Saudi Arabia Payroll & HR Insight from a Global Payroll Outsourcing Leader

This guide is a must read before you either outsource your Saudi Arabia payroll or build a local HR and Payroll function. As a Global Payroll Provider, Mercans can guarantee your full compliance with all the applicable regulations.

1.0    Doing Business in Saudi Arabia

1.1       Investing in Saudi Arabia

Saudi Arabia’s oil-based economy is getting even stronger as their petroleum sector accounts for roughly 87% of budget revenues, 42% of GDP, and 90% of export earnings. Saudi Arabia ranks as the largest exporter of petroleum and is the second largest OPEC Member Country. Saudi Arabia is encouraging the growth of the private sector in order to diversify its economy and to employ more Saudi Nationals. Diversification efforts are focusing on Power Generation, Telecommunications, Natural Gas Exploration, and Petrochemical Sectors. More than 6 million foreign workers are a part of Saudi economy, particularly in the oil and service sectors.

1.2       Registrations and Establishing an Entity

 

The formation and operations of business entities in Saudi Arabia are regulated by the

Companies Law promulgated by a Royal Decree in 1965, as amended in 1967 and 1982 by

Subsequent Royal Decrees. The provisions of the Companies Law are extensive and cover all types of commercial activities in the Kingdom.

Registration of a company in Saudi Arabia follows this 11 stage process:

  1. Prepare documents including legalization by the Saudi Consulate.
  2. Submit application to the Saudi Arabian General Investment Authority (SAGIA) and obtain an investment license.
  3. Obtain agreement from the Companies Department at the Ministry of Commerce and Industry after submitting the Articles of Association and the company name.
  4. Sign the Articles of Association in front of a Notary Public.
  5. Publication of the company name and a summary of the Articles of Association in the official gazette. This will cost approximately 5500SR.
  6. Open a Bank Account, Transfer the Share Capital and Obtain a Certificate stating that the capital has been deposited.
  7. Register with the General Department of Passports, Ministry of Interior and the Ministry of Labor and obtain a work visa for the company manager.
  8. Company manager getting his visa stamped at the Saudi consulate and obtaining his Work Permit and Residence Permit upon arrival in Saudi Arabia.
  9. Registrations with the Commercial Registry at the Ministry of Commerce and Industry and the Chamber of Commerce. This costs 8100 SR approximately.
  10. Obtain a File Number and Certificate of Business commencement by registering with the Department of Zakat and Income Tax (DZIT), Ministry of Finance.
  11. Register with the General Organisation of Social Insurance.

1.3       Banking

 

It is mandatory to have an in-country bank account to process payments in Saudi Arabia. All government levies must be paid through a government payment channel SADAD. SADAD payments can only be initiated from Saudi Arabia based bank accounts.

All entities with more than 10 employees are required to process their payroll payments through Wage Protection System (WPS).

Bank lending consists mainly of trade and medium-term investment finance. Banking operations in the Kingdom are regulated by the Saudi Arabian Banking Control Law and are supervised by the Saudi Arabian Monetary Agency (SAMA).

1.4       Working Week

The typical working week in Saudi Arabia is Sunday to Thursday from 9am to 6pm. Friday is the only official weekend day and Saturday is often a working day for the construction and service industries.

The working hour’s related regulations have been summarized below:

AREA

REGULAR EMPLOYEE

SHIFT EMPLOYEE

FEMALE EMPLOYEE

Workdays(1)

Saturday – Thursday (Friday is the only official weekend day).

Most companies follow a 5-day workweek.

Saturday – Thursday (Substituting Friday as the weekend day required approval from the labor office)

Same as male employees

Weekly Regular Working Hours(1)Daily Criterion – 8 hours/day

Weekly Criterion(2) – 48/week

Daily Criterion(3) – 8 hours/days

Weekly Criterion(3) – 48/week

Not allowed to work during the nighttime
BreaksMin 30 minutes every 5 hours (not part of the working hours i.e. unpaid – employee may not be required to stay at their workplace)(4)Min 30 minutes every 5 hours (not part of the working hours i.e. unpaid – employee may not be required to stay at their workplace)(4)1 hour for nursing mothers (paid break)
Max Stay at the Workplace12 hours per day12 hours per day 

Notes:

  • – Discussions are ongoing for the changes of the weekly working hours to 40 hours. Does not apply to managerial level employees, guard, janitors, if required on a short-term basis, job must be completed immediately before or after normal working hours. During inventory, month or year-end closing (max 30 day/year), emergencies, etc.
  • – Most common approach
  • – With the approval of MOL, number of working hours may be increased to more than eight hours a day to forty eight hours a week, provided that the average working hours in three weeks’ time shall not be more or less than eight hours a day or forty eight hours a week.
  • – With approval of MOL, this requirement may be waived. The break is scheduled by the company.

