Calculating Severance Pay in the GCC: End of Service Gratuity Rules, Formulas, and a Practical Compliance Guide

Calculating Severance Pay is rarely just arithmetic in the GCC, it’s where finance, law, culture, and compassion intersect. If you lead Talent Acquisition or HR in the region, you already feel the pressure: restructure a function, honour End of Service Gratuity (EOSG) correctly, and still protect runway and reputation. This guide translates the rules into practical steps, so you can brief leadership with confidence, treat people fairly, and stay compliant across the Gulf.

What follows blends credibility (statutory references and accepted practice), empathy (the human side of exits), and logic (clean formulas, examples, and checklists). It is written for TA Managers, HR Directors, and Recruiters working in the UAE, Saudi Arabia, Qatar, Kuwait, Oman, and Bahrain. Always verify against the latest official publications, but use this as a reliable compass for planning and calculations.

Ethos: What this guide is based on

This article reflects widely accepted provisions from official sources and reputable legal summaries as of 2024–2026, including: UAE Federal Decree-Law No. 33 of 2021 and MOHRE guidance; Saudi Labour Law and Ministry of Human Resources and Social Development (MHRSD) practice; Qatar Labour Law No. 14 of 2004 (as amended); Bahrain Labour Law No. 36 of 2012; Oman Labour Law (Sultani Decree 53/2023); and Kuwait Labour Law No. 6 of 2010. Free-zone variations (e.g., DIFC, ADGM) are noted separately.

Because regulations evolve, confirm details with the relevant ministry, free-zone authority, or independent legal counsel before final payments.

Pathos: The real pressure HR and TA feel

Headcount plans shift fast in the GCC. New market entries, funding cycles, Saudization/Emiratization targets, and seasonal swings can change hiring and redundancy plans overnight. In those moments, people leaders must do two hard things at once: keep the business solvent and treat departing colleagues with dignity. Clarity on EOSG reduces stress, speeds decisions, and prevents painful post-exit disputes.

Logos: Calculating Severance Pay — GCC End of Service Gratuity at a glance

The following high-level summary is for private-sector employees unless noted. “Wage” or “basic wage/salary” below follows each country’s legal definition. Company policy or contracts may be more generous but not less than statutory minimums.

United Arab Emirates (UAE – MOHRE mainland)

Eligibility: After completing one full year of continuous service.
Basis: Last basic wage (excludes allowances/bonuses unless contract states otherwise).
Accrual: 21 days of basic wage per year for the first 5 years; 30 days per year thereafter.
Pro‑rata: Fractions of a year are paid proportionally.
Cap: Total gratuity may not exceed the equivalent of 2 years’ wage.
Resignation: Under current law and MOHRE guidance, resignation does not reduce the accrued gratuity; entitlement applies if service is ≥1 year.
Notes: Free zones may differ (e.g., DIFC/ADGM savings schemes). Deductions can apply for outstanding advances or documented liabilities.

Kingdom of Saudi Arabia (KSA)

Eligibility: Accrues from day one; payable on termination. Resignation thresholds affect the portion payable.
Basis: Last wage, which by law includes fixed allowances regularly paid.
Accrual: Half a month’s wage for each of the first 5 years; one month’s wage for each subsequent year.
Resignation rules: If employee resigns after 2–5 years: one‑third of the award; after 5–10 years: two‑thirds; after 10+ years: full. If the employer terminates (non‑misconduct), the full award applies.
Pro‑rata: Partial years paid proportionally.

Qatar

Eligibility: After one year of continuous service.
Basis: Last basic wage (allowances generally excluded unless contract provides).
Accrual: Minimum of 3 weeks of basic wage per year of service (i.e., 21 days per year).
Pro‑rata: Partial years paid proportionally.

Bahrain

Eligibility: Generally after one year of service.
Basis: Last wage; fixed allowances may be included per statutory definition.
Accrual: 15 days’ wage per year for the first 3 years; one month’s wage for each subsequent year.
Pro‑rata: Partial years paid proportionally.

Oman

Eligibility: Typically after one year; Omani nationals are generally covered by pension schemes rather than EOSG.
Basis: Last basic wage (unless contract/policy specifies otherwise).
Accrual: 15 days’ wage for each of the first 3 years; one month’s wage for each subsequent year.
Pro‑rata: Partial years paid proportionally.

Kuwait

Eligibility: Accrues from day one; payable on termination. Resignation thresholds affect entitlement.
Basis: Last wage; monthly vs. non‑monthly workers have different rules.
Monthly‑paid employees: 15 days’ wage per year for the first 5 years; one month per year thereafter; total capped at 18 months’ wage.
Resignation (monthly‑paid): If service is ≥3 and <5 years: 50% of accrued indemnity; ≥5 and <10 years: two‑thirds; ≥10 years: full. Resignation before 3 years: generally no indemnity.
Non‑monthly workers: Different day counts apply (10/15‑day model); verify before paying.

