End of Service Benefits
End of Service Benefits (ESB) are lump-sum payments employers must pay when employment ends, usually based on years of service and basic salary.
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Table of Contents
What are End-of-Service Benefits, and who qualifies?
End of Service Benefits (ESB) are a lump-sum payment your employer owes when your employment ends. The purpose is straightforward: recognize your years of service. ESB usually sits alongside your final salary, payout of unused leave, and any other amounts in the final settlement. Most calculations rely on basic pay only, not allowances, unless your contract says otherwise.
Who qualifies?
- UAE: ESB is payable after one year of continuous service. Resignation or termination both trigger it if you meet the one-year rule. Free zones like DIFC and ADGM can run different schemes, so always check your contract.
- Saudi Arabia (KSA): ESB accrues for employees in the private sector. If you resign, the payout may be reduced depending on your total years; if your employer terminates, the full statutory formula usually applies.
- Qatar: ESB (often called gratuity) is due after one year of service and grows with each completed year.
Events that trigger payment: normal end of contract, employer termination, and most resignations. If the exit involves misconduct or a special scheme (for example, a financial free zone plan), review the contract and local rules before you rely on the standard formula.
If you’re a US expat, keep your contract, payslips, and the final settlement letter together. It makes later parts simpler.
How do you calculate End-of-Service Benefits (UAE, Saudi Arabia, Qatar)?
Before you start, gather: basic pay, start and end dates, any breaks in service, and your contract type.
UAE
Rule:
- First 5 years: 21 days of basic pay per year.
- After 5 years: 30 days of basic pay per year.
- Partial years are pro-rated.
Important: Under UAE labor law, the total end-of-service gratuity is capped at the equivalent of two years’ basic wage, even if the formula would otherwise result in a higher figure.
Steps:
- Compute eligible days: 21 × years (first five) + 30 × years (beyond five).
- Daily rate = monthly basic pay ÷ 30.
- ESB = daily rate × eligible days.
Example: Basic pay AED 10,000; service 6 years 4 months (6.33 years).
- Eligible days = (21 × 5) + (30 × 1.33) = 105 + 39.9 = 144.9 days.
- Daily rate = 10,000 ÷ 30 = AED 333.33.
- ESB = 333.33 × 144.9 = AED 48,300 (rounded)..
Saudi Arabia
Rule (full award):
- ½ month of basic wage per year for the first 5 years.
- 1 month of basic wage per year after 5 years.
Resignation fractions:
- 2-5 years of service → one-third of the full award.
- 5–10 years → two-thirds.
- 10+ years → full award.
(If the employer terminates, the full award normally applies.)
Steps:
- Full award (in months) = 0.5 × first-five-years + 1 × years beyond five.
- If resigned, multiply by the fraction for your service band.
- ESB = monthly basic pay × award months.
Example (resignation): Basic pay SAR 8,000; service 7 years.
- Full award months = (0.5 × 5) + (1 × 2) = 4.5 months.
- Resignation fraction at 7 years = two-thirds.
- ESB = 8,000 × 4.5 × 2/3 = SAR 24,000.
Qatar
Rule: After 1 year, employees are entitled to a minimum of three weeks’ basic wage per year of service. Partial years are pro-rated. Employers may provide more if the contract, company policy, or a collective agreement allows, but not less.
Quick conversion:
- 3 weeks = 21 days, which is 0.7 months (21 ÷ 30).
Steps:
- Years of service (use decimals for partial years).
- ESB = monthly basic pay × 0.7 × years.
Example: Basic pay QAR 9,000; service 4 years.
- ESB = 9,000 × 0.7 × 4 = QAR 25,200.
For 4.5 years, multiply by 4.5 instead of 4.
Does resignation vs termination change my entitlement, and what about fixed-term vs unlimited contracts?
End of Service Benefits (ESB) depend on two things: why your job ended and what kind of contract you signed.
If you resign, do you still get ESB?
In many cases, yes, as long as you meet the minimum service requirement. Some countries reduce the amount for shorter service when you resign, while standard employer termination usually pays the full statutory figure. If the exit is for misconduct or there is a special scheme in your zone, the outcome can be different, so it is worth checking your contract before you act.
