How to Calculate an Employee’s Monthly Salary in Saudi Arabia Step by Step

Calculating an employee’s monthly salary depends on understanding three basic elements: the basic salary, additional earnings such as allowances, incentives, and overtime, and the deductions subtracted to arrive at the amount transferred to the employee.

The process can be summarized in the following formula:

Net salary = Basic salary + Allowances and other earnings - Deductions

However, the actual calculation may differ from one employee to another depending on the employment contract, attendance and absences, overtime hours, allowances, commissions, leave, and statutory deductions.

In Saudi Arabia, the Labor Law distinguishes between the basic wage and the actual wage. The actual wage includes the basic wage along with increases and other amounts due under the contract or work regulations, including certain allowances, commissions, bonuses, and benefits.

How Is an Employee’s Monthly Salary Calculated?

An employee’s monthly salary can be calculated in four stages:

1. Determine the basic salary.
2. Add allowances and earnings.
3. Add variable earnings such as overtime or commission.
4. Subtract the applicable deductions.

The formula is:

Total earnings = Basic salary + Allowances + Variable earnings

Then:

Net salary = Total earnings - Total deductions

Example of Calculating an Employee’s Salary

Suppose the employee’s details are as follows:

Total earnings:

7,000 + 1,500 + 500 + 300 = 9,300 SAR

Net salary:

9,300 - 700 = 8,600 SAR

Therefore, the final amount the employee receives in this example is 8,600 SAR.

Discover: Personnel Management Software

What Is the Difference Between Basic Salary, Gross Salary, and Net Salary?

These terms are among the most important concepts to understand when looking into how to calculate an employee’s monthly salary in Saudi Arabia.

The Saudi Labor Law defines the basic wage as what is paid to a worker in return for their work, together with periodic increments, while the actual wage includes other components due under the contract or the establishment’s regulations.

Discover: The Best Accounting Software in Saudi Arabia

How to Calculate Basic Salary and Allowances

There is no uniform percentage of the basic salary that allowances must represent for all employees; they depend on the employment contract, the establishment’s policy, and the nature of the job.

For example:

Basic salary = 8,000 SAR

Housing allowance = 2,000 SAR

Transportation allowance = 800 SAR

Total fixed salary:

8,000 + 2,000 + 800 = 10,800 SAR

However, a distinction must be made between total earnings and the wage used for other purposes, such as certain contributions or statutory entitlements, because the calculation basis may differ depending on the type of entitlement.

For example, the General Organization for Social Insurance explains that the wage subject to contributions has a specific definition and components, including the basic wage and housing allowance under the applicable rules. This does not necessarily mean that all allowances are included in the contribution basis.

How Is Net Salary Calculated?

Calculating net salary involves subtracting all applicable deductions from the employee’s total earnings.

The formula:

Net salary = Total earnings - Total deductions

Earnings may include:

• Basic salary.
• Housing allowance.
• Transportation allowance.
• Commissions.
• Incentives.
• Bonuses due.
• Overtime.

Meanwhile, deductions may include the following, depending on the circumstances of the employee and the establishment:

• Statutory contributions.
• Unpaid absences.
• Lateness when a deduction is applicable.
• Salary advances and installments.
• Deductions or penalties permitted by law.
• Any other deductions due under the contract and regulations.

Therefore, the salary stated in the contract does not necessarily equal the final amount deposited into the bank account each month.

Learn how to calculate employee salaries in the video.

Calculating Monthly Salary on a Daily Basis

When you need to calculate monthly salary on a daily basis, it is important first to determine the reason for the calculation: Did the employee start work during the month? Are there days of unpaid absence? Or is a daily rate being calculated for a specific entitlement?

The Saudi Labor Law defines a month as thirty days unless the employment contract or work regulations state otherwise.

Based on the thirty-day basis:

Daily rate = Monthly wage used in the calculation ÷ 30

Example

If the wage used as the calculation basis is:

9,000 SAR

Daily rate:

9,000 ÷ 30 = 300 SAR

If, for example, the amount due covers 20 days under the applicable legal circumstances:

300 × 20 = 6,000 SAR

However, this formula should not be applied automatically to every case, because determining which wage components are included in a deduction or entitlement depends on the type of transaction, the employee’s contract, the regulations, and the relevant statutory rules.

How Is Salary Calculated When an Employee Is Absent?

When there is an unpaid absence, the daily rate used for the deduction must first be determined in accordance with the contract, the law, and the establishment’s regulations.

Based on a 30-day month:

Daily rate = Wage used for the deduction ÷ 30

Then:

Absence deduction = Daily rate × Number of absence days subject to deduction

After that:

Salary after absence = Earnings - Absence deduction - Other deductions

This highlights the importance of linking payroll with attendance, because manually entering absence days and lateness into payroll records may lead to discrepancies between human resources and accounting data.

Discover: Employee Time and Attendance System

How Is Overtime Pay Calculated?

Overtime is not always calculated at the same rate as a regular working hour.

The Ministry of Human Resources and Social Development explains that the overtime hourly rate is calculated based on the hourly rate derived from the actual wage plus 50% of the basic hourly rate.

The method is:

Hourly rate derived from the actual wage = Actual wage ÷ 30 ÷ 8

Basic hourly rate = Basic wage ÷ 30 ÷ 8

Then:

Overtime hourly rate = Actual hourly rate + 50% of the basic hourly rate

A Simplified Official Example

If:

• Basic wage = 4,000 SAR
• Actual wage = 6,000 SAR

Then:

6,000 ÷ 30 ÷ 8 = 25 SAR per hour

The basic hourly rate:

4,000 ÷ 30 ÷ 8 ≈ 16.67 SAR

Overtime hourly rate:

25 + (16.67 × 50%) ≈ 33.33 SAR

If the employee works 3 overtime hours:

33.33 × 3 ≈ 100 SAR

This is the example used by the Ministry of Human Resources to explain the calculation method.