Free zones and financial centres: The Dubai International Financial Centre (DIFC) and Abu Dhabi Global Market (ADGM) operate funded workplace savings schemes that replace traditional EOSG with monthly employer contributions (commonly around 5.83% for service under 5 years and 8.33% thereafter, subject to each regime’s rules). Always follow the specific scheme documentation and regulator guidance.

Calculating Severance Pay: Step‑by‑step framework you can trust

Confirm jurisdiction and contract type. Mainland vs. free zone (e.g., DIFC/ADGM), and whether the contract or policy is more generous than statutory minimums.
Define the “wage” correctly. Is it basic only (UAE, Qatar, Oman customarily) or full wage including fixed allowances (KSA, Bahrain often broader)? Use the legal definition and the employee’s last wage.
Count eligible service time. Include start and end dates, unpaid leave rules where applicable, and pro‑rate partial years according to law.
Apply the statutory accrual formula. Use the country’s day/month factors (e.g., UAE 21/30‑day model; KSA half‑month/one‑month model).
Adjust for resignation rules. Some countries reduce EOSG when the employee resigns before specific service thresholds (KSA, Kuwait).
Check caps and deductions. E.g., UAE’s cap of 2 years’ wage; outstanding loans/advances per lawful deduction limits.
Document the calculation. Keep a worksheet, contract clause references, and sign‑off trail. Transparency prevents disputes.

Worked examples (so you can brief leadership clearly)

UAE example

Employee on basic salary AED 10,000. Service: 6 years and 4 months.

Years 1–5: 21 days per year × 5 = 105 days
Year 6 + 4 months: 30 days per year × 1.33 years ≈ 39.9 days
Total days ≈ 144.9
Daily basic wage = AED 10,000 ÷ 30 = AED 333.33
EOSG ≈ 144.9 × 333.33 ≈ AED 48,300 (below the 24‑month cap)

KSA example

Employee on last wage SAR 12,000 (includes fixed allowances). Service: 7 years. Resignation case.

Award before resignation adjustment: (0.5 month × 5) + (1 month × 2) = 4.5 months
Value = 4.5 × SAR 12,000 = SAR 54,000
Resignation at 7 years → two‑thirds payable
EOSG payable ≈ SAR 36,000

Qatar example

Employee on basic wage QAR 8,000. Service: 3.5 years.

Accrual = 21 days per year × 3.5 = 73.5 days
Daily wage = QAR 8,000 ÷ 30 = QAR 266.67
EOSG ≈ 73.5 × 266.67 ≈ QAR 19,600

Kuwait example (monthly‑paid)

Employee on last monthly wage KD 800. Service: 8 years. Resignation.

Accrual before resignation: First 5 years = 0.5 month × 5 = 2.5 months; next 3 years = 1 month × 3 = 3 months; total = 5.5 months
Resignation at 8 years (≥5 and <10) → two‑thirds payable
Payable months = 5.5 × 2/3 ≈ 3.67 months
EOSG ≈ 3.67 × KD 800 ≈ KD 2,936 (below the 18‑month cap)

Oman example

Employee on basic salary OMR 700. Service: 4 years.

First 3 years: 15 days per year = 45 days
4th year: 30 days
Total: 75 days
Daily wage (assuming 30‑day month) = OMR 700 ÷ 30 ≈ OMR 23.33
EOSG ≈ 75 × 23.33 ≈ OMR 1,750

Bahrain example

Employee on last wage BHD 1,200. Service: 6 years.

First 3 years: 15 days × 3 = 45 days
Next 3 years: 30 days × 3 = 90 days
Total: 135 days
Daily wage = BHD 1,200 ÷ 30 = BHD 40
EOSG ≈ 135 × 40 = BHD 5,400

Important: Day‑count conventions (30 calendar vs. 26 working days) can vary by jurisdiction and practice. Always align with the legal definition used in your market and your payroll policy, and document the method.

Edge cases that trip teams up

Resignation vs. termination: Saudi Arabia and Kuwait reduce EOSG on resignation before certain service milestones; UAE does not reduce under the current law once 1 year is completed.
Variable pay and commissions: If “wage” is defined as basic salary, exclude variable elements unless your contract/policy explicitly includes them. In KSA, fixed allowances are commonly included in the “wage.”
Unpaid or long leave: Some countries exclude specific unpaid leave from service calculation. Check local rules and your leave records.
Gross misconduct: Disciplinary termination may affect other entitlements (notice pay, e.g.), but EOSG forfeiture is limited by law. Obtain legal advice before withholding.
Free‑zone schemes: In DIFC/ADGM, EOSG is replaced by monthly employer contributions to a qualifying savings plan. Settlement equals contributions plus investment returns, less applicable fees, not a retroactive gratuity calculation.
Nationals vs. expatriates: Some GCC nationals participate in state pension schemes that interact with or replace EOSG; verify specific national rules.
Contractual enhancements: Many employers in the GCC offer enhanced EOSG. Statutory minimums are floors, not ceilings. Honour the higher of law vs. contract/policy.

