Measures to boost employment of Saudi nationals

In Saudi Arabia, one of the more prominent recent changes within the employment sphere relates to the Nitaqat Saudization program. This was introduced by the Saudi Government in December 2014, although there is no implementation date as yet.

The Ministry of Labour will introduce a requirement that newly employed Saudi nationals must remain with their Saudi employers for at least six calendar months, as opposed to the previous three calendar months, before companies can count them towards their Saudization classification (companies are classified into different zones, for example, green, yellow and red zones, according to the numbers of Saudi nationals employed and receive incentives or penalties depending on their category) and thus before they can be considered as fully-fledged Saudi employees. This is significant for newly incorporated companies because they will not be able to “activate” their recruitment files with the Labour Office, and therefore cannot apply for Iqamas (residency permits), recruit foreign nationals or otherwise assign a foreign general manager, until six months have passed from the date of registration of the Saudi employee with GoSI (an agency of the state concerned with social insurance).

This six month policy is being introduced in order to encourage the private sector to employ and also retain Saudi nationals and is also aimed at stopping fake Saudization which some private establishments have resorted to in order to remain in the green Nitaqat zone. The Chambers of Commerce have recently allegedly advised the Ministry of Labour to postpone the implementation of this new requirement for at least 2 years, however, it is still unclear whether a delay will be confirmed.

Meanwhile, in January 2015 the Minister of Labour, Adel Fakeih, announced that the Nitaqat Saudization program will enter its third phase this April, with advanced systems set to be introduced in order to create more jobs for Saudi citizens in the private sector. No further details were provided as to what changes will be made to the current program, however it is expected to entail even stricter Saudization requirements being placed upon companies operating in specific sectors in Saudi Arabia.

This development is consistent with the Saudi Government’s long standing ambition of creating more jobs and opportunities for Saudi individuals with the aim of reducing unemployment among nationals in the Kingdom. It is generally also anticipated that the Ministry of Labour will be adopting a far stricter approach against companies who show a reluctance or unwillingness to Saudize jobs.

In addition to the above, the Ministry of Labour is considering fixing a minimum wage for Saudis working in the private sector, at SAR 5,300 (approximately USD 1,412) and for expatriates at SAR 2,500 (approximately USD 670). The decision is this year when the third and final phase of the Wage Protection Program is concluded. Under this program, all companies will have to transfer the salaries of their Saudi and non-Saudi employees directly to their bank accounts in order to prevent delays in the payment of salaries. These proposals are generally aimed at making the private sector more appealing to Saudis in particular, and thus (as with the Nitaqat Saudization program) ultimately aimed at boosting the process of job nationalisation. The potential implications, particularly in relation to the minimum wage, will be far reaching, not least in terms of the significant impact that this may have upon the overhead costs of companies currently operating or otherwise looking to set up operations in the Kingdom of Saudi Arabia.