AREA

REGULAR EMPLOYEE

SHIFT EMPLOYEE

FEMALE EMPLOYEE

Ramadan Working Hours (1)

Daily Criterion – 6 hours/day

Weekly Criterion (2) – 36/weeks

Daily Criterion (3) – 6 hours/day

Weekly Criterion (3) – 36/weeks

Daily Criterion (3) – 6 hours/day

Weekly Criterion (3) – 36/weeks

Total Maximum Working Hours (Regular + Overtime)10 hours per day

60 hours per week

10 hours per day

60 hours per week

10 hours per day

60 hours per week

Public Holidays (1)4 days – Eid al-Fitr

4 days – Eid al-Adha

1 day – Saudi National Day

4 days – Eid al-Fitr

4 days – Eid al-Adha

1 day – Saudi National Day

4 days – Eid al-Fitr

4 days – Eid al-Adha

1 day – Saudi National Day

Notes:

  • – In accordance to the labor law, public holidays are not extended if they fall on a weekend day. However, most companies provide a replacement day.

1.5       Basic Facts about Saudi Arabia

Official Name: Kingdom Of Saudi Arabia

Capital: Riyadh

Population: 34.54 million (World Bank, 2017)

Area: 2,149,690 Sq. Km (424 Sq. Miles)

Major Languages: Arabic

Major Religions: Islam

Monetary Unit: Saudi Riyal (SR)

GNI Per Capita: $51,600 (World Bank, 2018)

Main Exports: Petroleum and petroleum products

Internet Domain: .sa

International Dialling Code: +966

 

How to Say: –

 

Hello                            (As-Salām ‘Alaykum)   مرحب

Good Morning              (Ṣabāḥul KẖAyr) صباح الخير

Good Evening               (Masā’ Al-Khayr) مساء الخير

Do You Speak English?  (Hal Tatakallam El-Ingliziyya) هل تتكلم الانجليزية

Good Bye                     (Bāy Bāy) باي باي, (Ma`A As-Salāma) مع السلامة

Thank You                    (Shukran Jazīlan) شكرا جزيل (Shukran) شكرا

See You Soon!              (Ashoufak ‘Ourayyeb )

 

 

Dates & numbers

 

Dates are usually written in the day, month and year sequence, for example, 12 July 2017 or 12/07/2017.

2.0    Tax & Social Security

Employers must pay 2% of the Employee’s wage to the General Organisation for Social Insurance (“GOSI”) for all employees. This is to cover injuries sustained through occupational hazards.

In addition to the 2% employer GOSI contribution, all Saudi national employees are subject to 9% employee and 9% employer annuities contributions and 1% employee & 1% employer unemployment insurance contributions which fall under GOSI.

When an employee is provided with housing and no allowance is mentioned, the contributory value is equivalent to 2 month basic salary or 16.67% x Basic Salary.

Maximum salary amounts subject to GOSI are:

  • Under Annuities Branch (Saudi nationals) – minimum of SR 1,500 per month is subject to GOSI contribution, an employee earning less than this minimum amount will pay social insurance equal to an employee earning SR 1,500, i.e (1,500 x 10% = 150).
  • Contribution would not be applicable on earnings greater than SR 45,000 per month. The maximum contribution an employee is liable for is 45,000 x 10% = 4,500.
  • The contribution under Annuities branch applies only to the Saudi nationals and is paid by the employer and employee, a total rate of 20% (10% employer and 10% employee).
  • Under Occupational Hazard Branch – minimum of SR 400 per month is subject to GOSI contribution, an employee earning less than this minimum amount will pay social insurance equal to an employee earning 400, i.e (400 x 2% = 8).

The contributions for Occupational Hazard and annuities of the worker shall no more be paid with effect from the date on which the employees reaches age fifty.

Also, the contribution would not be applicable on earnings greater than SAR 45,000 per month.

The maximum contribution an employee is liable for is SAR 45,000 x 2% = 900.

The contribution under Occupational Hazard relates to both Saudi and Non Saudi nationals, and is paid by the employer only through SADAD system.

2.1       Income Tax

There is no tax payable on salaries for foreign employees in Saudi Arabia, and self-employed foreigners are only taxed on overseas-earned income.

VAT is applicable at the rate of 5% from 1st January 2018 on all goods & services subject to limited exceptions.

Saudi Arabia has a double Tax treaty with France, and similar arrangements with the UK and Germany. Certain countries, including the US, UK, Germany and Japan give their citizen’s Tax allowances against any Tax paid in Saudi Arabia.

