Mohsin Khan, Senior Counsel at Al Tamimi & Company, provided a thorough overview of Saudi Arabia’s labor laws and recent legislative developments that could impact multinational employers during an HR Policy Global call. Mr. Khan emphasized that the changes are largely in line with the country’s vision to improve the representation of Saudi nationals in the private sector.
Remarkably, 70% of Saudi Arabia’s 35 million people are under the age of 30 and 350,000 new graduates enter the job market every year, Mr. Kahn explained in providing an overview of the labor market. This has increased pressure on the government to expand the participation of local talent when only 23% of private sector employees are currently Saudi nationals. Correspondingly, Saudi labor laws differentiate between nationals and non-nationals. Here are some key takeaways:
- To hire a non-national employee requires a sponsorship of work and residence permit (Iqama). The employment contract is only with the sponsoring employer and job changes require a transfer of sponsorship approved by the Ministry of Human Resources and Social Development (MHRSD).
- There are two types of employment contracts: indefinite term and fixed term. Non-national employees can only be hired under fixed-term contracts, while Saudi employees are eligible for both. Contracts usually specify employment duration, probation, salary, leave entitlements, hours of work, termination rights, and other provisions related to applicable laws.
- Companies must pay a monthly fee of SAR 800 ($213) per foreign national employee if they employ more foreign nationals than Saudi nationals or SAR 700 ($187) if they employ more Saudi nationals. Additionally, foreign nationals have to pay a monthly fee of SAR 400 ($106) for each dependent they sponsor. In practice, multinational companies usually cover the dependent fee for their employees.
- One of the most significant changes that has occurred in the past few years is "Saudization," a Saudi government program whereby employers in the private sector must employ a minimum number of Saudi nationals and certain roles are reserved exclusively for Saudi nationals. Additionally, companies must pay their Saudi national employees a minimum salary to comply. Companies will face penalties, including suspending sponsorship for foreign employees and fines, for any violation.
- Employers or employees can choose to end employment under certain terms, including non-renewal of fixed term contracts, termination by mutual consent, retirement, redundancy on limited grounds, and termination by notice.
More details and practical advice are available in our recorded video. HR Policy’s Henry Eickelberg will conduct a follow-up session with Mr. Kahn on the country's new Labor Reform Initiative.
