Are Allowances Included in Your End-of-Service Award in Saudi Arabia?

The rule: the award is calculated on your last wage

The end-of-service award is half a month's wage for each of the first five years, then a full month's wage for each year after that. It is calculated on your last wage (Article 84).

The question is what "wage" means. Article 2 of the Labor Law answers it:

• Basic wage is everything the worker is given for his work under a written or unwritten contract, plus periodic increments.
• Actual wage is the basic wage plus the other amounts due to the worker for the effort he puts into the work or the risks he is exposed to. This includes allowances and commissions.
• Wage means the actual wage.

So when Article 84 refers to your last wage, it means your actual wage, not your basic salary alone.

What this usually means in practice

• Housing and transport allowances paid in cash with your salary. Under Article 61, the employer must provide suitable housing and transport, or pay a suitable cash allowance with the wage for each (Article 61(5) and (6)). A cash allowance paid with the wage is an amount you receive for your work, so it generally falls within the actual wage.
• Commissions and sales percentages. These form part of the actual wage (Article 2). However, commissions, sales percentages and similar pay that naturally goes up and down can be left out of the end-of-service calculation if this was agreed (Article 86). Check your contract for such a clause.
• Reimbursement of expenses. Money paid back to you for costs you actually spent on the employer's behalf is not wage. Examples are fuel receipts and business travel costs.
• Housing provided in kind (a company room or flat rather than cash). This raises a separate question about whether and how the benefit is valued. It turns on the contract and the facts.

Worked example: basic salary versus actual wage

A mechanical supervisor's Qiwa contract shows:

• basic salary: SAR 6,000
• housing allowance (cash): SAR 1,500
• transport allowance (cash): SAR 500
• total: SAR 8,000

The employer ended his contract after 8 years, not under Article 80.

The gap is SAR 11,000. That is the amount in dispute if the employer pays on basic salary only.

The same principle applies to unused annual leave. Leave pay is calculated on the actual wage, as monthly actual wage ÷ 30 × days owed (Articles 2 and 111).

How to check your own figure

1. Take your last payslip and your Qiwa contract.
2. List every amount paid with your salary each month. Mark which are pay for your work and which are reimbursements of costs you spent.
3. Check whether your contract has a clause excluding commissions from the end-of-service calculation (Article 86).
4. Recalculate the award on the actual wage. See End of Service Calculation.
5. Compare your result with the final settlement your employer offers before you sign anything. See Signing a Final Settlement.

For employers

• Calculate the award on the actual wage as Article 2 defines it.
• If you want to exclude commissions or similar variable pay, write that into the contract (Article 86).
• Keep reimbursements separate from allowances on the payslip, so the distinction is clear if a dispute arises.