IAS 19 covers every form of consideration an employer gives for service, from monthly salaries to end-of-service gratuity. Getting the category right decides how the benefit is measured and where the cost goes.
- IAS 19 has four categories: short-term, post-employment, other long-term and termination benefits.
- Gulf end-of-service gratuity is a post-employment defined benefit plan and is measured actuarially.
- GOSI contributions are generally accounted for as a defined contribution state plan.
1. Short-term employee benefits
Benefits expected to be settled wholly within twelve months after the end of the period in which the service is rendered: salaries, allowances, social security contributions, paid annual leave and sick leave, bonuses and non-monetary benefits such as housing and medical cover. They are recognised undiscounted as the service is rendered. Accumulating paid absences, such as annual leave that can be carried forward, are accrued as employees build up their entitlement; if a significant part is not expected to be used within twelve months, the balance falls into other long-term benefits instead.
2. Post-employment benefits
Benefits payable after employment ends, through either defined contribution or defined benefit plans.
Defined contribution plans limit the employer's obligation to the contributions it agrees to pay. The expense is the contribution for the period. Contributions to GOSI in Saudi Arabia and to the Social Insurance Organisation in Bahrain are generally treated this way, as state plans.
Defined benefit plans promise a benefit formula, so the employer bears the risk that the cost is higher than expected. End-of-service gratuity under the Saudi Labor Law, and in most other GCC states, is the main example: a lump sum based on final salary and years of service. It is measured with the projected unit credit method using actuarial assumptions for discount rate, salary growth, attrition, retirement age and mortality. Service cost and net interest go to profit or loss, and remeasurements to other comprehensive income. In Bahrain, gratuity for expatriate service from 1 March 2024 is funded through monthly contributions and is a defined contribution plan, while the benefit accrued before that date remains a defined benefit obligation.
For the calculation of the Saudi award itself, see our 2026 guide to EOSB actuarial valuation.
3. Other long-term employee benefits
Benefits not expected to be settled wholly within twelve months and not post-employment: long-service awards, long-term incentive bonuses and accumulating leave expected to be used later. They are measured with the same actuarial method as defined benefit plans, but remeasurements go straight to profit or loss rather than OCI.
4. Termination benefits
Benefits payable because the employer ends employment before the normal date, or because the employee accepts an offer of benefits in exchange for leaving, such as a voluntary separation scheme. They are recognised at the earlier of when the entity can no longer withdraw the offer and when it recognises related restructuring costs. Note the distinction: the end-of-service award an employee receives when dismissed is a post-employment benefit already provided for; only the additional amount paid because of the termination, such as compensation under Article 77 of the Saudi Labor Law, is a termination benefit.
Where finance teams go wrong
- Booking end-of-service gratuity at the amount payable today rather than the actuarial obligation.
- Putting all remeasurements through profit or loss, or long-service award remeasurements through OCI.
- Leaving accumulating leave balances undiscounted when much of it will be used years later.
- Treating dismissal payments that are already within the gratuity formula as additional termination benefits.
