🇸🇦 KSA Gratuity Calculation Formula 2026

The official KSA gratuity formula based on Article 84 of Saudi Labor Law is: For the first 5 years of service, half a month's salary for each year (0.5 × years)[web:13][web:33]. After 5 years, one full month's salary for each additional year (1.0 × years)[web:13]. The complete formula is: Gratuity = (Basic Salary × 0.5 × First 5 Years) + (Basic Salary × 1.0 × Years Beyond 5). For example, 7 years of service with SAR 10,000 salary: (10,000 × 0.5 × 5) + (10,000 × 1.0 × 2) = 25,000 + 20,000 = SAR 45,000. The calculation is based on your last basic salary only, excluding all allowances[web:31].

Gratuity in Saudi Arabia is calculated ONLY on basic salary, not your total compensation package[web:31]. All allowances are excluded from the calculation, including housing allowance, transportation allowance, food allowance, mobile allowance, bonuses, commissions, and any other benefits[web:31]. For example, if your total package is SAR 15,000 (basic 10,000 + housing 3,000 + transport 2,000), only the SAR 10,000 basic salary is used for gratuity calculation. After 5 years, your gratuity would be 10,000 × 0.5 × 5 = SAR 25,000, not based on the full SAR 15,000 package. Always check your employment contract to clearly identify what constitutes your basic salary versus allowances.

For partial years, convert months to decimal years by dividing by 12, then apply the standard formula[web:19]. For example, 5 years and 6 months = 5.5 years. If within first 5 years: 10,000 × 0.5 × 5.5 = SAR 27,500. For 7 years and 3 months (7.25 years): First 5 years: 10,000 × 0.5 × 5 = SAR 25,000. Remaining 2.25 years: 10,000 × 1.0 × 2.25 = SAR 22,500. Total = SAR 47,500. Month conversions: 1 month = 0.083 years, 3 months = 0.25, 6 months = 0.5, 9 months = 0.75. Saudi law ensures even partial service periods are compensated proportionally in the gratuity calculation[web:19].

Yes, the BASE formula stays the same, but resignation applies a reduction factor[web:31]. For termination by employer: Full formula applies after 1 year of service[web:31]. For employee resignation: Less than 2 years gets 0%, 2-5 years gets one-third (33%), 5-10 years gets two-thirds (67%), and only after 10 years do you get full 100%[web:31][web:34]. Example with 3 years service and SAR 10,000 salary: Full calculation = 10,000 × 0.5 × 3 = SAR 15,000. If terminated: SAR 15,000 (100%). If resigned: SAR 15,000 × 1/3 = SAR 5,000 (only 33%). This is a critical difference - resignation before 10 years significantly reduces your gratuity, so the formula's final output depends on your exit type.

The gratuity formula uses your LAST (final) basic salary at the time of employment termination[web:31], not your starting salary or average. This benefits employees who receive salary increases during their tenure. For example, if you started at SAR 8,000 basic salary and after promotions your final salary is SAR 12,000 after 5 years, your gratuity is calculated as: 12,000 × 0.5 × 5 = SAR 30,000 (not 8,000 × 0.5 × 5 = SAR 20,000). This SAR 10,000 difference is significant! Make sure all salary increases are properly documented in official salary certificates and contract amendments. If your salary changed during employment, the most recent basic salary figure on your last payslip is what should be used in the gratuity calculation formula.

No, Saudi Arabia has NO maximum cap on gratuity payments. Unlike UAE which caps gratuity at 2 years total salary, the KSA formula can continue indefinitely based on actual service years[web:13]. For example, someone with 20 years service and SAR 15,000 basic salary would receive: (15,000 × 0.5 × 5) + (15,000 × 1.0 × 15) = 37,500 + 225,000 = SAR 262,500 total gratuity. This is approximately 17.5 months of salary, exceeding any cap. Long-serving employees benefit significantly from this unlimited structure. The formula continues: 30 years service = 2.5 + 25 = 27.5 months salary. This makes KSA gratuity very attractive for career-long employment, rewarding loyalty without artificial limitations on the final amount.

For employees with 10+ years, apply the two-tier formula: First 5 years at half-month rate, then all remaining years (including years 6-10+) at full-month rate. Example for 12 years with SAR 20,000 salary: Step 1: Years 1-5 = 20,000 × 0.5 × 5 = SAR 50,000. Step 2: Years 6-12 (7 years) = 20,000 × 1.0 × 7 = SAR 140,000. Total = SAR 190,000. Another example for 15 years: (20,000 × 0.5 × 5) + (20,000 × 1.0 × 10) = 50,000 + 200,000 = SAR 250,000. The rate continues at 1.0 month per year indefinitely after year 5. At 10+ years of service, if you resign (not terminated), you finally receive the full 100% amount without any reduction[web:31][web:34].

Yes! For quick mental calculations: If service is 5 years or less: Gratuity = Basic Salary × Years × 0.5 (or divide years by 2). Example: 4 years = Salary × 2. If service is more than 5 years: Gratuity = (Salary × 2.5) + (Salary × [Years - 5]). Example for 8 years with SAR 10,000: (10,000 × 2.5) + (10,000 × 3) = 25,000 + 30,000 = SAR 55,000. Or use the "months" method: First 5 years = 2.5 months salary. Each year after = add 1 month. So 10 years = 2.5 + 5 = 7.5 months salary. 15 years = 2.5 + 10 = 12.5 months. Multiply this by your basic salary. These shortcuts give the same result as the detailed formula but are faster for estimation.