What Severance Pay Rules Must Employers Follow in Saudi Arabia?

Which Employees Qualify for Severance Pay?

• Most employees working under the Saudi Labor Law on indefinite or fixed-term contracts qualify for end-of-service benefits.
• Both Saudi nationals and expatriate employees are generally entitled to severance if they complete at least two years of continuous service, with partial rights even below that in some cases.
• Employees terminated by the employer for a legitimate reason (not gross misconduct) are usually entitled to the full statutory formula.
• Resigning employees qualify for a reduced percentage of the statutory benefit depending on whether they have completed 2, 5, or 10 years of service.
• Employees dismissed for reasons specified as gross misconduct under the Labor Law may lose their entitlement to severance.
• Some categories, such as genuine independent contractors or workers excluded from the Labor Law, may not qualify for statutory end-of-service benefits.

What Are the Legal Timelines for Paying Severance?

In Saudi Arabia, the Labor Law requires you to settle all end-of-service entitlements promptly when the employment relationship ends. In practice, authorities expect you to pay severance together with the employee’s final salary and unused leave, typically within a few days of the last working day. Many employers aim to complete the calculation and payment within 1 to 2 weeks to avoid disputes or complaints. Delays can trigger claims before the labor courts and may be viewed as a breach of your statutory obligations. To stay safe, build internal processes so that your HR and payroll teams can calculate and approve severance before the termination date wherever possible.

What Penalties Apply if Severance Is Not Paid Correctly?

If your company fails to pay end-of-service benefits correctly or on time in Saudi Arabia, you risk financial, administrative, and reputational consequences. Labor authorities can investigate complaints, and employees can file claims through the labor dispute resolution system. Courts may order you to pay the outstanding severance plus any other contractual entitlements, and repeated non-compliance can attract higher scrutiny. Proper documentation of calculations and clear termination letters are essential to defend your position if challenged.

• You may be ordered to pay the full unpaid severance plus any underpaid salary or benefits.
• Administrative fines can be imposed under the Labor Law for non-compliance with wage and benefit rules.
• Labor authorities can suspend or restrict certain services if your company repeatedly violates wage payment obligations.
• Disputes can lead to legal costs, management time, and potential damage to your employer brand.
• Inconsistent practices across employees can increase the risk of discrimination or unfair treatment claims.

Does Outsourcing Employment via an EOR Change Severance Liability?

Using an Employer of Record (https://www.playroll.com/employer-of-record) in Saudi Arabia does not remove the underlying legal requirement to provide end-of-service benefits. In an EOR model, the local EOR entity is typically the legal employer and is responsible for calculating and paying statutory severance under Saudi Labor Law. However, your company usually funds these costs through the commercial agreement with the EOR, so the economic burden still sits with you. If the EOR miscalculates or delays payment, employees and authorities may pursue the legal employer first, but your company can still face commercial and reputational fallout. Clear contracts, transparent cost breakdowns, and regular audits of severance calculations are critical when you rely on an EOR.

Be 100 Percent Compliant in Offering Severance with Playroll

Saudi severance rules are formula-driven but can become complex when you factor in resignations, variable pay, and breaks in service. Playroll helps your team translate the statutory framework into practical workflows, so every termination is handled consistently. Our platform centralizes employee data, tracks service periods, and applies the correct Saudi Labor Law rules to each case. That means fewer manual spreadsheets, fewer surprises at termination, and a clear audit trail if a dispute arises.

Beyond calculations, Playroll supports you in planning terminations, aligning notice periods, and coordinating final salary, unused leave, and end-of-service benefits in one clean payment. When you operate across multiple countries, we standardize your internal policies while still honoring local Saudi requirements. With real-time visibility into severance liabilities and automated checks, your company can reduce compliance risk and give departing employees a smoother, more professional offboarding experience.