Saudi Labor Law (Royal Decree No. M/51), administered by the Ministry of Human Resources and Social Development (MHRSD), sets out exactly how and when an employment contract can end, and what an employee is owed when it does. This guide walks through the core provisions — contract termination grounds, employer- and employee-initiated termination, and how end-of-service benefits are calculated — in plain language.
This article explains the general framework of Saudi Labor Law for informational purposes. It is not legal advice. Labor law is subject to amendment, and individual circumstances vary — always confirm your specific situation with HR, a licensed labor lawyer, or the Ministry of Human Resources and Social Development (MHRSD) / Qiwa platform.
How an employment contract can end (Articles 74–77)
Under Saudi Labor Law, an employment contract ends in one of several ways:
- Mutual agreement between employer and employee
- Expiration of the contract term, unless renewed
- Retirement of the employee, unless otherwise agreed
- Force majeure or closure of the business
If the employer terminates the contract without a valid reason, the employee is entitled to end-of-service benefits plus compensation equal to two months' wages or the remaining contract period, whichever is shorter.
If the employee resigns voluntarily after completing at least two years of service, they receive a reduced end-of-service benefit: 2–5 years of service — one-third of the full benefit; 5–10 years of service — two-thirds of the full benefit; over 10 years of service — the full benefit.
Resigning before completing two years of service generally results in no end-of-service benefit at all, except in specific protected circumstances.
When an employer can terminate without notice (Article 80)
Article 80 allows an employer to end a contract without notice, indemnity, or end-of-service benefit, but only on specific, provable grounds — assault, serious breach of duty after written warning, dishonest conduct, deliberately causing material loss, obtaining employment through forgery, or unauthorized absence (15 consecutive or 30 intermittent days within a year). Each ground must be supported by documentation, and the employee must get a chance to respond before termination is finalized. → For the full breakdown, see our dedicated guide: Article 80 Saudi Labor Law Explained.
When an employee can resign without notice and keep full rights (Article 81)
Article 81 is the mirror provision — it protects employees who need to leave immediately due to serious employer misconduct, without losing their end-of-service entitlements. Valid grounds include unpaid or delayed wages, misrepresented job conditions, being assigned fundamentally different work without consent, physical assault or abusive treatment, or being pressured into unlawful acts. → For the full breakdown, see our dedicated guide: Article 81 Saudi Labor Law Explained.
How end-of-service benefits are calculated (Article 84)
The calculation formula is the same regardless of which article ends the contract — only *eligibility* changes based on the termination circumstances above:
- First 5 years of service: half a month's wage for each year
- Each year after the first 5: a full month's wage per year
- Any partial year worked is paid proportionally
- Calculated on the employee's last drawn wage, including regular allowances and commissions — these cannot be contractually excluded (Article 82)
Worked example: An employee earning SAR 10,000/month who completes 8 years of service would be entitled to: 5 years × half a month (SAR 5,000) = SAR 25,000, plus 3 years × full month (SAR 10,000) = SAR 30,000. Total: SAR 55,000.
Under force majeure termination (Article 87), the employee receives the full benefit regardless of length of service.
Related topics worth knowing
Article 53 covers additional procedural aspects of contract discipline and warnings that often precede an Article 80 termination — always check whether proper warning procedure was followed before a termination is finalized.
Saudi Labor Law vacation pay — annual leave and its payout on termination is calculated separately from end-of-service benefits and should not be confused with it; unused leave is typically paid out in addition to, not instead of, the gratuity above.
Frequently Asked Questions
What is Article 74 in Saudi Labor Law?
Article 74 is one of the group of articles (74 through 77) that define the general circumstances under which an employment contract can end — mutual agreement, contract expiry, retirement, or force majeure — setting the framework that Articles 80 and 81 then build on for termination-with-cause scenarios.
Can I get end-of-service benefits if I resign before two years?
Generally no — Saudi Labor Law requires at least two years of service before a voluntary resignation qualifies for any end-of-service benefit, with limited exceptions such as specific protected circumstances recognized under the law.
Is vacation pay included in my end-of-service benefit?
No — accrued but unused annual leave is typically settled as a separate payment alongside, not folded into, the end-of-service gratuity calculation.
This calculation is exactly what D3's HRMS platform automates for GCC employers — no manual tracking of tiered rates by service length. See also TimeTech for the underlying attendance and HR platform.