LABOR LAW (ROYAL DECREE M/51)
On August 6, 2024, the Saudi Council of Ministers approved significant amendments to the Labor Law, affecting 38 articles, deleting 7, and adding 2 new provisions.
The amendments aim to:
- Develop Regulations and Policies: Streamlining labor practices to better support businesses.
- Support Small and Medium Enterprises (SMEs): Encouraging job creation for Saudi citizens through targeted support.
- Achieve Sustainable Development Goals: Aligning labor policies with broader economic objectives.
- Foster a Balanced, Dynamic, and Inclusive Labor Market: Enhancing worker protections while allowing flexibility for employers.
IMPLICATIONS FOR EMPLOYERS AND EMPLOYEES:
- For Employers: The amendments allow greater flexibility in managing human resources but impose stricter compliance requirements for worker protections. Employers must adapt to these new regulations while ensuring full adherence to the law.
- For Employees: The amendments enhance rights, protections, and benefits, promoting a fairer work environment.
HIGHLIGHTS OF THE LABOR LAW
1. Nitaqat Program (Saudization)
The Nitaqat program is designed to streamline compliance with Saudization goals by gradually increasing local employment requirements across industries, allowing businesses time to adapt. Compliance with the Nitaqat program is essential for companies to remain competitive in the labor market. Depending on their classification within the Nitaqat ranges—Platinum, High Green, Medium Green, Low Green, and Red—businesses gain access to essential services:
Platinum, High Green & Medium Green Range:
- Apply for new expatriate worker visas.
- Change expatriate workers’ occupations.
- Renew work permits for existing expatriate workers.
- Transfer expatriate workers’ sponsorship from other entities.
- Immediate counting in the Nitaqat program.
Low Green Range:
- Cannot apply for new expatriate worker visas.
- Cannot change expatriate workers’ occupations.
- Can renew work permits for existing expatriate workers.
- Immediate inclusion in the Nitaqat program.
- Cannot change expatriate workers’ occupations.
- Cannot transfer expatriate workers’ sponsorship to the entity.
- Cannot apply for new expatriate worker visas.
- Cannot issue work permits for new expatriate workers.
- Cannot renew work permits for existing expatriate workers.
2. Social Insurance Law
The Social Insurance Law provides essential protections for workers and their families, covering two primary branches:
- Occupational Hazards Branch: Covers employment-related injuries and applies to all workers without discrimination.
- Annuities Branch: Covers non-occupational disabilities, old-age pensions, and death benefits, applying compulsorily to all Saudi workers under 60. Voluntary coverage is available for self-employed individuals and certain other groups.
Additionally, the Social Insurance Law offers the following benefits for employees:
- Medical Care: Full coverage for treatment related to work injuries.
- Daily Allowance: 100% of the daily wage for temporary incapacity.
- Disability Compensation: Monthly income or a lump-sum payment based on the severity of the disability.
- Death Compensation: Monthly income for the family or a lump-sum payment.
- Retirement Pension: Eligibility at age 60 with at least 120 months of contributions.
- Early Retirement: Available for workers in hazardous occupations after 120 months of contributions.
- Disability Pension: For non-occupational disabilities, provided there are at least 12 consecutive months of contributions.
- Special Provisions for Foreign Workers: Non-Saudi workers injured at work receive a lump-sum compensation based on the severity of the disability or death, with a maximum payout of SAR 330,000.
The General Organization for Social Insurance (GOSI) is responsible for enforcing the Social Insurance Law and ensuring compliance with compulsory insurance coverage. GOSI collects contributions from employers and disburses benefits to eligible contributors and their families, thereby providing social protection and insurance coverage throughout the Kingdom. Consequently, it is mandatory for employers to register their workers with GOSI.
BREAK-DOWN OF GOSI CONTRIBUTION:
- Foreign National Employees: Employers contribute 2% of wages for the Occupational Hazards Branch.
- Saudi National Employees: Employers contribute 2% of wages for the Occupational Hazards Branch, in addition to 1.5% for unemployment insurance and 18% for the Annuities Branch. These contributions are split equally between the employer and the employee.
Compliance and Penalties:
Employers who fail to comply may face fines of up to SAR 10,000 per violation. Fines double for repeated offenses, and non-compliance may also result in the suspension of services or loss of tender opportunities.
EMPLOYMENT CONTRACTS
Upon employment, each employee must have a written employment contract specifying job titles, duties, salaries, and other employment terms. The contract must be in Arabic or accompanied by an Arabic translation that details the job title, duties, salary, benefits, and working hours. The contract should be registered with Qiwa, a branch of the Ministry of Human Resources and Social Development.
Key Contractual Elements
- Working Hours: Standard working hours are 48 hours per week, with a maximum of 8 hours per day over six days. Employees are entitled to a one-hour break after five continuous hours of work.
- Salary Payments: Must be made on time as specified in the employment contract; delays can result in legal consequences.
- Residency Permit: The employer sponsors the expatriate worker’s residency permit (Iqama) and is responsible for its renewal and associated costs.
- Annual Leave: 21 days per year after completing one year of service, increasing to 30 days after five years.
- Sick Leave: Employees are entitled to 120 days of sick leave, with the first 30 days fully paid, usually supported by a medical certificate.
- Medical Care: Typically covered by employer-provided health insurance.
- Notice Period: Must be specified in the employment contract. The notice period for termination by the employee is 30 days, and 60 days if terminated by the employer.
- End-of-Service Benefits: Calculated based on length of service and the last drawn salary.
Salary Structure
While Saudi Arabia does not have a universal minimum wage, wages should be paid monthly. The salary structure typically includes:
- Basic Salary: The core pay rate.
- Allowances: Common allowances include housing, transportation, and utilities.
- Overtime Rates: Standard rates are 1.5 times the regular rate for weekdays and 2 times for work on Fridays and public holidays.
- End-of-Service Benefits: Usually calculated based on a set amount for each year of service.
Deductions
Employers can only make deductions specified by law, such as taxes or statutory contributions. Any other deductions must be mutually agreed upon by both parties and clearly stated in the employment contract.
End-of-Service Pay
Employees who have completed at least two years of continuous service are generally eligible for severance pay, regardless of whether they resign, are terminated, or their contract ends (except in cases of gross misconduct).
Calculation of Severance Pay
- For the First Five (5) Years: Half a month’s salary for each year of service.
- For Each Additional Year Beyond Five (5) Years: One month’s salary for each year of service.
CONCLUSION
Staying informed about employment law and changes to its articles is essential for parent entities in Saudi Arabia. Compliance not only helps avoid penalties but also fosters a supportive workplace that can drive success in the Kingdom’s evolving labor market. Our Human Resource & Payroll package can take this burden off you, allowing you to focus on your operational goals while our HR experts handle your employment compliance needs.
If you’re interested in learning more, reach out to our team of consultants to secure your complimentary expert consultation. Our team will guide you through the regulations to help avoid potential compliance issues.
Contact us via email at [email protected] or call:
