How Is End-of-Service Indemnity Calculated in Kuwait?

End-of-service indemnity — sometimes called gratuity or severance — is one of the first things employees and employers in Kuwait ask about when a contract is ending, and one of the most frequently miscalculated. The framework is set out in Kuwait's Private Sector Labour Law No. 6 of 2010, primarily Articles 51 through 54, and while the underlying formula is fixed, the final number depends heavily on tenure and who ended the contract.

The basic mechanics start with a daily wage. Kuwaiti practice treats a working month as 26 days for this calculation, so the daily wage is the employee's full last-drawn monthly salary — including regular allowances, not just base pay — divided by 26. That daily figure is then multiplied against a tiered formula: 15 days' wage for each of the first five years of service, and 30 days' wage for each year beyond the fifth. The switch from 15 to 30 days per year after year five is the single detail most people miscalculate, since a straight-line estimate understates the payout for longer-serving employees.

There is also a statutory ceiling. Regardless of how long someone has worked, total indemnity is capped at 1.5 years' total salary (18 months' pay). Most departing employees never approach this cap, but it becomes relevant for very long-tenured senior staff, and employers modelling payroll liabilities should factor it in as an outer bound rather than assuming the tiered formula runs indefinitely.

The reason for leaving changes the outcome materially. An employee whose contract ends through employer termination, non-renewal, or expiry is generally entitled to the full calculated indemnity. An employee who resigns is treated differently on a sliding scale tied to tenure: under three years of service, a resigning employee is typically not entitled to indemnity at all; between three and five years, roughly half the calculated amount; between five and ten years, roughly two-thirds; and beyond ten years of service, the full amount even on resignation. This sliding scale is designed to reward longer service and is frequently the source of disputes when an employee resigns expecting a full payout that the tenure threshold doesn't yet support.

A few practical points matter in application. First, indemnity is calculated on the final salary at the point of departure, not an average across the employment period — a recent raise or allowance change affects the whole calculation, not just the final year. Second, unused annual leave is a separate entitlement from indemnity and should be settled alongside it, not folded into the same figure. Third, any lawful deductions (advances, loans, proven damages) are typically settled against the final dues rather than the indemnity figure being paid in isolation from everything else owed.

For employers, the practical risk is usually administrative rather than legal in theory: getting the daily-wage base wrong (using basic salary instead of full last-drawn salary), or applying the 15-day rate across the whole tenure instead of switching to 30 days after year five. For employees, the more common issue is assuming a resignation carries the same entitlement as a termination without checking where their specific tenure falls on the sliding scale. Getting a specific calculation checked before signing off on a final settlement — on either side — is usually worth the short delay it takes.

If your company processes a steady flow of contract endings, it is worth building indemnity calculation into your standard offboarding checklist alongside residency and visa steps, covered in our guide on the residency transfer process for employers under Insights. You can also review the underlying contract terms that shape this figure on our practice areas page.

It is also worth understanding how indemnity interacts with contract type. Fixed-term contracts and indefinite (open-ended) contracts are both covered by the same underlying formula, but disputes more often arise around fixed-term contracts that end before their stated term — whether through early termination by either party or a mutual agreement to end early. In those cases, the same tenure-based tiers and resignation sliding scale generally still apply, calculated up to the actual last day worked rather than the original end date stated in the contract. Employees and employers negotiating an early exit from a fixed-term contract should treat the indemnity calculation as a distinct line item in that negotiation, not something automatically resolved by whatever settlement figure is proposed for other outstanding matters.

Domestic workers and certain other categories are covered by separate, related regulations rather than the private-sector law described above, so the general formula in this article should not be assumed to apply automatically outside standard private-sector employment. Anyone unsure which framework covers their specific role is better served confirming this at the outset of a dispute rather than midway through, since it changes which government department and procedural track applies.