From Sunday 1st September 2013 (the Mandatory Implementation Date), all companies in the Kingdom of Saudi Arabia (KSA) with 3,000 or more registered employees and all private schools, regardless of the number of employees, are required to implement the KSA Wage Protection System (WPS) programme (the Programme). There is no indication, at present, as to when the Programme will apply to other businesses operating in KSA.

There are a number of aims behind the introduction of the KSA WPS, such as:

  • to ensure that all KSA and expatriate workers in the private sector are remunerated as per their contracts;
  • to streamline the KSA labour market (by removing excess labour in the market), remove discrepancies and create a secure and stable atmosphere for workers;
  • to reduce labour issues, increase worker productivity and expose firms and businesses operating in KSA without the requisite authorisations and permissions.
     

The Programme requires companies to submit certain information via the new Ministry of Labour (MoL) e-service, which has been available for trial since June 2012. Companies have therefore had the opportunity to experiment and evaluate the service, as well as communicate with banks to meet the requirements of the Programme before the Mandatory Implementation Date, with a number of establishments already using the programme to submit files to the MoL.

The Programme will monitor the payment of wages to both KSA and non-KSA nationals employed in the private sector, establishing a link between the employer, the bank, and the employee. Employers are first required to open bank accounts or facilitate the release of ATM cards for their employees from a local bank, as well as open a wage payment file authenticated by the bank. Then, employers must register with the Programme on the MoL’s website. All information regarding monthly payment of wages must then be submitted to the MoL using the e-service. The Programme requires the employer to send a file indicating the payment of the monthly wage to the bank, after which it must release the payment to the employee once the file has been received by the bank, authenticated, and updated to the system.

One of the key characteristics of the Programme is the link that is established between this, the MoL and the General Organisation for Social Insurance (GOSI). All data submitted via the Programme to the MoL will be reviewed in order to confirm that wages paid correspond to information recorded in the Programme and with GOSI. Because of this link, the salary payment (which is to be made once a month) must be made by the employing entity in KSA and not, for example, by a group company based in another GCC country or the parent company based abroad. Employees, whether KSA nationals or expatriates, should be registered in the Programme immediately and as soon as the individual is either registered with GOSI or, in the case of expats, his employment contract is submitted to the MoL and visa/work permit has been issued.

The Programme will also help the inspection team of the MoL to identify those companies that require employees to perform work above and beyond their role or at their own expense, and companies that are involved in the covering-up of employees. For this reason, employers are strongly urged to update the system with any changes to employee information or wages so as to ensure that correct payment information is applied during payment.

Whilst there is no cost set by the MoL for the implementation of the WPS and it is widely accepted that the payment of salaries through banks will be beneficial to both companies and employees, there may well be hidden costs in implementing it for each of the establishments affected.

It is understood that the MoL will stop all services for companies that fail to implement the Programme in time, with the exception of work permit renewal services. However, if a company continues to delay implementation, the MoL will halt all its services and, in certain circumstances, allow employees of the company in question to transfer services to another company without permission from the employer as is normally the case.

The MoL will, in due course, announce further details regarding subsequent stages of implementation for those businesses not required to implement the WPS from the Mandatory Implementation Date onwards, such as smaller companies. Otherwise, all private companies should now be taking the necessary steps to implement the Programme in order to avoid being penalised.

It is worth noting that all labour laws in the GCC provide for wages to be paid in the local currency by a local employer. However, until the implementation of the respective WPS systems first in Kuwait, then UAE and now in KSA, there has not been a mechanism for enforcing such requirements. WPS does pose specific issues for employees on secondment into the GCC who are often remunerated at least in part in their home country. There are a number of practical ways to deal with such arrangements, for example split payroll, and the arrangements will often depend on the particular circumstances.