End-of-service benefits (EOSB) in Saudi Arabia are a key aspect of employment. These benefits provide financial security to employees when they leave their job. Regulated by Saudi labor law, EOSB acts as a reward for the employee’s service. Understanding how various contract types—unlimited, limited, or probationary—affect your EOSB entitlement is essential for both employees and employers.
Different contract types significantly influence end-of-service entitlements in Saudi Arabia, and understanding these distinctions is essential for securing fair compensation at the end of employment.
Understanding Contract Types in Saudi Arabia
Unlimited Contract
An unlimited contract does not have a fixed end date. It remains valid until either the employer or employee decides to end the agreement. This type of contract is ideal for long-term employment and offers job stability.
Though it has no set expiration date, an unlimited contract can be terminated by either party, but with proper notice. Employers must provide a valid reason to end the contract; otherwise, they could face legal issues.
Limited Contract
A limited contract, or fixed-term contract, has a specific start and end date. It’s typically used for project-based or time-bound jobs. The contract ends when the project finishes or the term expires, unless both parties agree to renew it.
Limited contracts usually last one to two years but can be renewed with mutual consent. If an employee continues to work after the contract ends without signing a new one, it is automatically considered renewed under the same conditions.
Types of Limited Contracts:
- Project-based: Linked to a specific project, and ends when the project is complete.
- Seasonal: Used for jobs tied to specific events or seasons, ending when the season concludes.
Probationary Contract
A probationary contract allows employers to evaluate a new hire’s performance for a limited period. It’s a trial period where the employer assesses if the employee is suitable for the role before offering permanent status.
The probation period can last up to 90 days, but it can be extended if both parties agree. If the employee successfully completes the probation, the contract may be converted into a permanent one, either limited or unlimited.
End-of-Service Benefits in Saudi Arabia
Basic End-of-Service Benefits
EOSB is calculated based on the employee’s final wage, which includes the base salary. Some contracts also consider other allowances, such as housing or transportation, in the final EOSB calculation.
The total time an employee has worked for the company is important for calculating EOSB. For employees who have served five or more years, EOSB increases as the years go by.
The formula for Calculating EOSB:
- Half a month’s salary for each of the first five years of service.
- Full salary for each year after the first five years.
- EOSB is usually capped at two years’ worth of wages.
Additional Benefits
In some cases, employees receive a housing allowance, which may be included in the EOSB calculation.
- Transportation Allowance: Allowances for transportation provided during employment may also factor into the EOSB.
- Medical Insurance: Though not directly part of EOSB, employees may receive compensation related to medical insurance during their time of service.
Additional benefits, such as vacation pay or sick leave, can sometimes affect the EOSB, especially for long-term employees.
How Contract Types Affect End-of-Service Benefits
Unlimited Contracts
Full Entitlement to EOSB: Employees under an unlimited contract are entitled to full EOSB if they meet the service duration requirements. Since these contracts don’t have an end date, the EOSB calculation covers the total time the employee has worked.
Calculation Based on Total Service Period: For unlimited contracts, EOSB is calculated based on the entire time the employee has worked for the company. The longer the employee has worked, the higher the EOSB, especially after five years of service.
Limited Contracts
Eligibility for EOSB Based on Contract Duration: Limited contract employees are also entitled to EOSB, but the benefit depends on the contract’s length. If the employee resigns before the contract ends, they might lose part of their EOSB unless the resignation is due to a valid legal reason.
Prorated Benefits: If an employee leaves before completing five years, the EOSB is prorated based on the time worked. This is especially important for project-based or seasonal contracts, where EOSB might be lower.
Specific Provisions for Project-Based and Seasonal Contracts: For employees on project-based or seasonal contracts, EOSB may be prorated or calculated at a lower rate, depending on the specific terms of their contract.
Probationary Contracts
Limited or No EOSB Entitlement: Employees in a probationary period usually have limited or no entitlement to EOSB unless they complete the probation and move to a permanent contract.
Eligibility After Conversion to Permanent Status: If an employee passes the probation period and transitions to a permanent contract, EOSB will be calculated based on the total service period, including the probation time.
Case Studies and Examples
Example 1: An employee on an unlimited contract worked for seven years. When they were terminated, they received half a month’s salary for each of the first five years, plus a full month’s salary for the additional two years.
Example 2: An employee on a two-year limited contract resigned after 18 months. Since the resignation occurred before the contract ended, their EOSB was prorated, and they only received benefits for the time they worked.
Example 3: A seasonal worker hired on a six-month contract completed their project. Depending on the contract terms, they received a prorated EOSB for the completed time.
Example 4: An employee on probation was terminated before becoming permanent, so they weren’t entitled to any EOSB.
Conclusion
Contract types in Saudi Arabia play a significant role in determining EOSB. Unlimited contracts offer the most comprehensive benefits, while limited contracts may result in reduced or prorated benefits. Probationary employees generally don’t receive EOSB unless they move to a permanent contract.
Both employees and employers must understand the terms of their contracts to avoid disputes and ensure fair treatment. It’s advisable to carefully review contracts and seek legal advice if necessary. Employers should also clearly explain contract types and EOSB to foster a positive work environment.