Understanding Saudi Labour Laws & Recent Amendments

Understanding Saudi Labour Laws & Recent Amendments

If you are involved in the recruitment process in the UAE and are expanding to KSA, understanding Saudi labour law is essential. Both regions are part of the Gulf Cooperation Council, which means they share many cultural and legal similarities. As businesses in the Gulf region continue to grow and integrate, it is essential to know the road rules before venturing into new markets. This article provides an overview of Saudi labour law and recent amendments to help you get up to speed.

An Overview of Saudi Labour Legislation and Recent Reforms

Saudi Arabia has recently introduced a series of changes to its labour law to improve working relationships and align them with international practices. These developments affect Saudi citizens and the expatriate workforce, essential to the Kingdom’s economy.

Upcoming Amendments to Saudi Labour Law, Key Changes and What to Expect

The Labour Law governs employment in Saudi Arabia, issued under Royal Decree (M/51) on 27 September 2005. A significant amendment to this law was published on 6 August 2024 and has taken effect in February 2025. The changes include more precise definitions, additional guidance on employer obligations, and extended protections for workers in outsourcing and maritime employment. 

The amendments introduce more clarity around key employment terms, including: 

• Contracts
• Leave
• Training
• Grievance procedures
• Resignation rights

These amendments are expected to be supported by updated Implementing Regulations, which have not yet been published.

Labour Market Mobility Reforms

A key step in Saudi Arabia’s recent employment reforms was the introduction of labour mobility measures under Resolution No. 51848/1442. These changes revised the conditions under which employees may change jobs, offering greater flexibility in employment movement. 

Employees can now:

Leave a Job Without Employer Consent Once a Contract Ends

• Leave their job without the employer's consent once the contract has ended
• Resign before a contract ends, provided they have spent at least one year in Saudi Arabia, and give 90 days’ notice
• Change employers within the first year, subject to specific conditions
• Use a government-approved platform to search for roles, inform current employers, and request transfers

Clarifications have also been made regarding employer-led contract terminations.

• For example, indefinite contracts may be ended for cause, such as misconduct, with 60 days’ notice required for employees paid monthly, or 30 days for others.
• Fixed-term contracts may also be terminated for cause, although mutual agreement on the notice period is recommended.

Working Hours and Conditions

Standard working hours are eight hours per day or forty-eight hours per week. During Ramadan, the daily working hours for Muslim employees are reduced to six. Employees are entitled to a break of at least 30 minutes after five consecutive hours of work and must receive one full day of rest each week, typically on Fridays. 

Overtime is paid one and a half times the regular hourly rate, although compensatory time off may be agreed upon as an alternative.

Regulations for Expatriate Workers

Expatriate workers comprise approximately 66% of Saudi Arabia’s workforce and are subject to dedicated provisions under the Labour Law.

Employers must secure approval from the Ministry of Human Resources and Social Development before hiring non-Saudi nationals.

A Written Fixed-Term Contract is Mandatory

The employer is responsible for obtaining and regularly renewing the employee’s work permit (Iqama). Expatriate employees may only take on roles listed in their work permits and must complete medical examinations.

The Iqama visa is essential for legal residency and employment in Saudi Arabia, and applications must be submitted within 90 days of arrival. Certain groups are not covered under the Labour Law, including: 

• Domestic workers
• Seasonal visa holders
• Agricultural workers on small-scale farms

Saudisation and Employment of Nationals

The Saudisation programme, known as Nitaqat, seeks to increase Saudi national employment by requiring companies to meet specific national employment quotas. The quotas differ based on factors such as: 

• Business size
• Industry
• Workforce composition
  

For example:

• Companies with five or fewer employees must hire at least one Saudi.
• In international companies, the deputy to the General Manager must be a Saudi national.
• Quotas apply to specific professions: 
  
  • Sales (15%)
  • Procurement (50%)
  • Project management (35%)
• Compliance impacts a company’s classification, Premium, Green, or Red. Red-tier companies face restrictions and may only hire expatriates already in the Kingdom through a sponsorship transfer.

Regional Note

While Saudi Arabia continues to reform its labour market, businesses operating across the GCC often compare its frameworks with those in Dubai and the broader UAE. The UAE is known for its clear legal framework, efficient visa procedures, and emphasis on balancing employee and employer rights, particularly within its free zones.

Although their approaches differ, both countries are working towards aligning with international labour standards.

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The Different Employment Contracts Under Saudi Labour Laws

Under Saudi Arabia’s Labour Law, an employment contract is a formal agreement between an employer and an employee that sets out the terms of their working relationship. It must comply with statutory requirements and establish both parties' mutual rights and responsibilities.

Although written contracts are strongly recommended, an unwritten agreement may still be enforceable if the employee can provide sufficient evidence of the employment arrangement.

