In Saudi Arabia (KSA), end-of-service benefits (EOSB) are important for employees, serving as a kind of retirement payout from the employer. This benefit is calculated based on the employee’s “last wage” at the time of their service completion or termination, covering both basic salary and fixed allowances. Here’s how it works and what employees in Saudi Arabia need to know.
What Are Fixed Allowances?
Fixed allowances are additional payments regularly provided to employees along with their basic salary. These may include housing allowances, transportation, and other regular perks that the employer defines. In most cases, these allowances are a predictable part of the monthly pay, which is why they’re considered “fixed.”
How Fixed Allowances Affect End-of-Service Benefits
Yes, fixed allowances are generally included in the calculation of end-of-service benefits in Saudi Arabia. According to local labor laws, the end-of-service benefit is based on the last total wage an employee receives. This wage usually combines basic pay and fixed allowances but excludes any variable allowances.
What Are Variable Allowances?
Variable allowances are payments that vary each month or are irregular, such as bonuses, commissions, and overtime payments. Since these payments aren’t consistent, they are typically not included when calculating end-of-service benefits. The exclusion of these variable amounts ensures that only regular, predictable income is considered in the calculation, providing a fair baseline for the final payout.
Important Considerations for Employees
While Saudi law provides a general framework, the exact details may differ based on employment contracts and company policy. Therefore, it’s advisable for employees to:
- Review their employment contract: Check if specific allowances are listed or if your company has additional policies about end-of-service calculations.
- Consult HR or a legal expert: For clarity on your benefits, reach out to your HR department or, if possible, a legal professional with knowledge of Saudi labor laws.
- Understand your last wage breakdown: Knowing what is included in your final wage helps in calculating your benefits accurately.
Steps to Calculate End-of-Service Benefits in KSA
Here’s a simplified way to understand the end-of-service calculation:
- Determine the basic salary and fixed allowances.
- Calculate the service period. This is the time you’ve worked with the company.
- Apply the formula based on service years. Saudi labor law often suggests half a month’s wage per year for the first five years and a full month’s wage per year after that.
FAQs on Fixed Allowances and End-of-Service Benefits in Saudi Arabia
1. Are housing and transport allowances included in end-of-service benefits?
Yes, if they are part of fixed allowances provided regularly, they are generally included in the calculation of your EOSB.
2. What about performance bonuses?
No, bonuses are typically considered variable and are not included in EOSB calculations.
3. Can my company exclude fixed allowances from EOSB?
No, as per Saudi law, fixed allowances are generally part of the “last wage” used to calculate EOSB. However, individual contracts may clarify specific exclusions.
4. How do I calculate my EOSB in KSA?
Use your last wage (basic salary + fixed allowances) to calculate based on your years of service, applying the formula of half-month wage per year for the first five years and full-month wage per year after.
5. Who should I talk to for more details?
Your HR department or labor expert can provide specific guidance on calculating your end-of-service benefit.