WHAT ARE THE EMPLOYMENT CONTRACTS FOR SAUDI ARABIA?
In the context of Saudi Arabia, employment contracts represent a legally binding agreement between an employer and an employee. These contracts outline the terms and conditions of employment, establishing a framework that governs the relationship between the two parties and ensures clarity and protection for both the employer and the employee. In KSA, employment contracts are typically valid for two (2) years unless explicitly specified for a shorter timeframe.
Foreign nationals are obliged to possess written employment contracts with fixed terms. Contracts lacking specified terms are considered to align with the duration of the residence permit. Employment contracts and related records must be presented in Arabic. In the event of any language disparity, the Arabic text takes precedence. Any contractual clause in an employment contract that contradicts the provisions of the labour law is deemed void.
The employment contract is a vital document and should be in written form, provided to both parties who should retain a copy. Furthermore, it necessitates registration of the contract with the Ministry of Human Resources and Social Development through the Qiwa platform. Employees are duly informed upon the contract being uploaded, retaining the right to raise objections if discrepancies arise.
While changing employers typically necessitates the original sponsor’s approval, certain exceptions apply, particularly in cases of non-payment of wages for three consecutive months or non-compliance with Nitaqat obligations.
WHAT ARE THE KEY COMPONENTS TO INCLUDE IN EMPLOYMENT CONTRACTS OF SAUDI ARABIA?
EMPLOYER AND EMPLOYEE DETAILS:
In Saudi employment contracts, it is essential to include the employer’s name, job location and comprehensive employee details to ensure clarity and thorough documentation.
ROLE AND JOB DESCRIPTION:
The contract should clearly define the employee’s role and responsibilities to establish a mutual understanding and clarity between the parties. Foreign nationals are restricted to working in the occupation specified in their residence permit.
It is essential to specify the start date, end date for fixed-term agreements, and further include a notice period, typically 30 to 60 days along with compensation terms for unlawful termination.
Saudi employment contracts should detail basic salary and additional allowances comprehensively to outline the complete compensation package. Notably as of September 5, 2023, the monthly minimum wage for Saudi Arabian nationals has been increased to SAR 4,000 as announced by the Human Resources Development Fund (HADAF), up from SAR 3,200.
WORKING HOURS AND OVERTIME:
Clearly outline standard working hours, overtime policies, and weekend days, adhering to the standard working hours for employees, eight (8) hours per day or forty-eight (48) hours per week. During Ramadan, these hours are reduced to six hours. The customary work week in Saudi Arabia spans six (6) days, with Friday designated as a rest day. Compensation for overtime is mandatory for any work exceeding the stipulated 48-hour limit.
Specify the probation period, often set at 90 days in Saudi contracts in line with the Qiwa platform, under MHRSD, which has recently revised the probation period of workers to 90 days from 180 days, in compliance with the Labor Law (Article 53, Oct. 2023) with mutual agreement. Termination during this period is possible without compensation.
TERMINATION PERIOD & END OF SERVICE AWARD:
Termination can be initiated by any of the parties of the contract in KSA through the provision of 30- or 60-days’ notice, with no notice required during the employee’s probation period. Upon termination, employers must provide an end-of-service award, structured as half-month’s wage for the first five years and a full month’s wage thereafter.
Specify annual leave and public holidays entitlements. The minimum annual leave is 21 days, increasing to 30 days after five years of service.
CONFIDENTIALITY AND NON-COMPETE CLAUSES:
Implement a ‘Confidentiality Clause’ to protect proprietary information and a ‘Non-Compete Clause’ limiting employees from joining competitors. Enforceability depends on reasonableness in duration, scope, and region, with explicit employee consent strengthening enforceability.
WORK PERMITS AND VISAS FOR SAUDI ARABIA
Foreign nationals are required to have a valid residence/work permit to work in Saudi Arabia. Such permits are exclusively granted to those with employment contracts under sponsorship of a Saudi Arabian employer (a Saudi company, individual or a foreign entity licensed to do business in Saudi Arabia). Notably, in some cases, the employer might be required to demonstrate that no Saudi can fill the intended position, and therefore a foreign worker must obtain an employment visa.
WHAT ARE THE REQUIREMENTS FOR SAUDI WORK VISA?
Below is an overview of the main requirements needed to start a Saudi work visa, but not limited to:
- Valid Passport: Ensure your passport is valid for at least the next six months.
- Colour Photographs: Provide two passport-type photos.
- Employment Contract: Submit a copy of the work contract in Arabic.
- Visa Application: Complete and submit the actual visa application to the relevant authority.
At Creation Business Consultants, you will be assigned a dedicated Saudi visa specialist who will conduct an onboarding assessment to fulfil the complete documentation requirements and processes.
WHAT IS IQAMA (RESIDENCY PERMIT)?
