End of Service Gratuity in GCC Countries

Modified on Fri, 09 Feb 2024 at 01:24 PM

What is End of Service Gratuity?

End of service gratuity, refers to a mandated payment or benefit provided by an employer to an employee upon the termination of their employment contract. This gratuity is often based on the duration of service with the company, the employee's salary, and the prevailing labour laws or company policies.

End of service gratuity is designed to recognize the employee's contribution to the company over their employment tenure and to provide financial support as they transition out of their role. It serves as a form of compensation or reward for the employee's dedication and commitment to the organization.

The specific calculation and eligibility criteria for end of service gratuity can vary depending on the jurisdiction and the terms outlined in employment contracts or labor laws. Some countries have specific legal requirements dictating the calculation and payment of end of service gratuity, while in other cases, it may be determined by company policy or collective bargaining agreements.

End of Service Gratuity in Keka.

As a part of Keka's global expansion, and to ensure statutory compliance in GCC countries we have implemented payroll & compliances for all GCC (Gulf Corporation Council) countries, and ESG (End of Service Gratuity) is one of the major exit compliances followed in all GCC countries irrespective of contract type, age, gender, nationality etc. The end of service gratuity might differ based on the contract type and reason for the employee's exit (Termination/Resignation).

The scope of this article falls within the End of Service Gratuity in GCC countries and how this compliance has been incorporated into Keka.

Let us now understand how this works for each of the countries.

Saudi Arabia

The gratuity amount is calculated as shown below

For the first 5 years of employee's tenure, the gratuity is calculated as half a month's basic salary multiplied by the number of years of service.
For the following years (after 5 years) of employee's tenure, the gratuity is calculated as full month's basic salary multiplied by the number of service after 5 years.

Example: Let's assume the employee's tenure with a company is 9 years and the last drawn basic of the employee is SAR 2,000/-. The gratuity amount is calculated as below

1 to 5 years = 1/2 * 2000 * 5 = SAR 5,000/-

6 to 9 years = 1 * 2000 * 4 = SAR 8,000/-

Total gratuity amount = SAR 13,000/-

Once the gratuity amount is calculated, the payable gratuity can be prorated based on the exit reason i.e., Termination or Resignation.

If the employee resigns:

Payable gratuity varies based on the total number of years in service.

If the total tenure in the organization is less then 2 years, then payable gratuity is SAR 0/-.
If the total tenure in the organization is between 2 to 5 years, then the payable gratuity is 1/3 * Total Gratuity Amount.
If the total tenure in the organization is between 5 to 10 years, then the payable gratuity is 2/3 * Total Gratuity Amount.
If the total tenure in the organization is greater than 10 years, then the total gratuity amount will be paid to the employee.

If the employee is terminated:

Payable gratuity varies based on the total number of years in service

If the total tenure in the organization is less than 1 year, then payable gratuity is SAR 0/-
If the total tenure in the organization is greater than 1 year, then the total gratuity amount is payable to the employee.

Note: This will be applicable for the employees whose legal entity is based out of Saudi Arabia.
- For the period of service calculation, the unpaid leave will be auto populated based on the data available in the system. However, you will be able to edit the data based on your requirements.

United Arab Emirates

The gratuity amount is calculated as shown below

Employees are not eligible for gratuity in case number of years completed is less than one.
If an employer terminates the contract then gratuity calculation is as follows (without exceeding 2 years pay) -
- 21 calendar days’ basic pay for each year of the first five years of service.
- 30 calendar days’ basic pay for each additional year.
If an employee resigns before 5 years then he is not entitled to Gratuity, however, if he/she completes 5 years, it follows the same procedure as termination calculation.
If an employee is terminated due to misconduct, then he/she is not eligible for gratuity.

Oman

The gratuity amount is calculated as shown below

For the first 3 years of an employee's tenure, the gratuity is calculated as half a month's basic salary multiplied by the number of years of service.
For the following years (after 3 years) of an employee's tenure, the gratuity is calculated as a full month's basic salary multiplied by the number of years of service after 3 years.

Example: Let's assume the employee's tenure with a company is 9 years and the last drawn basic of the employee is OMR 2,000/-. The gratuity amount is calculated as below

1 to 3 years = 1/2 * 2000 * 3 = OMR 3,000/-

4 to 9 years = 1 * 2000 * 6 = OMR 12,000/-

Total gratuity amount = OMR 15,000/-

The total gratuity amount payable to an employee cannot be more than OMR 12,000/-, so the amount in this scenario is restricted OMR 12,000/-

Note: Payable gratuity varies based on the total number of years in service

If the total tenure in the organization is less than 1 year, then payable gratuity is OMR 0/-
If the total tenure in the organization is greater than 1 year, then the total gratuity amount is payable to the employee.

Note - This will be applicable for the employees whose legal entity is based out of Oman.
- For the period of service calculation, the unpaid leave will be auto populated based on the data available in the system. However, you will be able to edit the data based on your requirements.

Qatar

The gratuity amount is calculated as shown below

For the employee's tenure in the company, the gratuity is calculated as 21 days' basic salary multiplied by the number of years of service.

Example: Let's assume the employee's tenure with a company is 9 years and the last drawn basic of the employee is QAR 2,000/-. The gratuity amount is as calculated below

2000 * 21/30 * 9 = QAR 12,600/-

Total gratuity amount = QAR 12,600/-

Irrespective of exit reason, the complete gratuity should be paid to the employee given that employee completes 1 year of continuous service

Note - This will be applicable for the employees whose legal entity is based out of Qatar.
- For the period of service calculation, the unpaid leave will be auto populated based on the data available in the system. However, you will be able to edit the data based on your requirements.

Bahrain

The gratuity amount is calculated as shown below

For the first 3 years of an employee's tenure, the gratuity is calculated as half a month's basic salary multiplied by the number of years of service.
For the following years (after 3 years) of the employee's tenure, the gratuity is calculated as a full month's basic salary multiplied by the number of years of service after 3 years.

Example: Let's assume the employee's tenure with a company is 9 years and the last drawn basic of the employee is BHD 2,000/-. The gratuity amount is calculated as below

1 to 3 years = 1/2 * 2000 * 3 = BHD 3,000/-

4 to 9 years = 1 * 2000 * 6 = BHD 12,000/-

Total gratuity amount = BHD 15,000/-

Note:Payable gratuity varies based on the total number of years in service

If the total tenure in the organization is less than 1 year, then payable gratuity is BHD 0/-
If the total tenure in the organization is greater than 1 year, then the total gratuity amount is payable to the employee.

Note - This will be applicable for the employees whose legal entity is based out of Bahrain.
- For the period of service calculation, the unpaid leave will be auto populated based on the data available in the system. However, you will be able to edit the data based on your requirements.

Kuwait

The gratuity amount is calculated as shown below

For daily/weekly/hourly/piece based remunerations:

For the first 5 years of employee's tenure, the gratuity is calculated as 10 days basic salary multiplied by the number of years of service.
For the following years (after 5 years) of employee's tenure, the gratuity is calculated as 15 days basic salary multiplied by the number of service after 5 years.

For monthly/annual remunerations:

For the first 5 years of an employee's tenure, the gratuity is calculated as half a month's basic salary multiplied by the number of years of service.
For the following years (after 5 years) of the employee's tenure, the gratuity is calculated as a full month's basic salary multiplied by the number of service after 5 years.

Example: Let's assume the employee's tenure with a company is 9 years and the last drawn basic of the employee is KWD 2,000/-. The gratuity amount is as calculated below

If daily/hourly/piece based remuneration:

1 to 5 years = 10/30 * 2000 * 5 = KWD 3,333/-

6 to 9 years = 15/30 * 2000 * 4 = KWD 4,000/-

Total = 7,333/-

If monthly/annual remuneration:

1 to 5 years = 1/2 * 2000 * 5 = KWD 5,000/-

6 to 9 years = 1 * 2000 * 4 = KWD 8,000/-

Total = 13,333/-

Payable gratuity amount:Once the gratuity amount is calculated, the payable gratuity can be prorated based on the exit reason i.e., Termination or Resignation.

If the employee resigns:

Payable gratuity varies based on the total number of years in service
If the total tenure in the organization is less then 3 years, then payable gratuity is KWD 0/-
If the total tenure in the organization is between 3 to 5 years, then the payable gratuity is 1/2 * Total Gratuity Amount
If the total tenure in the organization is between 5 to 10 years, then the payable gratuity is 2/3 * Total Gratuity Amount
If the total tenure in the organization is greater than 10 years, then the total gratuity amount will be paid to the employee.

If the employee is terminated:

The total gratuity amount is payable to the employee without any proration irrespective of number of years worked.

Note - This will be applicable for the employees whose legal entity is based out of Kuwait.
- For the period of service calculation, the unpaid leave will be auto populated based on the data available in the system. However, you will be able to edit the data based on your requirements.

Daily/hourly/piece based remuneration

Annual/Monthly renumeration

We hope you now have a good understanding of this new addition to Keka so as to ensure statutory compliance. Please feel free to get in touch with one of our product experts in case of further queries!