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Tuesday, March 11, 2014

End of Service Benefits (ESB) Calculation

As an employee of any company in the Kingdom of Saudi Arabia, you are entitled to End of Service Benefits. As the name suggests, these benefits are given to employees at the time when he leaves the organization. Here in this article, we shall explain the calculation of computing end of service benefits. Actually, entitlement of end of service benefits depends whether you resign from the company or company terminates you. Entitlement is different in both cases.



In Case of Resignation of Employee
Cases
Years
Entitlement
ESB Award
% of Salary
Case 1
< 2 Years
No
No
0
Case 2
2 - 5 Years
1/3
Half Salary
16.67%
Case 3
5 - 10 Years
2/3
Full Salary
33.33 % for the first 5 years
66.67% for the next 5 years
Case 4
> 10 Years
Full
Full Salary
50% for the first 5 years
100% for the rest of Years

Case 1: If employee resigns from the company within two years of joining, he is not entitled to end of service benefits since he has not met the minimum criteria of 2 years.
Case 2: If employee resigns from the company after completing 2 years but before 5 years, he is entitled to 1/3rd of his ESB award. ESB award in this case is half salary. Illustration: Let’s say an employee resigns after completing 4 years in a company, his last total salary was  10,000/-. He will be entitled to (10,000 X 16.67% X 4) = 6,667 end of service benefits


Case 3: If an employee resigned from the company after completing 5 years but before 10 years, he is entitled to 2/3rd of his ESB award. ESB award in this case is half salary for the first 5 years and full salary for the next 5 years. Illustration: Let’s say an employee resigns after completing 8 years in a company, his last total salary was 10,000/-. He will be entitled to (55,000 X 66.67%) = 36,667/- end of service benefits
(10,000 X 5 X 1/2) = 25,000/
(10,000 X 3 ) = 30,000/-

Case 4: If an employee resigns from the company or company terminates him after completing 10 years of employment, he is entitled to his full ESB Award. ESB award in this case is half salary for the first 5 years and full salary for the rest of the years. Illustration: Let’s say an employee resigns or company terminates him after completing 12 years in a company, his last total salary was 10,000/-. He will be entitled to SR 95,000 as end of service benefits. (10,000 X 5 X 1/2) = 25,000/- and  (10,000 X 7) = 70,000/-



In Case of Termination by Employer
Years
Entitlement
ESB Award
% of Salary
Case 5
< 5 Years
Full
Half Salary
50%
Case 6
> 5 Years
Full
One Salary
50% for the first 5 years
100% for the rest of the years
Case 5: If employer terminates an employee before completing 5 years in the company, employee will be entitled to half salary. Illustration: Let’s say an employee is terminated after completing 4 years in acompany, his last total salary was 10,000/-. He will be entitled to (10,000 X 4 X 1/2) = 20,000/- end of service benefits
Case 6: If employer terminates an employee after completing 5 years in the company, employee will be entitled to half salary for the first 5 years and full salary for the rest of the period he has worked. Illustration: Let’s say an employee is terminated after completing 8 years in acompany, his last total salary was 10,000/-. He will be entitled to 55,000/- as end of service benefits. (10,000 X 5 X 1/2) = 25,000/ and (10,000 X 3 X) = 30,000/-



Exception to the Rule
If a female worker resigns within six months of the date of her marriage or within three months of the date of giving birth, she will be having her full award of End of Service Benefits. Full award here means that for the calculation of End of Service Benefits, it will be treated as Termination by Employer.
If a worker leaves the job due to natural inability to do the work e.g. death, permanent mental or physical disability, he will also be entitled to full award of End of Service Benefits.

What is included in ESB payment?
All the benefits paid in cash to the employee are included in the End of Service Benefits. (Article 2 of Saudi Labor Law) However, generally in Saudi Arabia, only Basic Salary, Housing Allowance and Transportation allowance are taken for this calculation. If employee is given some telephone allowance or food allowance, these are discarded for the calculation of ESB but it is illegal as per (Article 2 of Saudi Labor Law)



End of Service Benefit when Benefits are given in Kind
In case of benefits paid in kind, the requirement of law is different. However, it depends completely on the discretion of the company. For example, one employee is given car and house in place of transportation allowance and house allowance. His ESB will be lesser than the employee who is getting these benefits in cash. In order to compensate these employees, Law allows the companies to include maximum 1/6th of the basic salary of the employee in the ESB award when calculating End of Service Benefits. It should be noted that Law puts a cap on the maximum amount. It also means that it depends on the discretion of the employer. Illustration: For example, an employees is given housing and transportation and his basic salary is 10,000/-. He is terminated after completing 15 years in the company. If the policy of the company is to pay the additional amount as ESB for the benefits paid in Kind, he will be entitled to ((10,000+ 1,667) X 15) = 175,000

Important Points for ESB Calculation

  • All the calculations are based on the assumption that employee has completed consecutive years in the organization.
  • ESB award will be based on the latest salary given to the employee. (Article 2 of Saudi Labor Law)
  • If an employee has completed an year partially, ESB will be calculated on pro-rata basis

End of Service Benefits for Domestic Workers
A domestic worker will be entitled to End of Service Benefits according to the new law passed by the Ministry of Labor. However, calculation of end of service benefits for the domestic workers is different from the other workers living in Saudi Arabia. A domestic worker will be entitled to one month's Salary after every four consecutive years he has worked for an employer. Let's say, if a domestic worker has worked for an employer for 12 consecutive years, he will be entitled to 3 monthly salaries.

What End of Contract means? Resignation or Termination

  • If employee has resigned just after completing the contract period, it is treated as termination.
  • If employee has resigned just after completing extension of the contract, it is also treated as termination.
  • If employee has resigned within the contract period or during extension period, it is treated as resignation.
  • If employer does not want employee to continue his services at any point of time, it is treated as termination.
Illustration

  • An employee has signed contract for 2 years on July 01, 2010. If he resigns on June 30, 2012, his ESB will be calculated as he is terminated by the employer.
  • If his contract was auto renewable for further 2 years and he resigns on June 30, 2014, his ESB will be calculated as he is terminated by the employer.
  • If his contract was auto renewable for further 2 years and he resigns on June 30, 2013, this is a case of resignation.
  • However, if his contract was auto renewable for further 1 year only and he resigns on June 30, 2013, his ESB will be calculated as he is terminated by the employer.

Claiming End of Service Benefits
Claiming end of service benefits from the employer is not a difficult task to do. Normally companies in Saudi Arabia pay End of Service Benefits to their employees. However, in case of a deceased person, claiming End of Service Benefits for the legal heirs can be a problem. I have explained the procedure of claiming the End of Service Benefits in case of deceased person in this article. Have a look at it. "Death Compensation Procedure"

End of Service Benefits Calculators

  • Online Government Calculator: Now you can calculate your end of service benefits from this online calculator launched by the government. Click here to check your ESB entitlement.
  • Excel Calculator: One of our readers has also shared this calculator with us. I could not check it in detail but apparently it works perfectly. You can download it from this link

Resignation /Termination under Saudi Labor Law
  1. Rights of Expatriates in Saudi Arabia
  2. Right of Air Ticket as per Saudi Labor Law
  3. Rights of Employees in Absence of Contract in Saudi Arabia
  4. Leave Encashment under Saudi Labor Law
  5. Fixed Term and Indefinite Contract

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