Types of Employment Contracts

1. Definite Term Contracts

Fixed-term contracts are set for a specific period. Unless both parties agree to renew, the contract automatically ends upon the expiry of its term. They are commonly used for time-limited projects or temporary roles. It is essential that the agreement clearly outlines both its duration and any conditions for renewal.

2. Indefinite Term Contracts

These are open-ended agreements without a specified end date. Either party may terminate the contract, provided they observe the required notice period and have valid grounds. Indefinite agreements are more common for long-term or permanent roles.

Mandatory Contract Elements Under Saudi Labour Law

Employment contracts must include the following core details:

• Wage and Benefits: These include the basic salary, allowances, bonuses, and other agreed-upon financial entitlements.
• Probation Period: The maximum probation period is 90 days, which may be extended to 180 days with written agreement from both parties. During probation, either party may terminate the contract without compensation, provided written notice is given.
• Working Hours and Weekly Rest: Contracts must comply with statutory limits, typically eight hours per day or 48 per week (reduced to six hours per day during Ramadan for Muslim employees), with Friday as the usual weekly rest day.
• Leave Entitlements: The contract must clearly state Annual, sick leave, and other statutory entitlements.
• Termination Conditions: Include notice period requirements, valid grounds for dismissal, and the circumstances under which either party may end the agreement.

Legal Framework: Key Provisions

Article 51
Article 51 requires that employment contracts include specific personal and job-related information, be written in Arabic, and be signed by both parties.

‍Article 52
Article 52 sets out the essential components of an employment contract:

• Full names and relevant details of both the employer and the employee
• Nationality and official identification number of the employee
• Job title and work location
• Agreed salary, allowances, and other benefits
• Start date and contract duration (for fixed-term agreements)

Termination of Employment Contracts

Contracts may be terminated under several circumstances:

• During probation: Either party may terminate the contract at any time during the probation period without stating a reason, provided written notice is given.

By Employer: With Valid Cause

• Serious misconduct (for example, dishonesty, physical assault, or repeated failure to follow instructions)
• Prolonged unauthorised absence (more than 20 non-consecutive or 10 consecutive days in a year)
• Failure to perform agreed-upon duties or follow safety protocols
• Breach of confidentiality, including the unauthorised disclosure of trade secrets

By Worker: With Cause

• Employer fails to meet contractual or legal obligations
• The employer provides misleading information at the time of hiring
• The worker is subjected to mistreatment or physical harm by the employer or their representative
• Unsafe working conditions that remain unaddressed despite the employer’s awareness

Other Grounds for Contract Termination

• Mutual Agreement or Contract Expiry: A contract may end by mutual consent or upon the expiry of a fixed term.
• Termination Without a Valid Reason: If either party terminates the contract without a valid reason, the other party may be entitled to compensation.
• Retirement: Contracts may also conclude when the employee reaches the statutory retirement age (60 for men, 55 for women), unless both parties agree to extend the employment.

Payroll Rules In Saudi Arabia

In Saudi Arabia, payroll regulations are governed by the Labour Law and overseen by the Ministry of Human Resources and Social Development (MHRSD). The regulations are designed to promote timely and fair wage practices, in line with broader efforts to enhance labour market standards and safeguard employee rights.

1. Minimum Wage and Payment Frequency

Minimum Wage for Saudis

The minimum wage for Saudi nationals employed full-time in the private sector is SAR 4,000 per month. This threshold is critical for Nitaqat (Saudization) compliance, as only employees earning SAR 4,000 or more are fully counted towards Saudization quotas.

No Minimum Wage for Expatriates

There is no statutory minimum wage for expatriates working in the private sector. Employers are expected to honour agreed terms and offer fair remuneration in line with market standards.

Payment Timelines and Currency

Wages must be paid at least once a month in Saudi Riyals (SAR), unless both parties contractually agree upon a different arrangement. Timely payment is monitored through the Wage Protection System (WPS), which tracks salary transfers electronically and notifies the Ministry of Human Resources and Social Development of any delays or discrepancies.

2. Wage Deductions

Permitted Deductions

• GOSI contributions (social insurance).
• Fines or penalties for workplace violations are permitted, as long as they are clearly outlined in internal regulations and communicated to the employee.
• Loan repayments or salary advances may be deducted, provided the employee has written consent.

Unlawful Deductions

• Salary reductions must not reduce employee pay below the legal minimum wage.
• Deductions from wages require the employee’s written consent, unless required by law.

3. End-of-Service Benefits (EOSB)

End-of-service benefits are legally required and must be provided to employees in the following cases:

• Upon completion of the employment contract
• In the event of resignation, subject to the eligibility criteria
• Following termination, regardless of cause

EOSB Calculation

• For the first five years of service, employees are entitled to half a month’s wage for each completed year.
• After five years, employees are entitled to one month’s wage for each additional year of service.
• Partial years of service are calculated on a pro rata basis.