From law to operations: a data‑driven way to plan EOSG

TA and HR leaders can relieve budget shocks by treating EOSG like any other predictable liability. A simple, disciplined approach works:

Build a clean dataset: For each employee, capture jurisdiction, start date, last wage (and breakdown of basic vs. fixed allowances), contract type, and planned end date (if fixed‑term).
Model scenarios: Use headcount plans (optimistic/base/conservative) to estimate EOSG exposure for the next 12–24 months. Include hiring, natural attrition, and potential restructures.
Provision monthly: Accrue EOSG on payroll each month using the statutory formula. This smooths P&L impact and supports accurate cash forecasting.
Stress‑test liquidity: Identify “peak liability months” (e.g., after a site closure) and plan cash buffers.
Audit trail: Keep a calculation log and policy references; it reduces disputes and speeds audit sign‑off.

Finance note: Under international accounting standards, EOSG often sits with employee benefit obligations. Many enterprises use straight‑line accruals aligned to statutory formulas rather than complex actuarial models, unless a funded scheme requires different treatment.

Human‑centred exits in the GCC

Numbers matter, but how you communicate them matters more. In a relationship‑driven region, clear and kind offboarding preserves reputation and future hiring velocity.

Share the calculation sheet with employees, line by line.
Confirm the legal basis (law article and policy clause) for each component.
Pay on time. Delays can invite penalties or disputes.
Offer references, career support, or interview coaching where appropriate. It’s the right thing—and people remember.

Compliance checklist you can reuse

Jurisdiction verified (mainland vs. free zone) and latest law checked
Wage definition confirmed (basic vs. full wage with fixed allowances)
Service dates validated; leaves reconciled
Accrual formula applied correctly (per market)
Resignation adjustments (if any) applied
Caps and lawful deductions reviewed
Calculation sheet documented and approved
Employee communication prepared with Q&A
Payment scheduled, receipted, and archived

Quick‑reference formulas

UAE (MOHRE)

Gratuity = (Basic daily wage × 21 × completed years up to 5) + (Basic daily wage × 30 × completed years beyond 5) + proportional part for partial years; cap at 24 months’ wage.

KSA

Award = (Last monthly wage × 0.5 × years up to 5) + (Last monthly wage × 1 × years beyond 5); apply resignation fraction if applicable; pro‑rate partial years.

Qatar

EOSG = Basic daily wage × 21 × total years (including pro‑rated partial year).

Bahrain

EOSG = (Daily wage × 15 × years up to 3) + (Daily wage × 30 × years beyond 3); pro‑rate partial years.

Oman

EOSG = (Basic daily wage × 15 × years up to 3) + (Basic daily wage × 30 × years beyond 3); pro‑rate partial years.

Kuwait (monthly‑paid)

Indemnity (before resignation rules) = (Monthly wage × 0.5 × years up to 5) + (Monthly wage × 1 × years beyond 5); total capped at 18 months; apply resignation fractions by service band.

Frequently asked questions

Does overtime or bonus count?

Usually no, unless “wage” is defined to include them. UAE/Qatar/Oman typically use basic wage. KSA’s definition commonly includes fixed allowances. When in doubt, follow the statutory wage definition and your contract.

What if the employee worked part‑time?

Most laws allow proportional EOSG for part‑time hours based on the agreed wage. Check the local implementing regulations and your contract.

How do fixed‑term contracts affect EOSG?

EOSG is still due on expiry/termination based on service length. In the UAE, current law uses fixed‑term contracts broadly; gratuity remains calculated using the same 21/30‑day model.

Can we pay more than the statutory amount?

Yes. Many employers offer enhanced EOSG as part of an EVP. Ensure your policy is consistent, documented, and budgeted.

What documentation should we keep?

Signed contract and policy, payroll records detailing wage components, leave records, calculation worksheets, approvals, and employee acknowledgements of final settlement.

Putting it into practice: a simple internal calculator

Create fields: Country, Free‑zone (Y/N), Start Date, End Date, Years (decimal), Basic Wage, Fixed Allowances, Last Monthly Wage, Contract/Policy Notes.
Embed the jurisdiction formula with visible assumptions (day count, caps, resignation bands).
Add controls: dropdown for “Termination reason” (e.g., redundancy, resignation) that auto‑applies any legal fractions.
Output: EOSG amount, supporting lines (years, days/months, caps), and a printable summary for the employee file.
Governance: version control your calculator and get Legal/Finance sign‑off once a year or after any law change.

Summary

Calculating Severance Pay in the GCC is manageable when you anchor to the right definitions, apply the statutory formulas precisely, and document every step. Do that, and you’ll protect budgets, honour people, and reduce disputes. Laws do change, so keep one eye on official updates and another on your calculator’s assumptions.