Spotlight on Saudi Arabia

Aerial view of Riyadh, Saudi Arabia

While the economy of the Kingdom of Saudi Arabia (KSA), the largest country in the Arabian Peninsula, is still heavily reliant on the oil industry, the focus in recent years has been on diversification. Vision 30, the kingdom’s transformative economic and social reform blueprint, aims to develop the country’s infrastructure, promote education, create job openings in Saudia Arabia, advance its workforce and attract foreign direct investment (FDI). As a result, the spotlight is shining brighter than ever before for Saudi Arabia business expansion and hiring. 

Hiring in Saudi Arabia: Everything you need to know

  • Saudi Arabia is strategically located in the Middle East at the crossroads of Europe, Asia and Africa. Many multinational companies (MNCS) recognize this geography as the ideal setting for a regional headquarters.
  • With a population of over 35 million people and a booming middle class, the country is a suitable test market for a wide range of consumer products and services.
  • The Saudi government is actively working to secure more FDI and has launched various initiatives – including tax incentives and economic cities (ECs) – to make it easier for MNCs to do business in the country.
  • The highly-educated and skilled workforce is rapidly advancing. The kingdom’s explosive labor force growth rate topped all other G20 countries during the period 2012 – 2021.
  • The kingdom is ranked the best in the region and third worldwide for its digital government transformation, according to the World Bank’s GovTech Maturity Index for 2022

What is the main source of employment law in Saudi Arabia?

The main KSA labor law, the Saudi Labor Law (Royal Decree M/51), lays out the rights and responsibilities of employers and employees. 

The law applies to all employers and employees in the country, regardless of nationality, and regulates a wide range of provisions for working hours, leave, termination, benefits, compensation and dispute resolution. The law aims to protect the rights of employees, set minimum working conditions and ensure fair treatment in the workplace. The Labor Law is considered to be favorable to employees, outlining a number of statutory rights that employees may not waive. 

Employers who violate Saudi Labor Law can face penalties, including fines and imprisonment.

Are employment contracts in Saudi Arabia required?

The Saudi Labor Law requires all employee-employer relationships to be governed by a written contract, which must be signed by both parties. The employment contract in Saudi Arabia must set out minimum terms and conditions of the employment arrangement, including the employee’s duties, salary, working hours, benefits, etc. 

The contract must also detail the duration of the employment in KSA, specifying whether it’s a permanent contract or a fixed-term contract. The required notice period for termination must also be included in the contract. 

In the case of a dispute, the contract will serve as the primary evidence in the labor courts. Therefore, it is important that all parties thoroughly understand the contract. Contracts are usually written in Arabic but it is also common for an English version to be produced for expat employees. 

What rules around termination should MNCs be aware of?

An employer may not dismiss an employee without a valid reason, regardless of whether the contract is fixed-term or indefinite. The reason for dismissal must be specified in writing. 

For fixed-term contracts, an employee may be dismissed by: 

  • Non-renewal of the contract at the end date 
  • Termination as specified in the contract’s terms 
  • Conversion of the contract to an indefinite term 
  • Expiration of the work permit (only for expatriate employees) 

An employer may dismiss an employee for the following reasons: 

  • Misconduct 
  • Unauthorized absence 
  • Failure to perform job duties deemed essential 
  • Failure to comply with rules for health and safety  
  • Assaulting the employer 
  • Disclosure of industrial or trade secrets 

An employment relationship may also end by: 

  • Mutual agreement between the parties, with written consent from the employee 
  • The employee reaching retirement age 
  • Unforeseeable circumstances that prevent either part from fulfilling the terms of the contract (force majeure)

Is severance pay required upon termination?

An employee is entitled to an end of service gratuity instead of severance pay upon termination. The amount of gratuity is calculated based on the employee’s last wage and years of service. To start, the gratuity for the first five years of service is half a month’s wage for each year of service. For each year of service in excess of five years, the gratuity is one month’s wage for each year.

What should MNCs know about leave time in Saudi Arabia?

There are very specific regulations around leave time in Saudi Arabia, with workers being entitled to some categories of statutory leave that MNCs from other countries may not be familiar with. For this reason, it is very important to consult with local experts to ensure you are offering the minimum amount of leave time a worker is entitled to. 

