Resignation vs. Termination: Calculating the Actuarial Impact in KSA

In Saudi Arabia, the reason an employee leaves your company drastically alters the final math of their End-of-Service Gratuity (EOSG). In corporate finance planning under IAS 19, an actuary cannot simply assume that everyone receives a full payout. They must assign highly specific probabilities regarding how and when an employee exits.

The Crucial Article 85 Forfeiture

Under Article 85 of the Saudi Labor Law, an employee who voluntarily resigns forfeits substantial segments of their accrued payout entirely based on their active tenure:

• 0-2 Years: No payout whatsoever.
• 2-5 Years: Receives one-third of the normal allocation.
• 5-10 Years: Receives two-thirds of the normal allocation.
• 10+ Years: Receives the full entitlement.

However, if that identical employee is terminated by the company without cause, they instantly receive the full statutory entitlement regardless of whether they have worked for two years or twenty.

Building the Decrement Matrix

When a consulting actuary constructs the demographic model for a KSA entity, they must build a bifurcated "decrement matrix."

First, they analyze HR data to predict the overarching Turnover Rate—the probability an employee will leave next year. Then, they must sub-divide that probability into voluntary resignations versus involuntary terminations.

If a company has a culture of rapid hiring and firing, the model assigns heavier weights to the "termination" probability, driving the overarching financial liability significantly higher because the model algorithmically anticipates paying out un-penalized, full-entitlement gratuities.

Conversely, if the HR data reveals that staff routinely quit voluntarily within three years to join competitors, the actuary leverages the harsh forfeitures of Article 85 to drastically collapse the final net liability on the balance sheet.