How does contract type play in?
Fixed-term and unlimited arrangements both accrue ESB, but the timing of your end date and the reason the contract ends can change how the rules apply. In places that moved workers to fixed-term contracts, the ESB formula still ties back to your years of service and basic pay. If your contract mentions an older unlimited model, confirm how your employer implemented the transition and whether any legacy clauses still apply.
A short prep list helps before you resign or negotiate a termination:
- Confirm your official service start date and any breaks in service on HR’s file.
- Make sure your personal details match exactly, including name and date of birth.
- Read the separation clause and notice rules in your contract, including any free-zone handbook if that is relevant.
- Ask HR for an ESB estimate in writing that shows the inputs they used. Keep that with your records.
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What counts toward the calculation: basic pay vs allowances, bonuses, and commissions?
End of Service Benefits are usually calculated only on basic pay, not on allowances, bonuses, or commissions.
Basic pay is the stable amount in your contract used by the statutory formula. Most plans do not include allowances or variable pay unless your contract clearly says they are part of wage.
What typically counts:
- Basic pay or basic wage as defined in your contract.
What usually does not:
- Allowances like housing, transport, education, or cost-of-living.
- Overtime and most bonuses that are discretionary or irregular.
- Sales commissions, unless your contract treats them as wage or sets a written averaging method for ESB.
Why basic pay is used comes down to clarity.
It keeps the calculation predictable and avoids month-to-month swings. If your base changed over time, some employers use the final basic pay, while others use an average for a defined period. Your contract or local policy will say which one applies.
Good documentation prevents disputes over variable pay:
- Keep the signed employment contract and any addenda that define wage and allowances.
- Save commission plans, quota letters, bonus letters, and payout statements.
- Keep a simple timeline with start and end dates, promotions, and base pay changes.
- If you worked in a free zone with a different end-of-service scheme, download the plan document and your statements from that scheme.
What else is in my final settlement: unused leave, airfare, notice pay, and timelines?
End of Service Benefits (ESB) are the core of your final settlement, but they’re not the only line item. Most employers also include your last salary for days worked, a payout of unused paid leave, and any notice pay that applies. If your contract promises airfare or repatriation support, that should appear as well.
You might also see commission already earned, approved reimbursements, or small deductions for loans or advances you agreed to.
When should the money arrive?
Local rules set the deadline, and some employers pay on the next payroll run or within a short window after your last day. If you’re in a free zone or under a special scheme, check that handbook or your contract for the exact timing. If you’re leaving during a payroll cut-off, ask HR which cycle will capture your settlement so you know what to expect.
Do Americans owe US taxes on End-of-Service Benefits abroad?
They can. The US taxes citizens and residents on worldwide income, so an ESB paid in the UAE, Saudi Arabia, or Qatar may be US-taxable.
For US tax purposes, ESB is generally treated as wages or separation pay, not as a pension. That means it is reportable on Form 1040. Depending on your situation, it may qualify for the Foreign Earned Income Exclusion (Form 2555) if it arises directly from foreign employment and you meet the residence or presence tests. If not excluded, the amount remains taxable, but you may be able to offset it using the Foreign Tax Credit (Form 1116).
What helps you handle this cleanly?
First, decide whether you qualify for the Foreign Earned Income Exclusion (Form 2555). If you meet the bona fide residence or physical-presence test, some or all of your employment income may be excluded, which can include ESB depending on the facts.
Which forms show up the most?
Form 1040 plus Form 2555 if you use the exclusion, or Form 1116 if you claim a credit. Also consider FBAR (FinCEN 114) and possibly Form 8938 if the ESB pushes foreign account balances over the reporting thresholds.
FAQs
Does my notice period count toward ESB service?
Usually, yes. Time you actually work (or are on paid notice) is counted as service, so finishing a notice period can slightly increase your ESB.
If I change jobs within the same group/company, does my ESB reset?
Can my employer deduct loans or advances from my ESB?
What happens to ESB if I’m terminated for misconduct?
My employer is delaying or shutting down, how do I protect my ESB?
