Saudi Arabia Payroll and Benefits Guide

What global businesses need to know about payroll in Saudi Arabia

Saudi Arabia is one of the hottest prospects in the international business world at the moment (and that’s not just because of the weather!). The current regime has made huge efforts and investments over the past few years to modernize its culture and welcome people and businesses from all over the world.

With Saudi Arabia aiming to reduce its dependence on oil revenues in the long term, it means that the Middle East kingdom has an economy that is diversifying rapidly. No surprise, therefore, that the country’s GDP grew by more than 27% in 2022 alone. Add in a fast-growing consumer market – especially as women’s rights are gradually improving over time – and Saudi Arabia is a country full of potential for a wide range of international businesses.

However, it’s important to note that Saudi Arabia remains a very nationalistic and devout Muslim country. This means that its legislation and culture around employment and payroll can differ significantly from many Western economies. However, as this guide on the basics of Saudi payroll demonstrates, there have been many significant reforms and changes to payroll and employment law in recent years, moving the country closer towards Western business norms.

Getting Started

In February 2018, the Saudi government gave women permission to start businesses in Saudi Arabia without needing male consent. However, while more rights have been given to women in Saudi Arabia in recent years, it will take some time for its patriarchal culture to change. Organizations with female representation at high levels should bear this in mind when expanding into the country.

The most common kind of business entity used by foreign enterprises in Saudi Arabia is a limited liability company (LLC). This enables the company to engage with both the public and private sector, and to sponsor incoming employees for residency. There is no official minimum share capital required for a Saudi LLC, but the terms of your license (mentioned below) will generally mandate a minimum of at least 500,000 riyals (approximately £105,000; $133,000; €123,000). This is variable depending on industry and activities.

If you are establishing an entirely foreign-owned company in Saudi Arabia, then you must apply for and obtain a MISA license, of one of nine types: agriculture, industrial, mining, professional, real estate, regional headquarters, service, technical office, or trading. You should then reserve a company name with the Ministry of Commerce and Industry. 

Articles of incorporation/association are then submitted to the Ministry to be authenticated. Once this is done, the notary public will officially notarize the articles with a stamp. None of these processes has an independent charge or fee.

Other requirements include publishing the summary of the articles of incorporation, submitting all approved documents to the Ministry of Commerce to obtain a Certificate of Registration, formation of an official company seal, and becoming a member of the Chamber of Commerce. None of the fees associated with these processes are significant.

A company must then open a bank account with a bank that is domestic to Saudi Arabia. This can be a slow process and often takes more than a month. With a bank account open, the company should then get a business license with the Riyadh municipality, and register the address of the business with the “Wasel” post office.

Employment Considerations

Contracts are a huge part of the employer/employee relationship in Saudi Arabia. For example, all part-time workers must have a contract that states an official termination date; furthermore, fixed-term contracts automatically become rolling contracts if they run for four years continuously, or are renewed three times. Foreign workers are required to have a fixed-term contract and are not eligible for part-time work. Any back pay owed to employees is also prioritized by law in the case of a company bankruptcy.

From 2019, all employers in Saudi Arabia are required to upload employment contracts to the General Organization for Social Insurance’s online portal. Probation periods are generally three months, but can be extended up to six months with the written agreement of the employee. During probation periods, the notice period is one day.

The maximum working time for employees is eight hours per day or 48 hours a week. This can be varied from week to week (i.e. in shift work) as long as these limits aren’t breached over a three-week rolling average. These limits are reduced during Ramadan to six hours per day and 36 hours per week. A minimum of one rest day is mandated per week; most companies make this Friday due to its status as the holy day in Islam.

Employees must take a break of at least 30 minutes for rest, prayer and food after working five hours consecutively. Additionally, employees are banned from working outdoors between midday and 3 pm between 15 June and 15 September, in order to protect them from the fierce summer heat.

Notice periods run for 60 days on normal open-ended contracts and 30 days under fixed-term contracts. Notice must be served on a fixed-term contract, even if it is approaching its date of expiry.

