How to Calculate an Employee's Monthly Salary in Saudi Arabia Step by Step
The process of calculating an employee's monthly salary begins with determining three main components: the basic salary, additional due amounts such as allowances, incentives, and overtime, and then the deductions that are subtracted to reach the net amount due to the employee.
This can be expressed by the following formula:
Net Salary = Basic Salary + Allowances and Other Dues - Deductions
However, the final salary value may vary from one employee to another depending on the employment contract, attendance and absence record, number of overtime hours, allowances, commissions, vacations, and statutory deductions.
In the Kingdom of Saudi Arabia, the labor law distinguishes between the basic wage and the actual wage; the actual wage consists of the basic wage plus increases and other amounts due according to the contract or the work organization regulations, which may include certain allowances, commissions, bonuses, and benefits.
How is the employee's monthly salary calculated?
The monthly salary value can be reached through four main steps:
- Determine the basic wage value.
- Add allowances and due amounts.
- Calculate variable dues such as commission or overtime.
- Subtract the deductions that must be discounted.
The first formula is:
Total Dues = Basic Salary + Allowances + Variable Dues
After determining the total dues:
Net Salary = Total Dues - Total Deductions
Example of calculating an employee's salary
Suppose the employee's data during the month is as follows:
| Item | Value |
|---|---|
| Basic Salary | 7,000 SAR |
| Housing Allowance | 1,500 SAR |
| Transportation Allowance | 500 SAR |
| Additional Dues | 300 SAR |
| Total Deductions | 700 SAR |
The total due amounts would be:
7,000 + 1,500 + 500 + 300 = 9,300 SAR
As for the net salary, it is calculated as follows:
9,300 - 700 = 8,600 SAR
Therefore, the final amount due to the employee in this example is 8,600 SAR.
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What is the difference between basic salary, gross salary, and net salary?
Understanding the difference between these terms helps to know the correct method when calculating the employee's monthly salary in Saudi Arabia.
| Term | Meaning |
|---|---|
| Basic Salary | The agreed-upon basic wage in exchange for performing the work |
| Allowances | Additional amounts, such as housing or transportation allowance, as stipulated in the contract |
| Total Dues | The sum of the basic salary, allowances, and other due amounts |
| Deductions | Amounts deducted according to regulations, contract, and approved policies |
| Net Salary | The final remaining value after adding dues and subtracting deductions |
The basic wage in the Saudi labor law means what is given to the worker in exchange for their work, plus periodic increments, while the actual wage includes other due elements according to the contract or the facility's regulations.
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Method of calculating basic salary and allowances
There is no fixed percentage applicable to all employees to determine the value of allowances compared to the basic salary, rather these values are determined according to the employment contract, the facility's policy, and the nature of the job.
For example:
Basic Salary = 8,000 SAR
Housing Allowance = 2,000 SAR
Transportation Allowance = 800 SAR
Thus, the total fixed salary is:
8,000 + 2,000 + 800 = 10,800 SAR
However, a distinction should be made between total dues and the wage used for other purposes, such as certain subscriptions or statutory rights, because the calculation basis may change depending on the type of entitlement.
For example, the General Organization for Social Insurance clarifies that the wage subject to subscription has specific elements and a definition, including the basic wage and housing allowance according to the applied rules, which does not necessarily mean that all types of allowances are included within the subscription basis.
What is the method for calculating the net salary?
Calculating the net salary is done by deducting all due deductions from the total amounts due to the employee.
The formula is:
Net Salary = Total Dues - Total Deductions
The dues side may include:
- Basic Salary.
- Housing Allowance.
- Transportation Allowance.
- Commissions.
- Incentives.
- Due Bonuses.
- Overtime Pay.
While deductions may include, depending on the employee's and facility's situation:
- Statutory subscriptions.
- Unpaid absence days.
- Delay deductions when deduction is due.
- Advances and installments.
- Deductions or penalties legally permitted.
- Any other amounts due for deduction according to the contract and regulations.
This is why the salary mentioned in the employment contract may not equal the amount actually transferred to the bank account at the end of each month.
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Calculating the monthly salary per day
When wanting to calculate the monthly salary per day, the purpose of the process must be determined first: Did the employee start working during the month? Are there unpaid absence days? Or is it required to know the value of one day to calculate a specific entitlement?
