Terminating an employment contract in Saudi Arabia involves more than a decision to let someone go. It requires adherence to the Saudi Labor Law, proper documentation, and compliance with employee rights. This article explains everything an employer should know about the termination of contract by employer in KSA, ensuring you stay within legal boundaries and avoid costly disputes.
Legal Grounds for Termination of Contract by Employer in KSA
According to Saudi Labor Law, an employer may terminate a contract with or without cause, but in either case, proper legal steps must be followed.
1. Termination with Cause
Employers may terminate a contract without notice or compensation when the employee:
- Commits serious misconduct (e.g., theft, violence, or harassment)
- Repeatedly fails to perform duties after warnings
- Commits fraud or falsification of documents
- Is absent without justification for a legally specified period
These fall under Article 80 of the Saudi Labor Law, which defines 10 legal grounds for immediate dismissal.
2. Termination Without Cause
An employer may also terminate an employee for reasons such as:
- Organizational restructuring
- Job redundancy
- Performance issues (if documented)
- Budget or departmental downsizing
In these cases, proper notice and compensation must be provided.
Notice Period Requirements
The law requires employers to provide written notice before termination:
- At least 60 days for employees paid monthly
- At least 30 days for other employees
If notice is not given, the employer must compensate the employee with pay in lieu of notice.
End-of-Service Benefits (EOSB)
End-of-service benefits are mandatory unless termination falls under Article 80.
1. EOSB Calculation
- The first 5 years of service: Half a month’s wage for each year
- For each year after 5 years: One full month’s wage
For example, an employee with 8 years of service would be entitled to:
(5 × 0.5 month) + (3 × 1 month) = 2.5 + 3 = 5.5 months’ salary
2. Resignation Considerations
If an employee resigns:
- After 2 to 5 years: Eligible for one-third of EOSB
- For 5 to 10 years: Eligible for two-thirds
- After 10 years: Eligible for the full amount
3. Required Documentation
To ensure the termination of contract by employer in KSA is legally valid, employers should:
- Maintain a clear employment contract
- Document employee violations, warnings, or poor performance
- Issue an official termination letter explaining the reason
- Keep attendance and HR records as evidence, if needed
Common Mistakes Employers Should Avoid
- Terminating an employee without written notice when not justified by law
- Failing to pay end-of-service benefits or unused leave compensation
- Lacking documentation of misconduct or performance issues
- Not updating employment contracts to reflect current job expectations
Avoiding these errors reduces the risk of legal claims or penalties from the Ministry of Human Resources and Social Development (MHRSD).
Post-Termination Steps
After termination, employers must:
- Settle all dues: final salary, EOSB, leave balances
- Cancel the employee’s work permit and residency (if expatriate)
- Update GOSI and related government portals
- Provide a service certificate upon request
Final Thoughts for Employers
Understanding the laws related to the termination of contract by employer in KSA is critical for maintaining legal compliance and managing your workforce responsibly. Whether terminating for cause or due to business reasons, it is important to document the process and fulfill all legal obligations toward the employee.
If you are unsure how to proceed in a specific case, consulting with a labor law advisor or HR professional is strongly recommended.
