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End of Service Gratuity (EOSG) rules have been long established in the United Arab Emirates (UAE) and the Kingdom of Saudi Arabia (KSA) and seem, at least on the face of it, straightforward. On termination of employment, employees in the UAE and the KSA are entitled to receive an EOSG provided that certain qualifying conditions are fulfilled. However, the lack of clarity in certain provisions of the UAE law and the KSA law means that employers still regularly underestimate the complexity of calculating the EOSG and establishing when and how much EOSG is payable.

This confusion results in different practices, not just within the market, but even within a company. Not only does it increase a company’s exposure to claims by departing employees, but some employers end up overpaying those employees.

Below is a summary of the key questions that clients ask us in connection with EOSG in the UAE and the KSA, and our recommendations.

FAQs

1. Who is eligible for EOSG?

UAE

Employees who have one or more years of continuous service save for the following circumstances:

  • participation in a pension scheme or savings fund which meet the qualifying conditions allowing the employer to “contract out” of EOSG;
  • dismissal under Article 120 of the UAE Labour Law (Article 120 sets out an exhaustive list of different types of misconduct);\
  • resignation without notice (other than in circumstances which allow the employee to do so as provided for in the UAE Labour Law); or
  • resignation from a fixed term employment contract where the employee has less than five years of service.

KSA

EOSG is granted to employees who:

  • resign, provided they have been in employment for two years or more; or
  • are terminated other than for “cause” pursuant to Article 80 of the Saudi Labour Law.

What employers need to do

Ensure the eligibility requirements are met so that you do not inadvertently pay EOSG to an employee who is not entitled to it.

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To speak to us in relation to any employment issues in the Middle East, please feel free to contact one of the lawyers below.

3 Comments

  1. Imtiaz Ahmad Reply

    Hi George,

    I came to the KSA last year on a 1 year fixed contract with an option for renewable (if both parties agree). I have decided to go back once I complete my one year. I have told my employer in writing 60 days before the end of the contract, asking him not to renew my contract and he is ok with that. My question is, am I eligible for the end of contract benefits under Saudi labour Article 84, as I have not resigned. I have used the Saudi Ministry of Labour ESB calculator and it confirms that I should get ESB.

    I would really appreciate if you can advise me.

    Kind Regards,
    Imtiaz

    • coconnellschizas Reply

      Hi Imtiaz,

      As it is a non-renewal, you would be entitled to an end of service award. For one year employment, the end of service award should equate to half a month’s wage. Wage is basic salary plus the value of every cash or in-kind allowance or benefit you receive on a regular basis, e.g. housing allowance (if any).

      Hope this helps. For any further queries, feel free to email me directly at Christiana.O’Connell-Schizas@bakermckenzie.com

      Kind regards,
      Christiana

  2. Hi Christiana,

    Thank you so much for the response – much appreciated.

    Cheers,
    Imtiaz

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