How To Hire And Pay Employees In Saudi Arabia

Home to most of the Saudi royals, the capital city of Riyadh is rapidly becoming one of the main economic hubs in the Middle East. With a recent pivot on the national business model, Saudi Arabia is becoming a good environment for foreign companies looking to get established in the region. By doing business in the country, companies have access to one of the most permissive tax regimes.

Getting set up in Saudi Arabia can be a lengthy and expensive process – administrative and immigration processes are known to be time-consuming and the initial investment can be significant. With improving levels of English proficiency, Arabic is still expected for most of the official documentation and processes.

Employee costs in Saudi Arabia are expected to be 10-15% of their salary.

The annual leave entitlement in KSA is dependent on the employee’s length of service, as follows:

• 1-5 years' service: 21 days of annual leave
• 5+ years' service: 30 days of annual leave

Employees may carry over any untaken leave with the employer’s written consent. Employees may request ten additional days of unpaid leave per year, subject to the employer’s approval.

The typical probation period in KSA is 90 days. This may be extended, subject to the employee’s written consent, but cannot exceed 180 days. One day’s notice is required to terminate the employment relationship during the probation period.

The termination process is based on the type of contract and reason for termination. The employer must give a valid reason for the dismissal of an employee. If an employer cannot provide lawful reasoning, compensation may be issued. If an employee resigns, the employer must issue their final salary immediately.

The mandatory notice period is 30 days for employees on a fixed term contract and 60 days for employees on an indefinite contract. Employees are entitled to the following end of service benefits in the event of termination by the employer.

• 50% of salary for each year served for the first five years
• 100% of salary for each year served after the first five years

Employees who resign are entitled to the following end of service benefits:

• Under two years' service: no payment 
• 2-5 years' service: one third of accrual
• 5-10 years' service: two thirds of accrual
• 10+ years' service: full accrual

Restraints that protect the employer's legitimate business interests may be enforced if reasonable. Non-compete clauses are honoured as long as they are in writing and clearly specify place, duration (no longer than two years), and type of work. If there is no written agreement, or an express non-compete clause is not included in an employment contract, the law will not impose any restrictions. Confidentiality clauses must also be in writing and clearly specify place, type of work, and duration, although there is no specific time limit on these restrictions. If an ex-employee breaches a non-compete or confidentiality clause, the former employer may sue them within one year after discovering the breach. Customer non-solicit clauses are permissible in narrow circumstances and employee non-solicit clauses are acceptable.

The Ministry of Human Resource and Social Development has drawn up a standard employment contract that complies with the Labour Law. In addition to the core terms in this standard employment contract, the employer and the employee may agree to add any other terms and conditions as long as they do not conflict with the Labour Law. Any provision in an employment contract that contradicts the provisions of the Labour Law is deemed null and void. Employment contracts must be in Arabic (as must all employment-related records and files, and instructions issued by employers to workers). If another language is used alongside Arabic, the Arabic text prevails. Employers are required to upload all employment contracts to an online portal run by the General Organisation for Social Insurance (GOSI) for authentication.

Expectant mothers are entitled to 10 weeks’ paid maternity leave commencing four weeks before their due date. The payment of maternity leave is dependent on the employee’s length of service, as follows:

• 1-3 years' service: 50% of employee's normal salary rate
• 3+ years' service: 100% of employee's normal salary rate

Employees receiving the full maternity leave entitlement may not also take the payment of annual leave in the same year. In contrast, an employee receiving 50% of their salary as a maternity benefit may also take an annual leave entitlement of 50% in the same year.

Fathers are entitled to 3 days’ paid paternity leave for the birth of a child.

Employees are entitled to 120 days of sick leave per year, as follows:

• Full pay for the first 30 days of illness
• 1/3 pay for the next 60 days of illness
• Unpaid leave for a further 30 days of illness

Sick leave is paid by the employer. Employees are required to provide a medical certificate for all sick days.

For non-Saudi employees, the employer is required to contribute 1.5% Social Insurance Tax, which covers occupational hazard (minimum earnings 400 SAR, maximum earnings 45,000 SAR). For Saudi employees, the employer is required to contribute 12% Social Insurance Tax, which covers occupational hazard, pension, and unemployment (minimum earnings 1,500 SAR, maximum earnings 45,000 SAR). All Social Insurance Tax contributions must be calculated on a daily rather than a monthly basis.

Sponsor employers must provide foreign employees with medical insurance. Healthcare in KSA is currently provided free of charge to all Saudi citizens and expats working in the public sector.

The national minimum wage in KSA is 4,000 SAR per month.

No personal income tax is payable in KSA.

The payroll frequency is weekly or monthly. The employer must make the payment for weekly employees once a week and for monthly employees, at least once a month.

Non-Saudi employees are required to contribute 10% Social Insurance Tax to cover occupational hazard, in addition to an employer contribution of 1.5%.