Introduction

The main legislation governing employment in the Kingdom of Saudi Arabia is the Labor Law issued under Royal Decree No. M/51 dated 23/08/1426H (26 September 2005). This law serves as the foundation of employment practices and has undergone significant amendments to address evolving labor needs and economic priorities. The amendments were introduced under the following Royal Decrees:

• Royal Decree No. M/24 dated 12/05/1434H (24 March 2013);
• Royal Decree No. M/46 dated 05/06/1436H (25 March 2015); and
• Royal Decree No. M/134 dated 27/11/1440H (30 July 2019).

This article delves into the key aspects of the Saudi employment regime, encompassing regulations for both foreign and Saudi workers, termination procedures, and end-of-service benefits. Additionally, it explores the rationale and implications of these regulations, offering an in-depth perspective on their application and aligning with Saudi Arabia’s Vision 2030 goals of fostering economic diversification and workforce development.

Foreign and Saudi Workers

Comprehensive Regulations for Foreign Workers

Stringent legal requirements govern the employment of foreign nationals, who represent a significant portion of the workforce in Saudi Arabia. Recognizing their pivotal role, the government has implemented measures to ensure their employment aligns with national policies and labor standards. Employers must ensure that foreign workers:

• Enter the country legally and are authorized to work under the conditions set by the Ministry of Human Resources and Social Development (MHRSD).
• Possess the qualifications or skills needed in the Kingdom, particularly in fields where local talent is unavailable.
• Have a valid employment contract with the employer, specifying the terms of their engagement.

Foreign workers are required to obtain a Work Permit and Residency Card (“Iqama”) within 90 days of their arrival in the Kingdom. The validity of these permits varies, ranging from 3 to 12 months, based on the employer’s requirements and the nature of the work. These measures aim to create a regulated framework that promotes compliance and accountability among employers. Employers are also encouraged to ensure that foreign workers are integrated into a safe and healthy working environment, further contributing to the overall productivity and morale of the workforce according to the Labor law.

The government’s regulations also address specific challenges faced by foreign workers, such as ensuring fair treatment, timely payment of wages, and access to grievance mechanisms. Employers who fail to adhere to these standards face strict penalties, reflecting the Kingdom’s commitment to maintaining ethical employment practices.

Saudi National Employment Quotas

To boost local employment, Saudi Arabia mandates specific quotas for hiring Saudi nationals. These quotas can reach up to 75% of the workforce, depending on the company’s industry and activity. The Nitaqat program, a strategic initiative implemented by the MHRSD, categorizes establishments into five tiers: Platinum, High Green, Mid Green, Low Green, and Red. This classification is based on their nationalization percentage and workforce size.

The Nitaqat program incentivizes businesses to prioritize Saudi nationals by offering benefits and privileges to establishments that achieve higher tiers. Companies in the Red category face restrictions on renewing work permits for foreign employees, highlighting the government’s commitment to enhancing Saudi participation in the labor market. Furthermore, the program includes provisions to support the hiring of Saudi women and individuals from underrepresented groups, contributing to greater diversity and inclusion in the workplace.

Categories of Saudi Nationals Impacting Nationalization Percentage

The nationalization percentage varies based on the type of Saudi employee hired. Key categories include:

• Special needs individuals: Count as four employees, up to a 10% cap.
• Former prisoners: Count as two employees, up to a 10% cap.
• Part-time workers and students: Count as 0.5 employees, with specific limits depending on the industry.

This differentiated approach ensures inclusivity and recognizes the unique contributions of various segments of the Saudi population to the workforce. Additionally, the program includes monitoring mechanisms to ensure compliance and periodic adjustments to quotas based on labor market needs. Companies that excel in employing diverse Saudi talent often receive public recognition, fostering a positive reputation and encouraging other organizations to follow suit.

Health Care and Social Insurance

• The Saudi Labor Law obliges the employer to enroll their employees without any discrimination in gender, nationality or age in the General Organization for Social Insurance (GOSI), this enrollment guarantees also a granting of compensation in cases of work-related injuries. Article 1 & 4 of the Saudi Social Insurance Law 33 of the year 1421H/ 1999
• The Employer must also contribute 2% of each employee’s total wage (including the value of any non-monetary benefits) to (GOSI). Article 18 of the aforementioned Saudi Social Insurance Law.

Employment Termination

Termination of Definite Period Contracts

Fixed-term contracts typically end upon expiration. However, premature termination is permissible under certain conditions. Article 80 of the Labor Law outlines specific grounds for termination without notice or compensation, including:

• Assault or misconduct by the employee.
• Absenteeism exceeding permissible limits, as defined in the employment contract.
• Disclosure of confidential information or engagement in acts detrimental to the employer’s interests.

The Saudi Labor Law obliges Employers to document and provide evidence of such violations, ensuring procedural fairness in termination decisions. These provisions aim to balance employer rights with employee protections, fostering a fair and just workplace. Additionally, employers are encouraged to implement robust grievance mechanisms to address disputes and maintain workplace harmony.

Termination of Indefinite Period Contracts

Indefinite contracts offer greater flexibility but require legitimate reasons for termination. Both employers and employees can terminate these contracts, provided written notice is given. The notice period is as follows:

• 60 days for employees paid monthly.
• 30 days for employees paid on other schedules.

Failure to provide the required notice necessitates compensation equivalent to the unserved notice period. This ensures accountability and minimizes disruptions caused by sudden terminations according to the labor law. Employers are also encouraged to provide career counseling or support for employees transitioning out of their roles to foster goodwill and maintain a positive reputation.

The Saudi Labor Law requires Employers to adhere to regulations governing termination to avoid potential legal disputes. The government provides avenues for employees to seek redress in cases of wrongful termination, ensuring that the rights of all parties are upheld.

End-of-Service Award

Employees are entitled to an end-of-service award upon contract termination, serving as a financial acknowledgment of their service. The award is calculated as follows:

• Half a month’s wage for each of the first five years of employment.
• A full month’s wage for each subsequent year.

Resigning employees also qualify for a proportionate award based on their tenure:

• One-third if employed for 2–5 years.
• Two-thirds if employed for 5–10 years.
• Full award if employed for over 10 years.

The calculation includes all components of the employee’s wage, except commissions and other fluctuating elements explicitly excluded in the contract. This transparency in calculation underscores the Kingdom’s commitment to employee welfare and fair compensation practices. Employers are encouraged to conduct regular audits of their compensation structures to ensure compliance and address any discrepancies proactively.

Additionally, employers are advised to communicate the terms of the end-of-service award clearly to employees, fostering transparency and trust. The government periodically reviews these provisions to align them with economic conditions and employee needs.

Conclusion

The Saudi Labor Law represents a comprehensive framework designed to balance the interests of employers and employees. By addressing key aspects such as foreign worker regulations, Saudi employment quotas, health care, social insurance, and termination procedures, the law fosters a compliant and equitable work environment. Employers are encouraged to adhere to these regulations, not only to avoid legal repercussions but also to contribute to the Kingdom’s broader vision of economic diversification and social development.

Through initiatives like the Nitaqat program and mandatory social insurance, Saudi Arabia underscores its dedication to creating a robust and sustainable labor market. These efforts align with the objectives of Vision 2030, positioning the Kingdom as a global leader in labor practices and workforce development. Furthermore, the government’s commitment to continuous improvement ensures that the labor law evolves to meet future challenges and opportunities, fostering resilience and adaptability in the workforce.

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