The amendments to the Labor Law were issued by Royal Decree No. (M/44) dated 1446/2/8 AH and apply from 1446/8/20 AH. Some assume the award formula changed with them. The text says otherwise: the formula remains, but what determines the length of service and how employment ends has changed.
What stayed the same
The articles of the chapter on the end-of-service award, 84 to 88, carry no amendment note in the consolidated text of the Law. The formula is the same:
"When the employment relationship ends, the employer must pay the worker an award for the period of service, calculated on the basis of half a month's wage for each of the first five years and one month's wage for each of the following years. The last wage is the basis for calculating the award, and the worker is entitled to an award for parts of a year in proportion to the time spent working in it."
Labor Law, Article 84 (translation; the Arabic text is the original)
Example: a worker served seven full years, with a last wage of SAR 10,000.
- The first five years: 5 × half a month = SAR 25,000.
- The next two years: 2 × one month = SAR 20,000.
- The award: SAR 45,000.
The following rules also remain unamended:
- Resignation (Article 85): one third of the award after service of at least two consecutive years and no more than five; two thirds if service exceeds five consecutive years but is less than ten; and the full award at ten years or more. In the example above, two thirds is SAR 30,000.
- Commissions (Article 86): the parties may agree to exclude from the award wage any commissions, percentages of sales, and similar wage elements that by nature rise and fall.
- Full entitlement (Article 87): the full award is due if the worker leaves because of force majeure beyond the worker's control, and to a female worker who ends the contract within six months of her marriage contract or three months of giving birth.
- Settlement period (Article 88): one week at most from the end of the relationship, and two weeks if the worker ended the contract. The employer may deduct any work-related debt owed to it.
What changed: the notice period
Before the amendment, the notice period in an indefinite-term contract was the same for both parties: at least sixty days if the wage is paid monthly, and thirty days otherwise (Article 75 as worded by Royal Decree M/46 of 1436 AH).
After the amendment, for monthly-paid wages the period depends on who ends the contract:
"(a) If the termination is by the worker, the worker must give the employer written notice at least (thirty) days before the date of termination."
Labor Law, Article 75, paragraph 1(a), as worded by Royal Decree M/44 (translation; the Arabic text is the original)
The employer must give notice at least sixty days in advance (paragraph 1(b)). If the wage is not paid monthly, the period is at least thirty days for either party (paragraph 2). In every case, the termination must be based on a legitimate reason.
The rule on compensation in lieu of notice did not change: a party that does not observe the notice period pays the other party an amount equal to the worker's wage for that same period, unless the parties agreed on more (Article 76). But the period itself now differs by party, so the compensation amount differs with it.
How notice affects the length of service
The length of service is the basis of the award. If the employer releases the worker from work during the notice period, the text is explicit about counting that period:
"The employer may release the worker from work during the notice period, with the worker's service counted as continuous until the end of that period"
Labor Law, Article 78 (translation; the Arabic text is the original)
In that case the service is counted to the end of the notice period, not to the last day actually worked. That can move the worker from one band to another under Articles 84 and 85, for example where service passes five or ten years during the notice period.
What changed: resignation
Decree M/44 added resignation as a separate ground for ending the contract (Article 74, paragraph 3 bis), and added a definition of it to Article 2:
"Resignation: the worker's written expression, without coercion, of the wish to end a fixed-term employment contract, without being conditional on any restriction or condition, and the employer's acceptance of it"
Labor Law, Article 2, as worded by Royal Decree M/44 (translation; the Arabic text is the original)
The definition speaks of a fixed-term contract. A worker who ends an indefinite-term contract with a monthly wage gives at least thirty days' written notice under Article 75, paragraph 1(a).
The decree set out the resignation procedure in a new Article 79 bis:
- A resignation request is deemed accepted if thirty days pass after it is submitted without a response from the employer.
- The employer may defer acceptance for up to sixty days if the needs of the work require it, by a reasoned written explanation given to the worker before the thirty days end.
- The worker may withdraw the request within seven days of submitting it, unless the employer accepted it before the withdrawal.
- A resignation request may not specify a deferred date.
Most important for the calculation:
"The employment contract is deemed in force during the resignation request period, and both parties must perform all obligations arising from it during that period."
Labor Law, Article 79 bis, paragraph 5 (translation; the Arabic text is the original)
The contract ends by resignation on the date of acceptance, or when the thirty days pass without a response, or when the deferral period ends (paragraph 2). That is the date at which service ends for the calculation.
Paragraph 6 provides that a worker whose contract ended by resignation "is entitled to ... all rights established under this Law". The text of Article 85 on the resignation fractions remains unamended. So read the two texts together before deciding what a resigning worker is owed.
Before you calculate
- Identify the governing text: the amended text applies from 1446/8/20 AH, so pin down the date of the notice, the resignation, or the end of the contract.
- Identify the contract type and how employment ended: fixed-term or indefinite-term. Then: termination with notice in an indefinite-term contract under Article 75; resignation under Article 79 bis; dismissal in one of the cases in Article 80, which allow the employer to end the contract without award, notice, or compensation; or the worker leaving in one of the cases in Article 81 while keeping all statutory rights.
- Calculate the length of service to the legal end date, including the notice period and the resignation request period.
- Identify the last wage, and check for any agreement excluding commissions.
- Apply Article 84, then the Article 85 fractions if employment ended by resignation, then the exceptions in Article 87.
Reference: Labor Law, issued by Royal Decree No. (M/51) dated 1426/8/23 AH, and its amendments, including Royal Decree No. (M/44) dated 1446/2/8 AH, applicable from 1446/8/20 AH.
This article is a general explanation, not legal advice.