Categories of statutory leave include:

  • Paid annual leave
  • Sick leave
  • Maternity leave
  • Paternity leave
  • Bereavement leave
  • Discretionary leave
  • Disability leave
  • Marriage leave
  • Education leave
  • Hajj leave

Are there restrictions on employing women in Saudi Arabia?

Women may be employed in the kingdom and no restrictions are placed on the employment of Saudi women, provided that the appropriate working conditions are provided. For example, there are special restrictions placed on working hours for women and conditions for pregnant women. It is recommended HR teams familiarize themselves with local laws and seek reputable consult when appropriate.

What should MNCs note when employing foreign nationals?

Foreign nationals comprise approximately 80% of the private sector workforce in Saudi Arabia. In order to promote employment opportunities for Saudi nationals, the government has implemented a policy called Nitaqat. This “Saudization” framework is aimed at encouraging companies to hire more local employees. As part of this policy, Saudi nationals are granted certain preferential legal rights and benefits in the workforce, including: 

  • Being employed on indefinite-term employment contracts 
  • Entitlement to statutory minimum wage 
  • Permission to perform “flexible work” 
  • Statutory protection from discrimination on grounds such as sex and age 
  • Permission to elect labor committees 
  • Specific protection from collective redundancies 
  • Receiving vocational training from their employer 

The general concept is that companies are classified into Red, Low Green, Green, High Green or Platinum categories based on the percentage of Saudi Arabian employees. These categories will entitle employers to privileges or subject them to penalties when it comes to obtaining work permits for foreign staff. For example, Platinum, High Green and Green employers will find it easiest while those in the Red category will not be able to review existing work permits. 

Why do many MNCs choose to hire through an Employer of Record (EOR) in the Kingdom of Saudi Arabia?

Overall, Saudi Arabia offers a combination of a vast consumer market, advanced workforce, strategic location and business-friendly policies that make it an attractive destination for MNCs looking to expand and hire globally. 

Even though the government is trying to make it easier for foreign-owned companies to invest in the kingdom, setting up a business in Saudi Arabia can be a long, complex process, as companies navigate bureaucracy and fulfill legal requirements. There are special stipulations to follow depending on the type of business, location and industry. 

Even when a business is set up, there is still a learning curve for internal teams when it comes to regulatory compliance, taxation, reporting, payroll processing, etc. Saudi Arabia has a unique business culture and labor framework. Failure to follow this can result in reputation damage, penalties and even prison. 

Many companies find that the EOR hiring model is the best way for them to hire in Saudi Arabia. Partnering with a qualified EOR, like GoGlobal, unlocks a myriad of benefits including:

  • Building a local team without setting up a legal entity
  • Complying with local laws and regulations
  • Reducing costs
  • Enhancing flexibility and agility in hiring
  • Mitigating employment risks

The arrangement is sometimes a temporary bridge solution, implemented while the company tests the market and sets up its own legal entity in-country. Other times, it may be a permanent solution that allows them to quickly, compliantly and cost-effectively tap into the Saudi workforce in the long-term.  

How is the GoGlobal experience unique? 

At GoGlobal, we’re bringing humans back to the heart of HR.

We embrace a global mindset while maintaining a team of local experts on the ground in every market we serve. Our dedicated team members in Saudi Arabia know the “ins and outs” of the kingdom’s regulatory environment. At the same time, they are also experts in navigating the labor market’s unique conditions and business culture. This ensures a positive experience for our clients as well as client-workers.

The kingdom’s talent market is tightening up and becoming more competitive. For this reason, our clients often choose to complement GoGlobal’s EOR services with our Recruit & Hire solution. We take over the end-to-end hiring process, beginning with talent sourcing and moving on to onboarding, benefits and offboarding. This innovative offering can help companies hire and manage headcount for hard-to-fill roles like IT, sales and client services – all in one compact solution!

When we’re by your side, your team can take care of business. We handle the rest. 

Find additional details on benefits and hiring in Saudi Arabia, or contact us to talk with an international HR expert.