Compensation & Severance

While Saudi Arabia has previously had a minimum wage law for public-sector workers, it has only recently introduced the same for the private sector. As of the latest rise in September 2023, the private-sector rate is 4000 riyals per month (approx. £850; $1070; €990); this is a third more than the public-sector rate of 3000 riyals per month, as an effort to encourage more people into private-sector work.

Payroll is generally run on a weekly or monthly basis. Bonuses based on performance can be paid, at the discretion of the employer. The fiscal year runs to the Gregorian calendar year, and so ends on 31 December.

Working overtime in Saudi Arabia generates an extra 50% on top of the normal hourly wage. This applies for working time beyond the maximum daily or weekly limits, and for working any time on Fridays or on national holidays. Employees must not work more than 11 hours per day, and timesheets must be kept to track overtime worked.

Severance pay is mandated by law to be 15 days of wages for each of an employee’s first five years of employment. Employees receive a full month of wages for every year over and above this. If an employee resigns, they are only entitled to one-third of these levels if they have between two and five years of service, and two-thirds if they have between five and ten years. The full payout can only be given to resigning employees if they have at least ten years of service.

Compensation, severances and bonuses are also usually detailed specifically in the employment contract. Labor unions are not a huge force in the country, but the court system to handle cases of compensation is quite robust.

Tax and Withholding Requirements

Saudi residents pay no personal income tax. Foreign residents, however, may be subject to Withholding Tax on the income they make in Saudi Arabia. The rates of these vary, depending on the tax treaties established between Saudi Arabia and around 56 different countries. As a guide, the rate for nationals of non-treaty countries is 5% on dividends, 5% on interest, and 15% on royalties; most of the treaty rates are fairly close to these, but are generally lower for royalties.

The social security rate for Saudi residents is 22%. The employer and employee pay 9% each for social insurance and 1% each for unemployment insurance. The employee also pays 2% for occupational hazard contribution. Non-residents are only subject to the 2% for occupational hazards. Total social security contributions per month are capped at 45,000 riyals (approx. £9500; $12,000; €11,000).

Holiday and Leave Considerations

Employees in Saudi Arabia are entitled to 21 days’ paid leave each year, increasing to 30 days after five years of service. Additionally, three days’ paid leave is granted immediately after a marriage, and two days in the event of the death of an immediate family member. Employees are also entitled to Hajj pilgrimage leave of 10-15 days as long as they have at least two years’ service, and have not performed the Hajj before. The current retirement age in Saudi Arabia is 60 for men and 55 for women.

Saudi Arabia has four public holidays. Founding Day and the Saudi National Day always fall on 22 February and 23 September respectively, but the other two – Eid ul-Fitr (the end of Ramadan) and Eid ul-Adha (the end of Hajj) – last several days each and move annually. This is because Saudi Arabia observes the Islamic calendar, in which years last only 354 or 355 days. As of 2024, these holidays are around April and June respectively, but are moving 10-12 days earlier in the Gregorian calendar every year.

Women are entitled to ten weeks’ paid maternity leave, four weeks before the birth and six weeks after it. Employers pay maternity pay at the employee’s full rate if they have at least three years’ service, and half that if they have between one and three years. Paternity leave entitlement is three days.

Sick leave entitlement is a maximum of 120 days per year, as long as the illness is certified by a doctor. Sick pay is paid by the employer at the employee’s full rate for the first 30 days, and at one-third of their normal rate for the next 60 days. Any sick leave beyond 90 days in a year is unpaid. In the event of an employee suffering an injury at work, the employer must cover all expenses relating to treatment.

In Summary

Saudi Arabia has undergone some real changes in its payroll and employment regulations in recent years, as it continues to open itself up to foreign investment and global business activity. More changes are likely to come in the future, which makes it essential to stay on top of all your responsibilities if you’re planning to do business there. Working with an established payroll provider can help you keep pace with all the changes and payroll admin tasks, so you can focus on taking full advantage of an exciting emerging opportunity.

This article is for informational purposes only and not intended to convey or constitute legal or any other advice. It is not a substitute for advice from a qualified professional.

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