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Employment in Saudi Arabia

Saudi Arabian employment law might appear complex and confusing for an individual unfamiliar with the country. There are, however, many similarities to other countries. As the following only aim to act as a guide in the broadest sense, it is still recommended that professional legal advice be sought when employing in Saudi Arabia.

Key points on employment in Saudi Arabia

There are several key areas to be aware of within Saudi Arabia’s employment regulatory framework, specifically for companies that plan to initiate a full local office and human resources department.  These challenges can be mitigated by use of a locally sourced payroll provider who is familiar with all of the local laws and rules for both local employees as well as foreign nationals.

  1. Contracts

    Saudi Arabia requires that workers have employment contracts that meet local labor law standards. Companies must have a professional who can draft local employment contracts in Arabic and English.

  2. Probation Periods

    Saudi law explicitly states that probation periods may not last longer than 30 days, as stated by the Saudi Arabia embassy.

  3. Termination Procedures

    A.  Notice Period

    For employees employed at a monthly rate, the employer must give thirty-days notice, or fifteen-days notice for other workmen. Alternatively, the employer can give payment in lieu of notice. Payment is generally based on the average wages of the last three months.

    B.  Procedure

    The employer must have a valid reason for terminating the employee. According to labor laws listed by the Saudi Arabia embassy, examples of valid reasons include employees still under probation, gross misconduct, prolonged absence without valid reasons, violence, refusal to perform critical work duties, or failing to heed clear performance warnings. The dismissal could be regarded as having no valid reason if the employee was fired for reasonably refusing to accept a transfer.

    If an employee takes legal action and the dismissal was found to be without valid reason, the court may order compensation or reinstatement of the employee.

    According to Lexology, Saudi Arabia law does not yet provide for the concept of redundancies (although the article is undated, it is circa 2011).

    C.  Severance Pay

    According to SAP’s Saudi Arabia page, Saudi labor law stipulates End of Service (EOS) payments are to be calculated based on the average wages (plus housing allowance) and service years an employee has worked, unless the employee was terminated due to gross misconduct.

    If terminated by employer the severance is equal to the wages for a half-month for each year for the first five years of service, and a whole month for each subsequent year.

    However, if the employee quits, the award is modified based on the following:

    • Less than 2 years – no award
    • 2-5 years – one-third of the award
    • 5-10 years – two-thirds of the award

    The employee may be entitled to the full award if they leave for reasons outside of their control (force majeure), or if it is a female worker who ends her contract within six months from the date of her marriage or three months from the date of giving birth.

  4. Statutory Leave:

    A.  Annual Leave

    Saudi Arabia guide Pinoy-Ofw states that Saudi Labor Law grants workers 21 days paid annual vacation. It will become 30 days once a worker completes five consecutive years of service. In general employees should use vacation leave during the year it is due.

    B.  Sick Leave

    Pinoy-Ofw reports that if an employee’s sickness has been proven (e.g. medical certificate), they are allowed up to four months sick leave from employer. Under these conditions the employer cannot terminate the employee during this time.

    It is possible to connect sick leave with annual holiday benefit. The following lists down the quota which is implemented on yearly basis.

    • First 30 days- Fully paid
    • Next 60 days – 3/4 of total wages
    • Next 30 days – Unpaid

    C.  Grieving Leave

    In the case of the death of a spouse or immediate biological family, workers are entitled 3 days paid leave. Female workers are entitled 15 days paid leave, according to Pinoy-Ofw.

    D.  Religious Leave

    There is a variety of religious-related leave entitlements in Saudi Arabia, as reported on Pinoy-Ofw.

    Hajj Holidays

    Hajj is the annual Islamic pilgrimage among Muslim faithful held at the holy city of Mecca. If an employee joins they are allowed 10 days of paid vacation. However, they must have completed two years with the company first and can only take this leave once every five years.

    Eid ul Fitr

    Workers are allowed 4 days of paid vacations from 30th Ramadan for the Eid ul Fitr.

    Eid ul Adha

    Workers are allowed to have 4 days of paid vacations from 9th Zil Hajja for the Eid ul Adha.

    E.  Maternity/Family Leave

    Marriage Leave

    Pinoy-Ofw reports employees are given 3 days of paid marriage leave. Marriage leave is separate to annual leave, e.g. if an employee takes two weeks of holiday leave to get married, 3 of those days will be deducted from Marriage Leave and the remaining from Annual Leave.

    Maternity Leave

    Pinoy-Ofw reports that female workers are entitled to 10 weeks of leave to deliver a child, starting from 4 weeks before the delivery date and 6 weeks after. This leave can also be connected with Annual Leave if the worker chooses to. During the period of Maternity Leave, the company cannot terminate the worker.

    Maternity Leaves pay is determined as such:

    • Less than 1 year – Unpaid
    • 1 year – Half paid
    • 3 years or more – Fully paid

    Male workers are entitled to one day of paid paternity leave to attend the birth of their newborn.

  5. Pensions and Benefits:

    A.  Pension and Accident Insurance

    According to the Doing Business project, the General Organization for Social Insurance (GOSI) covers two branches: pension and workplace injury insurance. Employers contribute 11% of employee salary (Saudi employees), whereas the employees must contribute 9%.

    Law firm Hatem Abbas Ghazzawi & Co. provides more detail, stating that for the workers’ compensation and disability plan administered by GOSI, both Saudi employees and employers contribute an equal 2% of their salary. For the retirement scheme administered by GOSI, which only covers Saudi nationals, both the employer and employee contributes 9% each.

    This makes a total of 11% each, 11% for employer and 9% for foreign employees since they do not contribute 2% to the retirement fund.

    B.  Health Insurance

    Hatem Abbas Ghazzawi & Co. reports that while there is no government health plan, medical and hospital care is free for Saudi citizens.

Outsourcing Employment Through a GEO Employer of Record Service

Compliance with local employment requirements is just one of the issues foreign companies face when employing staff in Saudi Arabia. For companies which intend to employ their staff directly through their incorporated Saudi Arabia entity, professional legal advice is recommended. Shield GEO provides an alternative path for companies to outsource the employment of their staff in Saudi Arabia.

As a Global Employer Organization (GEO), Shield GEO acts as the Employer of Record and ensures the employment is compliant with host country regulations regarding employment. In addition Shield GEO will handle payroll processing, tax and immigration. Using Shield GEO is the fastest and most cost effective way to deploy local and foreign workers into Saudi Arabia.

The Shield GEO solution is an attractive alternative where:

– the company is looking to employ staff quickly

– the company doesn’t have an appropriately incorporated entity in Saudi Arabia

– the company wants to work within a defined budget

– the company wants to limit its initial commitment in Saudi Arabia

– the company needs help with tax, employment, immigration and payroll compliance in Saudi Arabia

Shield GEO can contract directly with the company to employ and payroll their staff in Saudi Arabia. Shield GEO supplies local employment contracts for the staff which ensure that local statutory requirements are met covering issues such as termination, probation periods, leave entitlements and statutory benefits.  Shield GEO is able to advise companies how to cover local employment regulations whilst still providing consistent global employment policies. Understand more about outsourced employment through Shield GEO

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