The Kingdom of Saudi Arabia has been taking initiatives to combat the low employment rate of Saudi nationals in the private sector. After the launch of Saudi Vision 2030 in 2016, Saudis employed in high-skilled jobs have increased from 32% in 2016 to 42% in 2022, an IMF report states.

 

Saudis have been traditionally employed by the public sector. The government intends to change this dependency and make both its market and workforce globally competitive by 2030. Therefore, a key prerogative for the Ministry of Investment, Saudi Arabia (MISA) when granting new investment licenses for investors starting a business in Saudi Arabia is the development of its national manpower.

 

MISA gives preferences to businesses which plan to hire and train Saudi nationals. Nitaqat, officially known as the ‘Saudi nationalisation scheme’ (or Saudization) reflects best the interests of the Kingdom in this regard. It requires that those starting a business in Saudi Arabia reserve a certain percentage of employment opportunities in their offices for Saudi nationals, depending upon the company size and industry.

 

These elements of the Saudi labor market must be kept in mind by new businesses venturing into KSA’s lucrative business economy. Along with this, the Kingdom has one of the most comprehensive labor laws and regulatory systems in the world. Let us take you through the significant points to be considered when starting a new business in Saudi Arabia:

 

The primary legislation governing employment in the Kingdom is the Labor Law of Saudi Arabia, which was initially issued under Royal Decree No. M/51 on 23/08/1426H (corresponding to 26 September 2005). This law has been amended several times to reflect changing conditions in the employment landscape.The Saudi employment regime has some distinctive features, including:

  1. No Minimum Wage: Unlike some countries, Saudi Arabia does not have a minimum wage requirement.
  2. No Collective Bargaining Mechanism: The Saudi Arabian Labor Law does not establish a collective bargaining mechanism, and worker participation in management is not mandated by law.
  3. Specific Obligations: The Labor Law sets out specific obligations concerning working hours, holidays, overtime, health care coverage, and employer contributions to the social insurance regime.
  4. Non-Waivable Rights: Employees are not allowed to waive any rights guaranteed to them by the Labor Law through a contract before these rights accrue.
  5. Regulation of Foreign Employment: There are detailed rules governing the employment of foreigners, who constitute a significant part of the labor force in Saudi Arabia.
  6. Saudization: There are mandates for the employment of Saudi nationals, with certain industries having stricter requirements.
  7. No "At Will" Employment: Saudi Arabia does not recognize "at-will" employment, and termination of employees may be more complex compared to some other jurisdictions.
  8. End-of-Service Award: Employers are obligated to pay an end-of-service award to departing employees.

Let's delve deeper into these key points:

Compulsory Employment Contract: A written employment contract, signed by both the employer and expatriate employee, is mandatory and usually stipulates a fixed duration for employment. The contract should be in Arabic, but if it's in another language alongside Arabic, the Arabic text takes precedence in case of disputes.

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Recruitment: Foreigners intending to work in Saudi Arabia need prior approval from the Ministry of Labor and Social Development, a work permit, and a residence permit. The prospective employer must be a Saudi or a non-Saudi entity authorized to operate in the Kingdom.

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Accommodation, Food and other Benefits: Employers are responsible for providing residential accommodation or a housing allowance, as per the employment contract. Employees are also eligible for other allowances for food, transportation, etc. 

Analytix offers payroll management services to help you cut down on costs and outsource non-core business activities.

Saudization: The Saudi Arabian Labor Law encourages the employment of Saudi nationals and mandates a certain percentage of Saudi workers in companies, with penalties for non-compliance.

Social Insurance and Healthcare: Employers are required to enroll both Saudi and non-Saudi employees in a government-administered scheme that offers medical coverage and disability benefits for work-related injuries. Employers must contribute to this scheme. The Cooperative Health Insurance Law requires employers to provide medical insurance coverage, fully paid by the employer, to their employees and their families.

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Working Hours, Overtime, Vacations, and Holidays: Saudi Arabian Labor Law has specific regulations for working hours, holidays, and overtime. The normal work week consists of five or six days, with Friday and Saturday as the typical rest days. Employees are generally not required to work overtime except in limited circumstances, and overtime is compensated at 150% of the normal hourly wage.

We can help you design company policies that will comply with all relevant laws and regulations.

 

A business venture that proves inclusive and highly beneficial to the Saudi Arabian economy and workforce will find huge impetus from MISA and related government bodies.

With the intricate nature of labor laws and related business regulations here, an expert in the field is a prerequisite for anyone looking to start a business in Saudi Arabia. Analytix aims to be just that - your business guide to the Kingdom of Opportunity.

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You will find here a comprehensive guide to finesse through the business startup process in KSA