saudi Arabia and Bahrain only, from the text of the Saudi Labour Law, Bahrain's Labour Law for the Private Sector and the end-of-service system for non-Bahrainis, with worked examples. For the figure straight away, use the Saudi end-of-service calculator or the Bahrain indemnity calculator.

What is the end-of-service benefit?

It is an amount owed to the employee for their length of service when the employment relationship ends, calculated as a share of the last wage for each year.

In Saudi Arabia, Article 84 of the Labour Law reads, in the Ministry's English text: "Upon the termination of the employment relationship, the employer shall pay the worker an end-of-service indemnity calculated on the basis of half a month's wage for each year of the first five years of service, and one month's wage for each subsequent year. The last wage received shall be the basis for calculating the award. The worker shall be entitled to a pro-rata award for fractions of a year worked."

In Bahrain, Article 116 of the Labour Law for the Private Sector (Law No. 36 of 2012) gives a worker who is not subject to the Social Insurance Law, when the contract ends, half a month's wage for each of the first three years of service and a month's wage for each year after that, with fractions of a year paid pro rata.

The two texts are built the same way. The key difference is how many years are paid at half a month: five in Saudi Arabia, three in Bahrain.

The steps at a glance

1. Establish the wage the benefit is calculated on.
2. Count the length of service from the first day to the last working day.
3. Split the service into bands: half a month for each of the first years, a month for each year after.
4. Apply the effect of how the employment ended (Saudi Arabia).
5. In Bahrain, separate service before 1 March 2024 from service after it to see who pays each part.

Step 1: Establish the wage

In Saudi Arabia

The benefit is calculated on the last wage (Article 84), and in the law "wage" means the actual wage (Article 2): the basic wage plus the other increases due to the employee for their work under the employment contract or the work regulations. So use the last full monthly wage including basic salary, housing allowance and every other fixed allowance, not the basic salary alone. Article 86 allows the parties to agree that commission and sales percentages are left out of it.

For piece or output pay, Article 96 uses the average wage the employee received for the days they actually worked in the last year of service. Where the whole wage is commission or a percentage of sales, what they received is divided by the days they actually worked. To turn that daily average into a monthly wage, we multiply it by 30, because Article 2 defines a month as thirty days. That conversion is our reading of the two articles.

In Bahrain

Article 47 states that end-of-service entitlements are calculated on the employee's last basic wage plus the social allowance, if any. Other allowances are left out. For an employee paid by the piece or by output, or paid a fixed wage plus commission or a percentage, the average wage over the last three months is used.

Step 2: Count the length of service

• From the first day to the last working day: we count the last working day as a day of service.
• Whole years: run from the start date to its next anniversary.
• Part of a year: is counted in days, as the days served divided by the days in that year of service (365 or 366), applying the words "pro rata" in the law.
• The calendar in Saudi Arabia: Article 10 counts periods in the Hijri calendar unless the employment contract or the work regulations say otherwise. The unified employment contract in the annexes to the Implementing Regulations states that the Gregorian calendar applies to everything relating to the contract, so we count Gregorian years.
• The calendar in Bahrain: Article 3 states that periods are counted in the Gregorian calendar.

Step 3: Split the service into bands

In Saudi Arabia:

Benefit = (wage ÷ 2 × years up to the fifth) + (wage × years after the fifth)

In Bahrain the formula is the same, but the half-month band ends at the third year. Part of a year takes the rate of the band it falls in: part of the eighth year, for example, is paid at a full month's wage per year.

Step 4: Apply the effect of how the employment ended

In Saudi Arabia

If the employer ends the contract, or a fixed-term contract expires, the employee is owed the full benefit under Article 84. The employer may terminate the contract without the benefit only in the cases listed in Article 80, which we explain in dismissal cases in the private sector.

Resignation is governed by Article 85:

An employee who resigns after exactly five years is owed one third, because the text says "not more than five years", and the Ministry of Human Resources and Social Development (MHRSD) guide reads it the same way. Service of more than five years, even by a day, earns two thirds.

As an exception to Article 85, Article 87 grants the full benefit in two cases: "in the event of the worker leaving work due to force majeure beyond their control", and where a female employee "terminates the contract within six months from the date of her marriage contract or within three months from the date of her delivery".

In Bahrain

Article 116 grants the benefit when the contract ends, with no reduction for resignation, so the reason does not change the figure.

Step 5 (Bahrain): Who pays each part?

The Article 116 benefit is for employees not subject to the Social Insurance Law. Bahrainis are covered by social insurance, so it applies to non-Bahrainis.

Since 1 March 2024, the End of Service Gratuity System for non-Bahrainis in the private sector, issued by Prime Minister's Resolution No. 109 of 2023, has applied. Its main rules:

• Contribution: the employer alone pays SIO 4.2% of the wage each month for the first three years from the date the employee started with them, and 8.4% for the years after (Article 5), or 8.4% from the start for an employee who had over three years of service before the system came into force (Article 13).
• Amount: half a month for each of the first three years, a month for each year after, and fractions of a year pro rata (Article 9).
• Cap: SIO pays the benefit at the end of service on the employee's last wage, but never more than the contributions paid for them (Article 10). So SIO's part is a maximum, not a guaranteed amount.
• Earlier service: service before the system came into force is governed by the Labour Law (Article 14), so the employer pays the benefit for it.
• Exclusion: the system does not apply to GCC citizens covered by the unified GCC insurance protection extension system (Article 3).