Once the work visa is approved, the employee can travel to Saudi Arabia to obtain his iqama. Iqama is the Saudi Arabian employment permit or national residency permit that allows foreign nationals to live and work in the Kingdom. It is sponsored by an employer who has the right to hire foreign employees in their office premises located in KSA. It is valid for one year and is up for yearly renewal. The employer is responsible to apply for its employee’s iqama. When the employee arrives to Saudi Arabia, the employer then has ninety (90) days to apply and finalise the iqama application.
Although the employee might have completed a medical fitness test at the country of his residency when he applied for the work visa, yet he will be administered to a second medical examination to apply for an iqama. It will have to be completed at a designated health clinic. It is also further mandatory to apply for a KSA health insurance to process the work permit (also known as labour card) and the exit/re-entry multiple permit application. Once Iqama is obtained, a bank account opening can be initiated.
A foreign employee must always carry the iqama card with them. The iqama card details personal information, who they are, work eligibility, employer details and duration of stay. Failure to carry the iqama card at all times may result in heavy fines to its holder.
It is crucial to renew the iqama promptly to avoid freezing Saudi bank accounts, heavy fines for non-compliance, and hindering the streamline of business operations. Obtaining a work visa and iqama in Saudi Arabia is a detailed process, involving careful adherence to regulations and timely renewals to ensure a smooth and legally compliant stay in the Kingdom.
WHAT ARE THE SAUDIZATION REQUIREMENTS?
The Kingdom of Saudi Arabia has embarked on a series of initiatives to push the country toward Saudization. Saudization is a policy implemented by the Ministry of Human Resources and Social Development aimed at increasing the employment of Saudi nationals in various sectors, whereby Saudi companies are required to hire Saudi nationals on a quota basis, officially known as the Nitaqat scheme. Employers are obligated to attract, hire, train and retain Saudi nationals. Every company must have at least one Saudi national employee.
Under the Nitaqat system, companies are classified into five categories based on the percentage of Saudi nationals employed: Platinum, High Green, Mid Green, Low Green, and Red. Each colour zone represents the percentage of Saudi nationals required within a company, as well as determines what rules, regulations and privileges apply to that zone in terms of for example obtaining visas and residence permits for foreign workers.
WHAT ARE THE QUOTA ZONES IN SAUDI ARABIA?
- Red Zone: 0 – 16.21%.
- Low Green Zone: 16.22 – 19.25%.
- Medium Green Zone: 19.26 – 23.11%.
- High Green Zone: 23.12 – 26.51%.
- Platinum Zone: 26.52 – 100%.
WHAT IS THE LOCALISATION AND EXPANSION OF SAUDIZATION?
In adherence to the Saudization initiate, the government has exclusively restricted certain jobs to Saudi nationals such as:
- Sales outlets, jobs in malls, and related professions for example branch manager, supervisor, cashier, customer accountant, and customer service.
- Sales activities related to various sectors including cars, furniture, clothing, electronics.
- Professions including project management; procurement and sales, site manager, assistant manager, quality manager, financial supervisor, site. supervisor, track head, inspection technician, assistant inspection technician, maintenance technician, information technician, data entry operator.
- Optical sector professions including medical optometrist and eyeglasses technician.
- Entertainment cities within closed commercial complexes.
- Aviation sector professions including air controller, air transporter, ground movement coordinator and co-pilot.
- Consultancy sector.
The localization decisions for professions and activities have been instrumental in creating jobs for more than 500,000 male and female citizens in the private sector since 2019 as noted by the Minster of Human Resources and Social Development. Employers are urged to comply with Saudization requirements to contribute to the country’s economic growth and ensure a balanced and inclusive workforce. The government supports private sector companies in hiring Saudis through offering training, qualification support, and assistance with employment procedures, while implementing punitive measures against establishments failing to comply.
Furthermore, the Ministry of Human Resources and Social Development also issued a ministerial decision recently on January 6th, 2024, mandating private sector companies with 50 or more employees to provide cooperative training for students, as the Kingdom seeks to sustain localisation and suitable employment for Saudi nationals post-graduation.
WHAT IS THE COMPETITIVE TALENT MARKET IN SAUDI ARABIA?
Nonetheless, on 10 January 2023, the Saudi Arabian government launched five new premium residency programs designed to attract foreign talent in line with the Kingdom’s Vision 2030 plan. This strategic move aims to position the country as a global hub for businesses and drive the country’s economic transformation by drawing in skilled professionals and fostering knowledge transfers.
The ‘Special Talent’ Residency plan is catered specifically to target executives and professionals in various fields such as healthcare, science, sports, real estate, and research, amongst others.
This new initiative is expected to create a competitive market for talent acquisition in the Kingdom as well as induce the promotion of upskilling among Saudi nationals.
