Saudi Arabia – Labor Law

Saudi Arabia Labor Law for Expatriate

If You are employed in Saudi Arabia, you should aware of the Saudi Arabia Labor Law.

 The Saudi Arabian statute governing employer-employee relationships is the Labor Regulation, Royal Decree No. M/51 of 23rd Sha’ban 1426 Hejra corresponding to 27th Sept 2005 Gregorian, which entered into force on 26th April 2006 superseding the Labor & Workmen Regulation, Royal Decree No. M/21 of 6th Ramadan 1389 Hejra corresponding to 15th November 1969 Gregorian. The new Regulation introduced only changes of detail, leaving the main framework of the old legislation in place.

With one of the world’s highest birthrates at around 3%, & an expatriate population which in 2007 stood at 27% of the total population of 24 million, creating employment opportunities for its citizens has long been a high priority of the Saudi Arabian government. The Labor Regulation provides that the percentage of Saudi workers employed by an employer shall not be less than 75% of his total workers, but gives the Minister of Labor authority to decrease this percentage in case of unavailability of Saudi workers with technical expertise or academic qualifications, or if it is difficult to fill a given post with a Saudi citizen. At present the Ministry of Labor still follows Ministerial Order No. 1/1539 of 1st Sha’ban 1425 Hejra corresponding to 16th September 2004 Gregorian, which provides that the minimum number of Saudi Arabian employees in private sector businesses must be 30% other than for certain menial labor sectors, where the minimum Saudisation rate is only 10%.

Women may be employed, but work permits for non-Saudi women tend to be restricted to the health, education & air transport sectors. There are no restrictions on the employment of Saudi women, provided that the appropriate working environment is provided.

Article 8 of the Labor Regulation states that an agreement whereby the employee waives any rights established in his favour by law is null & void, & that he may not forsake any rights which he has acquired in the course of his employment. Employment contracts must be in writing, but the employee’s rights are not prejudiced if his employer has failed to execute a written agreement. Employment contracts must state whether they are for a fixed term or an indefinite term, specify the employee’s salary & whether he is paid monthly or otherwise, list the employee’s benefits, if any, & state whether or not a probationary period applies. Otherwise, most aspects of the employment relationship, such as working hours, holidays & rights of termination, are governed by the Regulation & need not be set out in the employment agreement. There is at present no minimum wage in Saudi Arabia.

Normal working hours are eight hours per day for six days a week. Work in excess of 48 hours per week must be compensated at overtime rates, except for certain categories of work, primarily of relevance in the catering trade. Saudi Arabian public holidays are set by the Minister of Labor under the Regulation, & may not exceed ten days per year. During Ramadan, the month of fasting, the maximum working hours for Muslim employees is reduced to six hours per day for six days a week for a total of thirty-six hours. It is common for Muslim employees to receive a thirteenth month’s salary on the occasion of the Eid Al Fitr public holiday, which marks the end of Ramadan.

A workers’ compensation plan exists under the direction of the General Organization for Health & Social Security (GOSI). For both Saudi employees & expatriate employees, employers must contribute an amount equal to 2% of their salary towards a workers’ compensation & disability plan administered by GOSI, which is regulated in some detail in the Social Insurance Regulation, Royal Decree No. M/22 of 3rd Ramadan 1421 Hejra corresponding to 29th November 2000 Gregorian. The retirement scheme is administered by GOSI, but covers only Saudi nationals. Contributions on behalf of Saudi employees equal 18% of an employee’s wages, with the employer contributing 9% & the employee contributing 9%. While there is no government health plan, medical & hospital care is free for Saudi citizens. For all non-Saudi employees, & for Saudi employees who want to be covered, health benefits are required to be provided by the employer depending on the number of employees in a particular geographic area.

The Labor Regulation provides for prevention against major industrial accidents in high-risk facilities & vocational injuries. A high-risk facility is defined as one that produces hazardous substances or a facility that handles, removes, or stores such hazardous waste. Employers will have to coordinate with the Ministry of Labor to determine the status of their facilities based upon guidelines that will be issued by the Minister. Furthermore the Minister of Labor will issue decisions that will set forth the necessary safety arrangements to be made by the employer & the employer’s obligations in this regard including prevention of major accidents & limiting the risks of major accidents.

Under the Labor Regulation employers are responsible for any vocational injury that an employee may sustain while working. An employer is obligated to provide treatment to his employee & pay all expenses related to the vocational injury.

It is generally accepted, & has been ruled in the past by the Commission for the Settlement of Labor Disputes, that the salary & benefits under a fixed term contract, as well as the employee’s status, may not be reduced during the contract term. However, at the end of a fixed term contract the parties may re-negotiate their respective positions, provided that the employee is given a clear choice whether or not he wishes to accept the new employment conditions. In the past it was also accepted that an employee enjoyed the same protection under an indefinite term contract. However, in recent years the view has emerged that, if an indefinite term contract is terminated upon proper notice, it may be possible to “re-hire” the employee on new terms with reduced wages & benefits, particularly where the employer can demonstrate that there are valid reasons for such change.

The Regulation sets out provisions concerning end-of-service awards, to which most employees are entitled in principle unless they are dismissed for cause. Pursuant to Article 84, when a fixed term employment agreement comes to an end, or when an employer terminates an indefinite term agreement other than for cause, the employee is entitled to one-half of one month’s wages for each of the first five years of employment & a full month’s wages for each year of employment thereafter, in both cases pro-rated for part of a year’s service. An employee who resigns during the term of a contract receives no end-of-service award for the first two years of employment. There are further detailed rules concerning the end-of-service award payable to an employee who resigns in the course of a contract for periods exceeding two years. The wages by reference to which an end-of-service award is calculated includes base salary, overseas service premiums, regular bonuses & additional benefits which are paid on a regular basis, such as housing & transport allowances. The only payments which are excluded from such calculations are extraordinary bonus or incentive payments like commissions & percentages on sales, which have been identified as such by an express written agreement between the parties. The wage is calculated by adding the last three payments which the employee received & dividing them by three, to arrive at a monthly average. In accordance with Article 8 of the Regulation, an employee cannot contract out of his right to an end-of-service award.

The Ministry of Labor has published Model Disciplinary Rules, pursuant to which non-summary dismissal must follow written warnings in respect of transgressions committed by the employee. Summary dismissal is regulated by Article 80 of the new Regulation, which lists nine reasons for which an employment agreement may be cancelled without notice or payment of the end-of-service award. These include acts of physical violence, the commission of offences, & sabotage at the workplace. An employee can contest his dismissal by lodging a complaint with the Labor Office, &, if an amicable settlement is not achieved, the matter is referred to the Labor Dispute Settlement Authorities. It is common for employees who have been found to be dismissed unjustly to receive the equivalent of three months’ wages as compensation.

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