Worked examples

Example 1: Saudi Arabia, the employer ended the contract

An employee's actual wage is SAR 10,000 (basic SAR 7,000, housing SAR 2,500, transport SAR 500). They started on 1 July 2018 and their last working day was 30 September 2025. Their service is 7 years plus 92 days of their eighth year, a year of 365 days.

• First five years: 5 × 5,000 = SAR 25,000.
• Sixth and seventh years: 2 × 10,000 = SAR 20,000.
• Part of the eighth year: 10,000 × 92 ÷ 365 = SAR 2,520.55.
• Benefit: SAR 47,520.55.

Example 2: The same employee resigned

Their service is more than five years and under ten, so they are owed two thirds: 47,520.55 × 2 ÷ 3 = SAR 31,680.37.

Example 3: Saudi Arabia, three years on SAR 8,000

From 1 May 2021 to 30 April 2024, the full benefit is 3 × 4,000 = SAR 12,000. If the employee resigns, they are owed one third, SAR 4,000. If they left because of force majeure, they are owed the full SAR 12,000 (Article 87).

Example 4: Saudi Arabia, under two years

A wage of SAR 6,000, from 1 October 2024 to 30 June 2026: one year plus 273 days of a second year of 365 days. If the employer ended the contract: 3,000 + (3,000 × 273 ÷ 365) = 3,000 + 2,243.84 = SAR 5,243.84. If the employee resigned, nothing is owed.

Example 5: Bahrain, service before and after March 2024

A non-Bahraini employee's basic wage plus social allowance is BHD 800, from 1 March 2020 to 28 February 2026, exactly six years.

• First three years (to 28 February 2023): 3 × 400 = BHD 1,200, paid by the employer.
• Fourth year (to 29 February 2024): BHD 800, paid by the employer.
• Fifth and sixth years (from 1 March 2024): 2 × 800 = up to BHD 1,600, paid by SIO.
• Total: up to BHD 3,600, of which BHD 2,000 from the employer and up to BHD 1,600 from SIO.

Had the employee resigned, the figure would be the same.

When it must be paid

In Saudi Arabia, Article 88 requires the employer to pay the wage and settle the employee's entitlements within one week at most from the end of the contractual relationship, or within two weeks if the employee ended the contract. The benefit is part of that settlement alongside other items such as annual leave pay, and it is an employer obligation separate from social insurance (GOSI).

In Bahrain, SIO pays its part when the employee's service ends (Article 10 of the resolution).

Common calculation mistakes

1. Calculating the benefit in Saudi Arabia on the basic salary alone, when the law uses the actual wage.
2. Applying the Saudi five-year band to an employee in Bahrain, where the band is three years.
3. Reducing the benefit of an employee in Bahrain because they resigned.
4. Giving two thirds to someone who resigned after exactly five years, when they are owed one third.
5. Dropping the partial year, or rounding service to whole months.

Points that are a reading, not settled text

1. Counting the partial year in days, and counting the last working day: both laws say "pro rata" without fixing the divisor.
2. One third on resignation after exactly five years in Saudi Arabia: supported by the wording of Article 85 and the Ministry's guide.
3. Gregorian years in Saudi Arabia: based on the unified employment contract, while Article 10's default is Hijri.
4. In Bahrain, the employer's part for service before March 2024 is calculated on the last wage at the end of service (Article 47), not the February 2024 wage.
5. In Bahrain, the three half-month years count from the real start date, not from 1 March 2024 (Articles 5 and 13 of the resolution), and SIO's part is a maximum because it is capped at the contributions paid.

How Dawmt handles the end-of-service benefit

The Dawmt portal has end-of-service settings ("Indemnity Settings") where your company sets the entitlement years and benefit parts to match the law your employees fall under. You can import existing end-of-service balances when you move to Dawmt, and record an employee's end of service from "Add End Of Service".

Contact the Dawmt team

Conclusion

A correct calculation starts with the right wage and service counted in days, then the bands: five years at half a month in Saudi Arabia, three in Bahrain. Resignation reduces the benefit in Saudi Arabia but not in Bahrain, and in Bahrain SIO pays the benefit for service from 1 March 2024, capped at the contributions paid.

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Sources

• Saudi Labour Law, employment relations: Articles 80 and 84 to 88, Ministry of Human Resources and Social Development
• Saudi Labour Law, definitions and counting periods: Articles 2 and 10 (in Arabic)
• Saudi Labour Law, Article 96 (piece and commission pay) (in Arabic)
• Implementing Regulations of the Labour Law and their annexes, unified employment contract, clause 14.6 (in Arabic)
• Ministry of Human Resources and Social Development, End-of-service award regulations
• Bahrain Labour Law for the Private Sector, Law No. 36 of 2012: Articles 3, 47 and 116 (in Arabic)
• Prime Minister's Resolution No. 109 of 2023 issuing the End of Service Gratuity System for non-Bahrainis in the private sector (in Arabic)

This information was reviewed in October 2026. Regulations can change, so check the official source before relying on it.