The most common question at final settlement time: is the end-of-service benefit calculated on the basic salary, or on the full package with allowances? The statutory answer is that the calculation uses the actual wage, not the basic wage alone, under the Labor Law issued by Royal Decree M/51, as amended by Royal Decree M/44 of 1446H, effective 19 February 2025. Since housing and transport allowances are usually fixed and regular, they normally enter the calculation base — and that alone can move the final figure by thousands of riyals.

What "actual wage" means under Article 2

Article 2 of the Labor Law separates two concepts:

  • Basic wage: the core remuneration for the work, excluding allowances, bonuses, and other privileges.
  • Actual wage: the basic wage plus the increments, allowances, benefits, and commissions due to the worker under the contract, the work organization regulation, or custom.

Article 84 requires the award to be calculated on the last wage — meaning the last actual wage. Calculating the award on the basic wage alone, where fixed allowances exist, is the most frequent settlement error and a leading cause of disputes before the labor courts.

What counts and what does not

| Pay component | Enters the EOSB base? | | --- | --- | | Basic wage | Always | | Fixed monthly housing allowance | Usually yes | | Fixed monthly transport allowance | Usually yes | | Regular commissions and sales percentages | Yes, unless excluded by a written Article 86 clause | | Discretionary, irregular bonuses | Normally no | | Temporary expenses reimbursed against receipts | No |

The practical test: what matters is whether the allowance is due and regular under the contract, regulation, or custom — not what it is labeled. Amounts paid as temporary expense reimbursements settled against invoices are not allowances in the statutory sense.

Article 86: the only exclusion is a written one

The Law allows the parties to agree to exclude specific variable components — such as sales commissions or profit percentages that fluctuate by nature — from the wage on which the end-of-service award is settled. But the exception only works on its terms:

  • The agreement must be explicit and in writing in the employment contract signed by both parties.
  • Absent that written clause, regular commissions enter the actual wage, taken as their average over the last twelve months of service.

Contract silence does not mean exclusion — the default is inclusion, and exclusion is a written exception.

A worked example

An employee with exactly 5 years of service, a basic wage of SAR 6,000, a fixed housing allowance of SAR 1,500, and a fixed transport allowance of SAR 500:

  • Actual wage = 6,000 + 1,500 + 500 = SAR 8,000.
  • Award for 5 years (half a month per year): 5 x half a month x 8,000 = SAR 20,000.
  • Calculated incorrectly on the basic wage only: 5 x half a month x 6,000 = SAR 15,000.

A SAR 5,000 gap in this simple case alone — and it grows with tenure and allowance size. To check your own figure, the end-of-service calculator shows the full breakdown and the applied article, and the result can be compared with the Ministry of Justice official calculator.

Do not confuse the GOSI wage with the EOSB wage

The social insurance contribution wage has its own definition, cap, and method: in its context it includes the basic wage and housing allowance under GOSI rules. The end-of-service award, by contrast, refers exclusively to the actual wage definition in the Labor Law. The figure shown in GOSI is not necessarily your EOSB base. For more labor topics, see the labor section.

When do you need a licensed lawyer?

This article is general information, not legal advice. The matter becomes case-specific and worth a licensed professional's review when:

  • Your contract contains an Article 86 exclusion clause and its scope or validity is disputed.
  • Your pay is built on fluctuating commissions and the averaging method is contested.
  • Allowances changed during service or were paid in mixed fixed-and-variable forms.
  • A live dispute exists over how a specific pay component is classified — the Labor Court examines the facts and documents of each case.