The Saudi Labor Law defines the month as thirty days unless the employment contract or the work organization regulations stipulate otherwise.
By adopting the thirty-day basis, the formula is:
Daily Value = Monthly wage used in calculation ÷ 30
Example
If the approved wage value for calculation is:
9,000 SAR
The daily value would be:
9,000 ÷ 30 = 300 SAR
And if the entitlement, for example, is for 20 days according to the statutory situation:
300 × 20 = 6,000 SAR
But this formula should not be used automatically in all cases, because determining the wage elements that enter into the deduction or entitlement process depends on the type of operation, the employee's contract, the facility's regulations, and the statutory rules associated with them.
How is the salary calculated upon absence?
In case of unpaid absence, the daily value on which the deduction will be applied must be determined first, by referring to the contract, the law, and the facility's regulations.
When using a 30-day month basis:
Daily Value = Approved wage for deduction ÷ 30
Then the absence value is calculated:
Absence Value = Daily Value × Number of absence days due for deduction
After that:
Salary after absence = Dues - Deduction value - Other deductions
Here the importance of linking the payroll system with attendance and departure data becomes clear, because registering absence and delay manually within payroll records may lead to discrepancies in data between the HR department and the accounting department.
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How are overtime hours calculated?
Overtime is not always calculated at the same value as the regular working hour.
The Ministry of Human Resources and Social Development clarifies that the overtime hour wage is calculated based on the hourly wage from the actual wage plus 50% of the basic hourly wage.
The calculation method is as follows:
Hourly wage from actual wage = Actual Wage ÷ 30 ÷ 8
Basic hourly wage = Basic Wage ÷ 30 ÷ 8
Then:
Overtime hourly wage = Actual hourly wage + 50% of basic hourly wage
Simplified Official Example
If the data is as follows:
- Basic = 4,000 SAR
- Actual Wage = 6,000 SAR
The hour value from the actual wage would be:
6,000 ÷ 30 ÷ 8 = 25 SAR per hour
As for the basic hourly wage:
4,000 ÷ 30 ÷ 8 ≈ 16.67 SAR
Thus, the overtime hourly wage is:
25 + (16.67 × 50%) ≈ 33.33 SAR
And if the employee worked 3 overtime hours:
33.33 × 3 ≈ 100 SAR
This is the example used by the Ministry of Human Resources to explain the mechanism for calculating overtime pay.
Quick table for salary calculation cases
| Case | Calculation Method |
|---|---|
| Total Dues | Basic + Allowances + Other Dues |
| Net Salary | Total Dues - Deductions |
| Daily Value | Approved Wage ÷ 30 |
| Dues for a number of days | Daily Value × Number of Days |
| Absence Deduction | Approved daily value for deduction × Absence days |
| Actual Hourly Wage | Actual Wage ÷ 30 ÷ 8 |
| Basic Hourly Wage | Basic ÷ 30 ÷ 8 |
| Overtime | Actual Hourly Wage + 50% of Basic Hourly Wage |
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How to calculate a government employee's salary
There is no single formula that can be applied to all state employees when calculating the government salary, because employees work within different career scales depending on the sector and job.
Examples of these scales:
- General Employees Salary Scale.
- Educational Jobs.
- Health Jobs.
- Diplomatic Jobs.
- And other career scales.
In general:
Net salary of government employee = Basic salary according to scale and degree + Dues and allowances - Deductions
Also, the state employees' payroll form shows that the net transferred amount results from adding other dues to the basic salary and then subtracting the deductions.
Therefore, reaching an accurate value for the government salary requires knowing the career scale, rank or level, degree, and due allowances.
Why does the salary value vary from month to month?
The basic salary may remain unchanged, while the net monthly salary changes as a result of multiple factors, including:
- Overtime hours.
- Commissions.
- Incentives.
- Absence.
- Delay.
- Advances.
- Vacations affecting entitlement value.
- Changes occurring to allowances.
- Change in some deductions.
- Employee starting work or ending service during the month.
Therefore, it is not sufficient to rely on the basic salary alone when preparing the payroll.
What is a payroll calculation software?
Payroll calculation software is a system that helps the HR department collect employee data, attendance, allowances, and deductions, and process them to prepare an organized payroll sheet, instead of distributing these calculations across separate files and performing them manually.
