The Kingdom of Saudi Arabia (KSA) has steadily been taking measures to diversify its economy away from its dependency on oil. The KSA is actively looking to develop its science and technology sectors and to move towards a knowledge-based economy. Since joining the World Trade Organisation in 2005, the KSA has been opening up its markets and in June 2015 it opened up its stock market to direct foreign investment. There is also a strong focus on boosting employment of KSA nationals in the private sector as the overwhelming majority of KSA nationals are employed in the public sector.
Issues arising on hiring individuals
Every employment 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 employers 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 19 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 SAR 2400 per employee levied on the employer, and payable yearly bon 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 (i.e. number of employees) and industry sector. 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 license for such commercial activities being restricted to KSA nationals. The engagement of individuals from a manpower supplier without the required trade license can render an employer liable to penalties for engaging individuals without proper sponsorship and also have personal repercussions for the individual.
Employment structuring and documentation
Contracts for KSA nationals may be for a limited or unlimited period. However, contracts for non-nationals must always be for a fixed-term, usually linked to the period of the work permit.
Issues arising during the employment relationship
Wages, annual leave and working time
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 Nitaqat. An employer can therefore still elect to pay an employee less than the minimum wage.
In September 2013, KSA commenced the implementation of the Wage Protection System (WPS). The WPS monitors the payment of wages to both KSA and non-KSA nationals employed in the private sector, establishing a link between the employer, the local bank into which wages must be paid, and the employee. The WPS has been phased in and as of 1 February 2016 it applies to registered commercial entities with 80 or more employees and all private schools (regardless of the number of employees).
The minimum entitlement to paid annual leave is 21 calendar days a year, rising to 30 calendar days a year after five 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 employee's term of employment and conditional on accruing two years' service, an employee is entitled to between 10 to 15 days of paid leave to perform Haj. Employees are also entitled to study leave, marriage leave and compassionate leave.
The KSA Labour Law provides for a maximum working week of 48 hours, eight hours a day, with Friday being the weekly day of rest. After the public sector changed its weekend to Friday and Saturday, most private sector employers 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 future 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 Muslim employees.
The KSA Labour Law entitles female employees to ten weeks' maternity leave with full pay, out of which a maximum of four weeks may be taken prior to the expected date of delivery and six weeks must be taken following delivery. The employee cannot legally work during the six-week period following delivery. An additional one month unpaid maternity leave may also be taken and additional one month paid leave is available in instances where the child is ill or disabled. A male employee is entitled to three days of leave on the birth of his child, with full pay from the employer.
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.
Tax and social insurance
GOSI ministers a social security system for KSA nationals including a number of benefits such as unemployment benefit (Saned), old age retirement pensions, disability allowance, survivor's pensions, and incapacity benefit.
The Human Development Fund provides unemployment allowance for KSA nationals who are university graduates for a period of one year from graduation, providing SAR 2,000 a month. Non-KSA nationals are not entitled to social security-except compensation for workplace injury or disease under the GOSI workplace injury scheme.
Issues arising on termination of the employment relationship
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 a transfer is only possible upon a special application to the Ministry of Labour whose approval is discretionary and it can take up to two years for the process to be completed. In the absence of Article 18 applying, the transfer of employees is effected through a process of termination and rehire.
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, compensation 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 30 non-consecutive days or 15 consecutive days in a year, subject to the employer issuing the employee with a written warning prior to dismissal, once the employee's absence reaches 20 non-consecutive days or ten consecutive days in a year.
Unlimited term contracts may be terminated by either party upon service of 60 day's written notice.
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 (ie not for a valid reason) entitling him to compensation of no less than 2 months' wages (calculated in accordance with Article 77). 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. Furthermore, the employee is entitled to have paid time off whilst working his notice period to find alternative employment.
KSA Labour Law provides for termination of the employment contract where the employer shuts down the business or where the employee's role is terminated.
There is at present no specific discrimination legislation applicable to the workplace in KSA. The Labour Law does provide for equal pay when a man and a woman perform the same job.
Published in collaboration with L&E Global: an alliance of employers’ counsel worldwide
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