Employment To-The-Point

Following the announcement of the opening of an Addleshaw Goddard office in the Kingdom of Saudi Arabia (KSA), our Middle East employment team has prepared this brief introduction to the employment landscape in the Kingdom

Governing law 

KSA law is based on Islamic (Shari'ah) law. The KSA government from time to time issues specific rules and regulations with the objective of supplementing Shari'ah law when the need arises. In the event of a conflict between Shari'ah law and rules and regulations issued by the KSA government, Shari'ah law will prevail. 

Employment relationships in the public and private sectors in KSA are governed by Royal Decree No. M/51 23 Sha'ban 1426/27 September 2005, as amended (the "KSA Labour Law"), which has been supplemented by various regulations and resolutions published by the Ministry of Human Resources and Social Development (MHRSD). The result is that the KSA labour market is becoming increasingly heavily regulated, particularly in relation to Saudisation.

There is no official English translation of either the KSA Labour Law or any supplementary regulations and resolutions issued by the MHRSD. The original Arabic text will always prevail in the event of a dispute. 

Saudisation

Private sector employers are under a strict duty to consider KSA nationals for all vacancies prior to engaging a foreign national. This is a key drive for the KSA Government and is implemented via the "Nitaqat" system, which classifies employers based on their commercial activity, sector and the number of KSA-nationals employed.

Saudisation policies are strictly applied by the KSA Government, and as part of the KSA Vision 2030 programme to diversify the KSA economy away from its dependence on oil, the KSA Government anticipates significantly increasing Saudisation, with certain sectors being subject to 100% Saudisation (in particular, medical representatives and pharmacological roles, which can only be undertaken by licensed KSA nationals).

In addition to the Nitaqat system, a large number of roles are reserved exclusively for KSA nationals, such as HR Directors.

Employment of foreign nationals

Similar to other Gulf Cooperation Council countries, KSA has a sponsorship system which means that, broadly speaking, foreign national employees must be sponsored for work and "Iqama" (residence visa) purposes by their employing KSA entity.

Work permits and Iqamas are normally valid for a period of 1 year and are renewable upon expiry. 

Whether or not an employee is allowed to sponsor dependents (i.e. a spouse or child) will depend almost entirely on their job title (their salary is irrelevant). 

Employment contracts

All employees must be issued with a written employment contract by the KSA entity which sponsors them for work permit and Iqama purposes. The employment contract must be registered on the Qiwa platform at the beginning of an employee's employment. 

Arabic is the official language of employment contracts, employment data and records, and therefore the employment contract must be issued in Arabic or dual language. The Arabic text will apply in the event of any conflict. 

Foreign nationals may only be employed on fixed-term employment contracts. If the parties either agree to an unlimited term employment contract or fail to specify the expiry date in a foreign national's employment contract, the employment contract will be considered a fixed-term contract due to expire on the expiry of the individual's work permit. KSA nationals may be employed under a fixed term contract or an unlimited term employment contract.

Employment benefits

A probationary period may be for an initial period of up to 90 days, and can be extended one or more times, with the employee's written agreement, provided that the total probationary period does not exceed 180 days.

The minimum wage for KSA nationals is SAR4,000 per month. There is no minimum wage for foreign nationals.

An employee's total working hours should not exceed eight hours per day or 48 hours per week, without the specific approval of the MHRSD. During Ramadan, the working hours for Muslims only should be reduced to six hours per day or 36 hours per week. 

Employees who work in excess of eight hours per day or 48 hours per week are entitled to overtime pay which amounts to an uplift of 50% of their basic wage. 

Employees are entitled to 21 working days' paid leave for the first five years of service, and 30 working days' paid leave after 5 years of service. 

In addition to their annual leave, employees are entitled to the following public holidays on full pay:

(i) Saudi national day (23 September)

(ii) Eid-Al-Adha* (minimum four days)

(iii) Eid-Al-Fitr* (minimum four days)

An employee is entitled to sick leave of up to 120 calendar days in a calendar year as follows:

(iv) full wage for the first 30 days;

(v) 75% of their wage for the next 60 days; and

(vi) unpaid sick leave for the remaining 30 days.

A female employee is entitled to 10 weeks' maternity leave on full pay, plus one additional month of unpaid leave. 

A male employee is entitled to three days' paid paternity leave for the birth of their first child. 

Private-sector employers must provide a mandatory minimum level of health insurance benefits to their employees.

Social security

KSA has a social security system which provides for old-age retirement, survivors' pensions, unemployment benefits, long-term disability, and employee compensation benefits for personal injury at work. Employers are responsible for ensuring that the requisite social security contributions are made during an employee's employment.

End of service gratuity

All employees (including KSA nationals) regardless of their length of service, are entitled to end of service gratuity on the termination of their employment unless they are dismissed under Article 80 of the KSA Labour Law.

End of service gratuity is calculated according to the following statutory formula:

(i) 15 days' wages (basic salary and allowances) for each complete year of employment for the first five years;

(ii) one month's wages (basic salary and allowances) for each complete year of employment over five years. 

If an employee resigns, their end of service gratuity will be reduced.

Termination of employment

Termination of employment can be risky in KSA, particularly where KSA nationals are involved (having regard to the desire to increase the employment of KSA nationals in the private sector), and significant financial liabilities can arise. We therefore recommend that you seek advice from our Middle East employment team before undertaking the dismissal of any employee, whether KSA national or foreign national. 

Ben Brown is a partner in our employment team in the GCC with extensive experience of employment law in the region.

"Ben Brown is an acclaimed lawyer based in Dubai who possesses a strong track record for employment matters in Saudi Arabia. Advising clients on a number of cross-border matters including terminations and employee benefits, he is also experienced in employment disputes"

Chambers Global 2023