Quick Reference Table for Salary Calculations

How to Calculate a Government Employee’s Salary

Calculating a government employee’s salary does not rely on a single formula for all state employees, because employees are subject to different pay scales depending on their sector and position.

These include scales such as:

• The general employee salary scale.
• Educational positions.
• Healthcare positions.
• Diplomatic positions.
• Other occupational pay scales.

In general:

Government employee’s net salary = Basic salary according to the pay scale and step + Earnings and allowances - Deductions

The government employee payroll form confirms that the net amount transferred equals the basic salary plus other earnings minus deductions.

Therefore, the pay scale, rank or level, step, and applicable allowances must be known before a government salary can be calculated accurately.

Why Does the Salary Amount Vary from Month to Month?

The basic salary may remain fixed while net pay varies because of:

• Overtime.
• Commission.
• Incentives.
• Absences.
• Lateness.
• Salary advances.
• Leave that affects pay entitlement.
• Adjustments to allowances.
• Changes to certain deductions.
• The employee starting or ending employment during the month.

Therefore, relying on the basic salary alone is not sufficient to prepare payroll.

What Is Salary Calculation Software?

Salary calculation software is a system that helps human resources collect employee, work schedule, allowance, and deduction data and turn it into an organized payslip instead of performing calculations manually in separate files.

The system becomes more useful when it links:

Employee file → Work schedule → Attendance and absences → Lateness and overtime → Allowances and deductions → Payroll

This is the role performed by the employee time and attendance system from Aamal Soft. It allows employees, branches, departments, salaries, and job grades to be set up, manages allowances, deductions, work schedules, and leave, then processes daily and monthly attendance data and prepares payroll reports and statements.

How Does Linking Attendance to Payroll Help?

A salary error often starts with an error in time data rather than in the calculation formula itself.

If management does not accurately know:

• The number of days attended.
• Days of absence.
• Lateness.
• Actual working hours.
• Overtime hours.
• Leave.

The resulting salary may be inaccurate even if the calculation formula is correct.

For this reason, Digital Time processes daily and monthly attendance data, including actual working hours, lateness, and overtime, helping human resources prepare payroll data based on unified records.

You can also explore Aamal Soft’s software solutions if the establishment needs to connect employee management with other accounting and administrative solutions.

Salary Calculation Software or Excel?

Excel may be suitable when you have a very small number of employees, but as that number grows, challenges arise, such as:

• Duplicating formulas.
• Data entry errors.
• Forgetting to update allowances.
• Discrepancies between attendance data and payroll records.
• Difficulty reviewing previous adjustments.
• More time needed to finalize payroll.

A specialized system, on the other hand, makes employee data, work schedules, earnings, and deductions more organized, while human review remains necessary before payroll is approved.

Common Mistakes When Calculating Monthly Salary

Some of the most important mistakes to avoid include:

• Confusing basic salary with net salary.
• Treating all allowances as part of every calculation basis.
• Calculating absence deductions from an incorrect amount.
• Ignoring overtime.
• Failing to update employee data.
• Relying on inaccurate attendance records.
• Applying the same deductions to all employees.
• Confusing gross salary with the wage subject to social insurance contributions.
• Failing to review the employment contract and the establishment’s regulations.

Frequently Asked Questions

How Do I Calculate My Monthly Salary?

Add the basic salary, allowances, and other earnings, then subtract the applicable deductions:

Net pay = Total earnings - Deductions

How Do I Calculate My Daily Salary?

When applying a 30-day month basis:

Daily rate = Applicable monthly wage ÷ 30

Taking into account the contract, work regulations, and the type of entitlement or deduction.

How Do I Calculate Basic Salary and Allowances?

The basic salary is specified in the employment contract, then applicable allowances such as housing or transportation are added according to the contract and the establishment’s policy. There is no uniform allowance percentage for all employees.

How Is Net Salary Calculated?

Net salary = Basic salary + Allowances + Incentives and earnings - Deductions

Is the Housing Allowance Part of the Basic Salary?

Not necessarily. The basic salary is separate from allowances, but certain regulations and calculations may include specific allowance components in a particular calculation basis, such as the social insurance rules for wages subject to contributions.

How Do I Calculate a Government Employee’s Salary?

The basic salary is first determined according to the pay scale, rank or level, and step. Allowances and earnings are then added, and deductions are subtracted to arrive at the net amount transferred.

What Is the Best Software for Calculating Employee Salaries?

The best system does more than calculate numbers; it links employee data with attendance, absences, overtime, allowances, and deductions. A smart time and attendance system provides these functions within an employee, attendance, and payroll management system.

In Conclusion

Calculating an employee’s monthly salary relies on a formula that appears simple:

Net salary = Basic salary + Allowances and earnings - Deductions

However, true accuracy comes from correctly determining the basis for each component and linking salary to attendance, absences, overtime, leave, and the deductions applicable to the employee.

When calculating monthly salary on a daily basis, a 30-day basis is used in cases where it applies under the Labor Law unless otherwise stipulated, while a government employee needs to refer to the pay scale, step, and entitlements specific to their position.

For establishments managing a large number of employees, using time and attendance tracking software helps organize employee files, salaries, allowances, deductions, attendance, leave, and overtime in a single database instead of handling each element in a separate file.

After identifying its needs, an establishment can explore Aamal Soft’s solutions or request a trial to test the attendance and payroll cycle using data similar to that of the actual work environment.