The main piece of employment legislation in the Kingdom of Saudi Arabia (KSA) is Royal Decree No. M/51 dated 27/9/2005 (as amended) (KSA Labour Law). This law is supplemented by Ministerial Resolutions issued by the Ministry of Labour.

A drive to promote the employment of nationals in the private sector has resulted in increased regulation of employment, for example, the introduction of the ‘Nitiqat’ system in 2011, which classifies employers based on the number of KSA-nationals employed and allocates quotas for the employment of KSA nationals, and a crackdown on illegal working practices during the course of 2013. In addition, amendments to the KSA Labour Law have been proposed and published, although there is at present no indication as to when (and to what extent) these will be ratified as law.

Issues arising on hiring individuals

Immigration

Every employee must be registered with the Ministry of Labour and the General Organisation for Social Insurance (GOSI). If the employee is not a national of a Gulf Cooperation Council member state then he or she must also be registered with the Passport Office. These employees will need to be sponsored by the employer for work permit and residency visa purposes, with such sponsorship being employer-specific. In order to obtain sponsorship, employees must submit attested educational and professional qualifications and undergo medical examinations for contagious diseases. There are restrictions on an employee’s ability to move from one sponsor to another (i.e. to effectively move jobs) and various factors come into play including length of service and both the existing and new employer’s record with the Ministry of Labour.

Saudisation: Employment of KSA Nationals

An employer is under a duty to consider KSA nationals for all vacancies prior to engaging a foreign national. The majority of vacancies must now be posted with the Human Development Fund and advertised for a minimum of two weeks to unemployed KSA-nationals registered with the Fund before a non-KSA national can be offered the role. Certain roles, including HR managers, secretaries, security officers and up to 40 specified roles are reserved for KSA nationals. The KSA government is increasingly offering subsidies and funds to private sector employees to employ KSA nationals and subjecting public tendering and contracts to the company’s achievement of percentage targets for the employment of KSA nationals as a total part of the workforce. Conversely, there is a fee of SR2400 per employee levied on the employer, and payable yearly on the renewal of the work permit, where the ratio of KSA nationals to non-KSA nationals is not 1:1. Every employer is also classified according to how many KSA nationals it employs and allocated a target, calculated according to its size, industry sector and number of employees. Failure to achieve a target results in the employer being unable to renew sponsorship of existing employees or to obtain sponsorship for new employees. Employers in the lowest two classifications do not have to give consent to their employees moving jobs and joining employers in higher employer classifications.

Recruitment Agencies and Employment Businesses

The sourcing and supply of labour is extremely regulated with the trade licence for such commercial activities being restricted to KSA nationals. The engagement of individuals from a manpower supplier without the required trade licence can render an employer liable to penalties for engaging individuals without proper sponsorship and also have personal repercussions for the individual.

Issues arising during the employment relationship Working time

The KSA Labour Law provides for a maximum working week of 48 hours, 8 hours a day, with Friday being the weekly day of rest. In June 2013, following a Royal Decree, the public sector changed its weekend to Friday and Saturday. Most private sector employers have followed suit, making the position in Saudi consistent with the rest of the region. In addition, the current market practice for a five-day week in the private sector may become a statutory entitlement under the proposed amendments to the KSA Labour Law.

Employees who are not in managerial positions (meaning someone with supervisory authority over other employees) are also entitled to overtime pay in accordance with statutory rates set according to whether overtime is completed on a normal working day, during night time, a Friday or other normal rest day, or on a public holiday. Overtime is normally restricted to two hours a day meaning an employee should not be asked to work for more than ten hours a day. During Ramadan, working hours are reduced to six hours a day for all employees.

Wages and leave

A minimum wage of SAR 3,000 a month applies in KSA but only to KSA-nationals and for the purposes of meeting the quotas under Nitiqat. An employer can therefore still elect to pay an employee less than the minimum wage. The minimum entitlement to paid annual leave is 21 calendar days a year, rising to 30 calendar days a year after 5 years’ service. The minimum entitlement to sick leave is 120 calendar days a year, with full pay for 30 days, 75% pay for 60 days and nil pay for 30 days. In addition, once during the employment and conditional on accruing two years’ service, an employee is entitled to between 10 to 15 days of paid leave to perform Haj.

Trade unions

Trade unions and labour associations are unlawful in KSA with the KSA Penal Code outlawing labour strikes. However, the KSA Labour Law contains a workforce disputes procedure under which employees may collectively submit a written complaint to the Ministry of Labour which will appoint a labour committee to investigate the complaint and conciliate between the employees and the employer. Workers are also permitted to form Welfare Committees for social welfare within the workplace. KSA national employees are also permitted to form work councils. Family friendly policies

The KSA Labour Law entitles female employees to 4 weeks’ maternity leave preceding the expected date of delivery and 6 weeks after delivery. Such leave is paid at 50% of remuneration if the employee has accrued only 12 months continuous service. Employees with three or more years of service (as of the start of leave) are entitled to full pay. The employee cannot legally work during the six-week period following delivery. Female employees are not entitled to pay during annual leave in the same year they received fully paid maternity leave. Similarly, employees who took maternity leave at 50% of pay are entitled to only 50% of pay during annual leave in the same year.

A male employee is entitled to one day of leave on the birth of his child, with full pay from the employer.

Issues arising on termination of the employment relationship

Business transfers

Article 18 of the KSA Labour Law provides for employees to transfer by operation of law from one employer to another, pursuant to a change in the corporate ownership of the employer of the part of the business in which they are employed (including the sale of a business or part of a business as a going concern, and the merger of two companies or demerger). However, such transfer is only possible upon a special application to the Ministry of Labour whose approval is discretionary and can take up to 2 years for the process to be completed. In the absence of Article 18 applying, transfer of employees is effected through a process of termination and rehire.

Terminating employment

Contracts for KSA nationals may be for a limited or unlimited period. However, contracts for non-nationals must always be for a limited duration (usually linked to the period of the work permit).

The KSA Labour Law does not set out a list of reasons permitting an employer to terminate an employee’s employment, save that Article 80 of the KSA Labour Law sets out an exhaustive list of gross misconduct reasons for which an employer may terminate employment without notice or the payment of end of service gratuity. These include where the employee fails to perform essential work duties or obey orders and where the employee is absent from work without valid reason for more than 20 nonconsecutive days or ten consecutive days in a year.

On termination of employment for any reason other than gross misconduct an employee is entitled to an end of service gratuity, a form of severance pay calculated by reference to final salary and linked to length of service. In addition, an employee whose employment is terminated may make a claim to a Labour Committee claiming that the termination has been unfair (i.e. not for a valid reason) entitling him to compensation (calculated on a case-bycase basis and not, as the law currently stands, by reference to any statutory formula) and possibly reinstatement. There are no anti-discrimination provisions in the KSA Labour Law; however, the Labour Committee will scrutinise the reason for termination where this is challenged by an employee and it is possible that a discriminatory reason could be held to be invalid.

Redundancy

KSA Labour Law does not currently provide for a concept of redundancy. The KSA courts have recognized an employer’s right to reorganize its business and restructure resulting in elimination of roles. However, a high burden of proof is applied and the employer’s business decision is scrutinized very closely. The proposed amendments to the KSA Labour Law appear to indicate that a company shutdown or removal of an employee’s role could be treated as valid reasons for termination.