End-of-service benefits (EOSB) in Saudi Arabia are compensation granted to employees upon the termination of their employment. These benefits are calculated based on the employee’s length of service and their final salary, in accordance with the Social Security Law. The regulations governing EOSB are outlined in the Saudi Labor Law. Below are the key details:

 Eligibility Conditions for End-of-Service Benefits

1- Resignation:

• If an employee resigns after two to five years of service, they are entitled to one-third of the EOSB.
• If the resignation occurs after five to ten years of service, the employee is entitled to two-thirds of the EOSB.
• For service exceeding ten years, the employee is entitled to the full EOSB.

2- Contract Expiration:

• When the contract between the employee and employer ends without renewal, the employee is entitled to the full EOSB.

3- Termination for Legitimate Reasons:

• If an employee is terminated for legitimate reasons as stipulated in the Labor Law, they may not be entitled to the EOSB.

 Method of Calculating End-of-Service Benefits

• For the first five years:

– Half of the monthly salary is calculated for each year of service.

• For service after the first five years:

– A full month’s salary is calculated for each year of service after the initial five years.

 Illustrative Example:

If an employee’s final salary is SAR 10,000 and they have served for seven years:

• First five years: 5 years × SAR 5,000 (half of the monthly salary) = SAR 25,000
• Next two years: 2 years × SAR 10,000 (full salary) = SAR 20,000
• Total EOSB: SAR 25,000 + SAR 20,000 = SAR 45,000

 Actuarial Calculation of End-of-Service Benefits

Actuarial calculations for EOSB involve the use of statistical and mathematical techniques to estimate future financial obligations related to end-of-service benefits. This provides an accurate picture of potential costs and ensures that sufficient financial resources are available to meet these obligations when due. The actuarial process helps companies assess future liabilities based on factors such as service years, salaries, employee turnover rates, and other demographic factors.

 Key Elements of Actuarial Calculation for End-of-Service Benefits

1- Demographic Data:

   – Includes age, gender, and dates of joining the company.

2- Financial Data:

   – Includes current salaries, expected salary increases, and bonus policies.

3- Discount Rates:

   – Used to estimate the present value of future obligations based on interest rates.

4- Employee Turnover Rates:

   – Estimates the percentage of employees who may leave the company before reaching retirement age or before becoming eligible for EOSB.

Actuarial Assumptions:

   – Includes assumptions about economic growth, inflation, and future salary increases.

 Importance of Actuarial Calculation

• Financial Planning: Provides an accurate outlook on future financial obligations, aiding in strategic financial planning for the company.
• Legal Compliance: Ensures that the company complies with regulations and laws related to end-of-service benefits.
• Financial Reporting: Facilitates the preparation of accurate and transparent financial reports that reflect the company’s financial status and obligations.

 Steps in Actuarial Calculation

1. Data Collection: Gather all relevant employee and salary data.
2. Assumption Setting: Determine the necessary demographic and financial assumptions for the calculations.
3. Application of Actuarial Models: Use mathematical and statistical models to estimate liabilities.
4. Result Analysis: Analyze the results and provide the necessary reports for management.

In conclusion, using Comprehensive tools and standards, such as actuarial methods, helps companies deliver accurate and reliable estimates, enhancing sound financial planning.