End of Service Payment Calculation

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Created on January 09, 2015

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Table of content

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Table of content
1 End of Service Payment Calculation

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1 End of Service Payment Calculation

Saudi labor law stipulates that End of Service (EOS) payments are calculated based on the service duration, in years, that an employee has worked for an
organization.
The system calculates the EOS payment based on service duration, basic salary, housing allowance and the annual leave days balance.

Prerequisites
You have made the required settings in Customizing for

Payroll: Saudi Arabia

End of Service (EOS)

Features
In the system, wage type /670 and payroll feature 24EOS calculate the EOS payment award. Wage type /650 is used for calculating the EOS provision.
The system calculates the EOS award based on the last wage payments at the end of employment. The calculation logics are as follows:
The severance award is equal to the wages for half of one month at the end of employment for each of the first five years of service, and one whole month for
each subsequent year, prorated according to the time the employee worked.
If the work relation ends due to the workers resignation, the worker may be entitled to the award based on these conditions:
Service Duration

Payment Award

Less than 2 years

No award

2 to 5 successive years

One-third of the award

More than 5 successive years but less than 10 years

Two-thirds of the award

10 successive years or more

Full award

Note
As an exception, the employee may be entitled to the full award if he or she leaves the work due to a force majeure outside of his or her control.
If a female worker ends her contract within six months from the date of her marriage or three months from the date of giving birth, she may be
entitled to the full award.
The employer may deduct any work-related debt due to him or her from the workers entitlements. Other deductions are done according to the law.
If the employee has not worked for a full year, a prorated amount is paid.
There is no maximum number of years for EOS payment award.
EOS does not include all or some of the commission, sales percentage, and similar wage components that are subject to increase and decrease.

Process
The system processes the EOS calculation as follows:
1. The system reads the employee start date from the feature ENTRY.
2. The employee EOS period is calculated by using the number of calendar days for which the employee was employed.
3. Any wage type that has processing class 61 specification 1 set is included as a base for EOS calculation.
4. The number of calendar days is divided by 365 to calculate the number of Gregorian years or 355 to calculate the number of Hijri years. The number 365 is
stored in table T511K in constant ANNUL. Employees are eligible for the following payout in cases where the employee is terminated by the company:
Monthly provisioning is also done on this basis.
Service Years

Reckonable Income

Each of the first 5 years

(Monthly basic salary + housing allowance / 2)

Each year after the first 5 years

(Monthly basic salary + housing allowance)

Note
If an employee resigns, the EOS resignation conditions are considered for EOS calculation. For more information, see the example section of this topic.
5. Wage type /670 is the EOS payout wage type.

Note
SAP provides the standard values for EOS calculation. You can change the values in the Payroll Parameters (T511K) table based on your requirements.

Example
Assume that the information for an employee, Khaled, is as follows:
Criterion

Value in SAR

Current Salary (basic salary + housing allowance)

10,000

Service Years

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Annual Leave Days Balance

Daily Rate of Pay

333.33

Scenario 1: Khaled Resigns

Based on Khaleds information, if he resigns, the EOS and leave encashment calculation is made as follows:
Years and Allowance Balances

Reckonable Salary

Payment Award in SAR

First 5 years

Two-thirds of half monthly salary for each year

((5 x 10000) / 2) x 2/3 = 16666.67

Next 3 years

Two-thirds of one months salary for each year

(3 x 10000) x 2/3 = 20000

Annual Leave days balance payout

4 x 333.33 = 1333.32

Total Payment

16666.67 + 20000 + 1333.32 = 37999.99

Scenario 2: Khaled is Terminated

Based on Khaleds service years and his remaining leave balance, if he is terminated, the EOS and leave encashment calculation is made as follows:
Years and Allowance Balances

Reckonable Salary

Payment Award in SAR

First 5 years

Half of monthly salary for each year

(5 x 10000) x 1/2 = 25000

Next 3 years

One months salary for each year

3 x 10000 = 30000

Annual Leave days balance payout

4 x 333.33 = 1333.32

Total Payment

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55000 + 1333.32 = 56333.32

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