Designing a Salary Package in Saudi Arabia: Housing Allowance Example

A worked example of how the split between basic salary, housing and transport allowances changes GOSI, end-of-service and total cost in Saudi Arabia.

In the Kingdom, salary packages are usually split into basic salary, housing allowance and transport allowance, and the split changes other costs: social insurance contributions are calculated on a defined contributory wage, and end-of-service is calculated on the wage the law counts. The example below uses illustrative assumptions in SAR to show how the same total package can cost an employer different amounts depending on design.

The situation

A company is hiring a project manager at a total monthly package of SAR 20,000. It is considering two designs. For illustration only, assume the GOSI contributory wage is basic plus housing, a combined employer rate of 12% applies to it, and end-of-service is calculated on the total package. All rates are placeholders; confirm real ones with GOSI and an adviser.

Assumptions (illustrative)

• Total monthly package in both designs: SAR 20,000.
• Design A: basic 12,000, housing 5,000, transport 3,000.
• Design B: basic 15,000, housing 3,750, transport 1,250.
• Illustrative employer social insurance rate: 12% on basic plus housing.
• Illustrative end-of-service: half a month of total package per year of service in early years.
• Assumed five years of service for comparison.

Step 1: Contributory wage in Design A

12,000 + 5,000 = SAR 17,000 per month.

Transport is outside the assumed contributory wage, so SAR 3,000 attracts no contribution.

Step 2: Contributory wage in Design B

15,000 + 3,750 = SAR 18,750 per month.

A larger basic raises the contributory wage by 18,750 minus 17,000 = SAR 1,750 per month.

Step 3: Annual contribution difference

Design A: 17,000 x 12% x 12 = 2,040 x 12 = SAR 24,480. Design B: 18,750 x 12% x 12 = 2,250 x 12 = SAR 27,000. Difference = SAR 2,520 per year.

The same package costs about SAR 2,520 a year more under Design B in contributions alone.

Step 4: End-of-service after five years

Both designs: 5 x (20,000 x 0.5) = 5 x 10,000 = SAR 50,000, since the assumed base is the total package.

Under this assumption, the split does not change end-of-service; if the law or contract counts only some components, it would.

Step 5: Five-year total of the differences

Contribution difference 2,520 x 5 = SAR 12,600 more for Design B over five years.

A modest amount per employee, but it matters across a large workforce and must be weighed against what the employee gains in benefits.

What changes the answer

• If the contributory wage includes more components, the difference between designs shrinks.
• A higher basic gives the employee more social insurance benefit, which matters to Saudi staff in particular.
• If end-of-service is calculated on basic only in your contract, Design A lowers that liability too, but check the law first.
• Overtime is typically calculated with reference to basic wage, so a lower basic reduces overtime cost and the employee overtime income.
• Designing a package mainly to minimise contributions invites scrutiny and harms trust with employees.

What the numbers tell you

• The split between basic and allowances is a policy choice with cost effects across several lines.
• Keep the split consistent across roles, with reasons that would make sense to an inspector and an employee.
• Model contributions, overtime and end-of-service together before fixing a template.
• Confirm every rate and definition used in the model with GOSI and an adviser.

Limits of this example

Every figure above is an illustrative assumption used to show the method, not a quote, valuation or market rate. Costs, rates, fees and regulations change and must be confirmed with the relevant authority, lender or supplier before you commit.

Domira works with foreign investors on the property side of entering Saudi Arabia: finding land or premises, due diligence, design, construction and asset management. For licensing, tax and legal steps, work with a licensed adviser; we coordinate with yours so the property decision fits the structure you choose.