WHAT ARE THE EMPLOYEE RIGHTS AND BENEFITS IN SAUDI ARABIA?
The Kingdom of Saudi Arabia implemented its labour law in September 2005 under the Royal Decree No. M/51, applicable to both Saudi nationals and foreign workers in the private sector. The KSA labour law is overseen by the Ministry of Human Resources and Social Development (MHRSD) which was formulated in 2019 through the merger of the Ministry of Labour and Social Development. The KSA labour law identifies employee rights and benefits, some of which are listed below:
- Medical Insurance and Leave Entitlement.
- End of Service/ Gratuity.
- Workplace safety.
- Wage Protection System (WGS).
- Social Security Obligations.
WHAT ARE THE KEY ASPECTS OF MEDICAL INSURANCE AND LEAVE ENTITLEMENT IN SAUDI ARABIA?
Under the KSA Labour Law, employers are obligated to provide medical insurance to foreign employees and process their leave entitlements in adherence to the law. In KSA, leave entitlements include:
- Annual leave: 21 days for the first 5 years of service, increasing to 30 days after 5 years.
- Sick leave: 30 days.
- Maternity leave: 10 weeks.
- Bereavement leave: 5 days for spouse/blood relation.
- Parental leave: 3 days.
- Study leave: during exam dates.
WHAT ARE THE REGULATIONS REGARDING END OF SERVICE BENEFITS IN SAUDI ARABIA?
Termination and resignation in KSA are governed by Article 74 of the labour law. Upon employment termination, the sponsoring employer must arrange a sponsorship transfer or final exit visa after setting any outstanding debts, fines and pending cases in the Labour Court.
Every employee is entitled for an end of service/ gratuity after completion of certain period with the company. It is a combination of compensation and unutilised leave payment, calculated based on the minimum service period of two (2) years, with varying wage calculations for different periods of services as follows:
Service Period | Calculation of End of Service |
Calculation period (1-5 years) | Half-month wage for each of the first five years |
Calculation period (5+ years) | One month wage for every year thereafter |
HOW IS WORKPLACE SAFETY ENSURED IN SAUDI ARABIA?
The labour law emphasizes employers’ responsibility for employee safety and well-being at workplace; requiring necessary precautions in place to protect against hazards, occupational diseases, and machinery risks. Employers must adhere to government-issued safety rules and measures, maintain a clean workplace, provide safety instructions displayed in Arabic or other languages understood by employees , inform employees about job hazards, offer training in equipment and machinery, ensure adequate facilities, provide first aid facilities, measures, and standards, arranging regular medical examinations for employees exposed to occupational diseases, offering preventive and therapeutic healthcare, and reporting occupational injuries and diseases.
Employers are prohibited from charging employees for occupational health and safety measures, and they are accountable for emergencies and accidents due to negligence, and further obliged to compensate for any resulting damage or harm.
WHAT IS THE WAGE PROTECTION SYSTEM (WPS) IN SAUDI ARABIA?
The Wage Protection System (WPS) is aimed to enable a dynamic economy that guarantees the timely and complete payment of the agreed-upon wages to safeguard the interests of the employees Small and Medium Enterprises (SME) are obliged to use Mudad, a digital platform launched by the Ministry of Human Resources and Social Development in Saudi Arabia, and acts as a payroll and compliance system to manage and process payrolls, while the authority monitors payroll violations by the employers.
WHAT ARE THE SOCIAL SECURITY OBLIGATIONS IN SAUDI ARABIA?
Social security and insurance in Saudi Arabia are managed by the General Organisation for Social Insurance (GOSI). This system covers both Saudi nationals and foreign workers. GOSI contributions are mandatory for both Saudi nationals and foreign workers, each with distinct contribution rates and responsibilities as below:
SAUDI NATIONALS:
- Contribution Rate: 22% on the basic salary and housing allowance.
- Employee’s Share: 10%, payable by the employee.
- Employer’s Share: 12%, payable by the employer.
FOREIGN WORKERS:
- Contribution Rate: 2% on the basic salary.
- Responsibility: Solely the employer is liable to pay the 2% GOSI contribution for foreign workers.
Understanding and complying with the designated social security obligations, particularly GOSI contributions, is crucial for both employers and employees in Saudi Arabia to ensures financial protection for employees, stability and well-being of the workforce in the country.
TAKEAWAY
At Creation Business Consultants, we know it’s crucial to follow the government’s Saudization rules and stay updated on the latest labour laws and employment regulations in Saudi Arabia. Reach out to us to understand more from our expert team about navigating the rules and complexities of the Saudi job scene for a smooth and compliant entry into the Saudi market.
Email: [email protected] | UAE: +971 4 878 6240 | Saudi Arabia: +966 54 511 2494