The system's benefit increases when it combines:
Employee File → Attendance Schedule → Attendance and Absence → Delay and Overtime → Allowances and Deductions → Payroll
This is the role that an employee management system can play; as it allows defining employees, branches, departments, salaries, and career scales, in addition to managing allowances, deductions, attendance, and vacations, and then processing daily and monthly attendance data and preparing salary reports and sheets. Book your consultation to discover the appropriate solution.
How does linking attendance with payroll help?
In many cases, the payroll error starts from inaccurate time data, not from an error in the mathematical formula itself.
If the facility does not have accurate data on:
- Employee attendance days.
- Absence days.
- Delay cases.
- Actual working hours.
- Overtime hours.
- Vacations.
The payroll result may be inaccurate even with using a correct calculation formula.
Therefore, attendance management systems help in processing daily and monthly attendance data, including actual working hours, delay, and overtime, which supports the HR department in preparing payroll data based on unified records.
You can also book your consultation to learn about the business management solutions suitable for the facility's needs.
Payroll Software or Excel?
Using Excel may be appropriate when the number of employees is extremely limited, but an increase in the number of employees may lead to various challenges, such as:
- Repeating formulas.
- Possibility of errors during data entry.
- Forgetting to update allowance values.
- Discrepancy between attendance data and payroll sheet.
- Difficulty tracking previous modifications.
- Increased time required to complete payroll procedures.
A specialized system helps organize employee data, attendance, dues, and deductions in a more interconnected manner, with the continued need for human review before approving the payroll.
Common errors when calculating the monthly salary
Among the most prominent errors to pay attention to:
- Not distinguishing between basic salary and net salary.
- Considering all allowances included in every calculation basis.
- Calculating absence deduction based on an incorrect value.
- Overlooking overtime hours.
- Not updating employee information.
- Using inaccurate attendance records.
- Applying the same deductions to all employees without considering their situation.
- Not differentiating between gross salary and wage subject to social insurance.
- Neglecting to review the employment contract and facility's regulations.
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Frequently Asked Questions
How do I calculate my monthly salary?
Start by adding the basic salary to allowances and other dues, then subtract the value of due deductions:
Net = Total Dues - Deductions
How do I calculate my salary per day?
When using the 30-day month basis:
Daily Value = Approved Monthly Wage ÷ 30
With the necessity of considering the contract, work organization regulations, and type of entitlement or deduction when performing the calculation.
How do I calculate basic salary and allowances?
The basic salary is determined according to the employment contract, then due allowances, such as housing or transportation, are added according to the contract and the facility's policy. There is no single percentage for allowances that applies to all employees.
How is the net salary calculated?
Net Salary = Basic + Allowances + Incentives and Dues - Deductions
Is the housing allowance part of the basic salary?
Not necessarily, as the basic salary differs from allowances, but some regulations and calculations may include specific elements of allowances within a certain basis, such as the rules related to the wage subject to social insurance.
How do I calculate a government employee's salary?
The basic salary is first determined according to the career scale, rank or level, and degree, then allowances and dues are added and due amounts are deducted to reach the net transferred amount.
What is the best employee payroll calculation software?
The appropriate payroll system is the one that is not limited to performing mathematical operations, but rather links employee information with attendance, absence, overtime, allowances, and deductions. You can register and get the trial period to learn how to manage employee data and payroll.
Conclusion
How to calculate an employee's monthly salary depends on a seemingly simple formula:
Net Salary = Basic Salary + Allowances and Dues - Deductions
However, reaching an accurate result requires determining the correct basis for each element, and linking salary data with attendance, absence, overtime, vacations, and deductions applied to the employee.
When calculating the monthly salary per day, a 30-day basis is used in cases where this applies according to the labor law unless there is a text stating otherwise, while a government employee needs to refer to the career scale, degree, and dues associated with their job.
As for facilities dealing with large numbers of employees, using a time and attendance tracking software helps collect employee data, payroll, allowances, deductions, attendance, vacations, and overtime within a single database, instead of managing each element through an independent file.
After identifying its needs, the facility can book a consultation or register and get a trial period to test the attendance and payroll cycle using data close to the actual work environment.
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