For example, an employee with eight years of service earning SAR 10,000/month:

• First five years: 5 × 0.5 × 10,000 = SAR 25,000
• Next three years: 3 × 1 × 10,000 = SAR 30,000
• Total EOSB = SAR 55,000

Resignation Adjustments

• If employees resign after two but before five years of service, they are entitled to 25 percent of their end-of-service benefit.
• Two-thirds of the end-of-service benefit is payable if resignation occurs after five but before ten years of service.
• The full end-of-service benefit is payable if the employee resigns after ten years.

4. Final Settlement and Documentation

Upon termination or resignation, the employer must:

• Issue a service certificate that confirms the duration of employment and the position held.
• Settle all outstanding payments, including: 
  
  • Unpaid salary
  • Accrued leave
  • End-of-service benefits
• These must be provided within two weeks of the termination date.

5. Penalties and Severance Pay

Improper Termination

If an employer:

• Terminates a contract without valid legal grounds, or fails to observe the terms of the notice period,

In such cases, the employee may:

• File a compensation claim.
• Receive additional financial compensation, as determined by the Labour Court.

Severance Pay vs. EOSB

While ‘severance pay’ is not formally recognised under Saudi Labour Law, the end-of-service benefit (EOSB) serves the same purpose.

Payroll Systems and Digital Compliance

To ensure compliance and transparency, employers must integrate with the Wage Protection System (WPS) and submit: 

• Monthly payroll records are digitally
• Detailing payment dates
• Amounts
• Deductions

Non-compliance may lead to: 

• Fines
• Suspension of government services
• Restrictions on hiring foreign workers

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Additional Employee Rights And Obligations Of Employers In Saudi Arabia

Employers have specific obligations, while employees are entitled to rights that reflect the Kingdom’s commitment to international labour standards and Sharia principles of fairness and dignity.

Employer Obligations

1. Non-Discrimination and Equal Treatment

Saudi Labour Law prohibits discrimination based on: 

• Race
• Gender
• Religion
• Nationality
• Disability 
• Any other unjust grounds

Employers are expected to:

• Ensure equal opportunities in recruitment, promotion and training.
• Maintain fair pay practices for equivalent roles.
• Foster policies and a working environment that support diversity and inclusion.

2. Health and Safety

Employers are responsible for ensuring a safe and healthy working environment:

• Provide regular health and safety training to inform employees about potential risks and safe procedures.
• Install and maintain appropriate safety equipment, and ensure the proper use of personal protective equipment (PPE).
• Develop and communicate emergency procedures, such as fire drills, evacuation plans and first aid arrangements.

3. Medical Insurance

• Employers are required to provide health insurance for expatriate employees, covering essential medical services.
• Health insurance is a prerequisite for issuing or renewing an Iqama (residence permit).
• Newly arrived foreign employees must undergo a medical examination at an authorised medical centre shortly after entry.

4. Social Security (GOSI)

Employers must:

• Register Saudi nationals and eligible expatriate employees with the General Organisation for Social Insurance (GOSI) within 15 days of employment commencement.
• Contribute their share of social security payments, which cover: 
  
  • Pensions
  • Workplace injuries
  • Disability benefits

5. Working Hours and Overtime

• Standard working hours are eight per day, totalling 48 per week. During Ramadan, Muslim employees are entitled to reduced hours of six per day.
• Overtime must be paid at 150% of the employee’s basic hourly wage.
• Employers must provide rest breaks and a weekly day off, typically on Fridays.

Employee Rights

1. Annual Leave and Holidays

• Employees are entitled to 21 days of paid annual leave upon completing one year of service, rising to 30 days after five years.
• Public holidays include Eid Al-Fitr (four days), Eid Al-Adha (four days), and Saudi National Day (one day), typically amounting to 10–12 days per year.

2. Sick Leave

Employees are entitled to up to 30 days of paid sick leave per year, subject to a certified medical report. This may be followed by up to 60 days at 75% of the employee’s wage. If required, a further period of up to 30 days of unpaid leave may be granted.

3. Maternity and Paternity Leave

• Maternity leave totals 10-4 weeks before delivery and 6 weeks after. This may be extended by up to one additional month of unpaid leave. 
• Salary entitlement depends on the length of service: employees with at least one year of employment are entitled to half pay, while those with three years or more are entitled to full compensation.
• Paternity leave provides fathers with three days of paid leave following childbirth.

4. Bereavement Leave

Employees are entitled to five days of paid bereavement leave following the death of a close family member.

5. Hajj Leave

Muslim employees employed for at least two years are entitled to ten to fifteen days of paid leave to undertake the Hajj pilgrimage, once during their employment with an organisation.

Compliance and Penalties

Failure to comply with these rights and obligations may result in fines, suspension of services, or claims in the labour courts. The Saudi Ministry of Human Resources and Social Development (MHRSD) monitors and enforces compliance via its online platforms and inspection teams.

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