2.2       Social Security Benefits

Saudi Arabia has an extensive social security system which provides old age, disability and survivor benefits for its Employed and self-Employed nationals.

2.3       New Starts

Employees must be registered as soon as the employment contract has been signed. Expat Employees are registered during the visa application process and must also be registered with GOSI. The GOSI registration process is completed through an online GOSI portal and each entity has a unique GOSI number. Saudi employees must be added as part of the onboarding process on the first working day.

Saudi Law states that a probation period should not last any longer than 30 days.

2.4       Leavers

All leavers must be deregistered from GOSI through GOSI online portal. Employees serving their notice periods are entitled to eight fully paid hours per week or a full day per week to look for alternative employment.

If an employer terminates the employee, they must have valid reason for doing so. Examples of valid reasons include gross misconduct, violence, prolonged absence without reason and employees that are still under probation.

3.0    Payroll

It is legal to provide the employee with an online payslip, there are no procedures regarding the provision of online payslips.

 3.1       Reports

Payroll reports must be archived for at least seven years.

4.0    Employment Law

Foreign nationals account for about half of Saudi Arabia’s workforce. All Employees should be provided with an employment contract in writing, specifying all details of the remuneration package. Anything agreed verbally is not covered by a contract, so it is important that all the important aspects are written down.

The majority of employment contracts in Saudi Arabia are “single-status,” which means that even if you are married, your spouse and/or family members cannot accompany you to Saudi Arabia. Only some senior/administrative and medical contracts allow family members to travel to and live in Saudi Arabia.

The employment contract types and the respective considerations have been summarized below.

Contract Types

Applicability

Consideration

Fixed-term

·       All expatriates

·       Saudi nationals who are employed on a fixed-term basis

·       There is no minimum or maximum term for fixed term contracts (term limited to work permit validity for expats)

·       Maximum 3 week renewals

·       Maximum length of the fixed term contract is 4 years

·       Fixed-term contracts cannot be terminated by neither the employer nor employee before the end-date of the contract without “cause” (burden of proof is on the party wishing to terminated)

·       Contract expires automatically at the end of the term. However, the party wishing not to renew should ensure that they do not continue to execute the contract after its expiry

Indefinite term·       Saudi nationals only·       Contract can be terminated by either party by giving 60 days of notice
  

4.1       Holiday Accrual / Calculations

Based on payroll and salary code, Employees can earn up to 30 calendar days of vacation each year, in addition to an extra 2-4 travel days. Employees with at least two years’ continuous service with the Employer are entitled to paid leave of 10 to 15 days (including the Eid al-Adha holiday) to perform the Hajj pilgrimage.

Employees are entitled to three days’ paid leave on the occasion of their marriage, and in the event of the death of an “ascendant” (that is, a parent, grandparent and so on) or descendant (that is, a child, grandchild and so on).

4.2       Maternity Leave

A female worker is entitled to maternity leave for the four weeks immediately preceding the expected date of delivery and the subsequent six weeks. The probable date of delivery shall be determined by the physician of the firm or pursuant to a medical report certified by a health authority. A woman may not work during the six weeks immediately following delivery.

During the maternity leave, an Employer shall pay the female worker half her wage if she has been in service for one year or more, and a full wage if she has served for three years or more as of the date of commencement of such leave. A female worker shall not be paid any wages during her regular annual leave if she has enjoyed in the same year a maternity leave with full wage. She shall be paid half her wage during the annual leave if she has enjoyed in the same year a maternity leave at half wage.

An Employer shall provide medical care for female workers during pregnancy and delivery.

When a female worker returns to work following maternity leave, she shall be entitled, in addition to the rest periods granted to all workers, to a rest period or periods not exceeding in aggregate one hour a day for nursing her infant.

Such period or periods shall be calculated as part of the actual working hours and shall not entail any reduction in wages.

An Employer may not terminate the employment of a female worker or give her a warning of the same while on maternity leave.

4.3       Paternity leave

Paternity leave has been increased from one day to three days under new amendments to the Saudi Arabian labor laws.

4.4       Sickness

A worker whose illness has been proven shall be eligible for a paid sick leave for the first thirty days, three quarters of the wage for the next sixty days and without pay for the following thirty days, during a single year, whether such leaves are continuous or intermittent. A single year shall mean the year which begins from the date of the first sick leave.

4.5       National Service

National service is mandatory for all male nationals that are:

  • Between 18 and 30 years old
  • Medically fit
  • Obtain approval of the National and Reserve Service Committee.

At present, service is optional for women.

5.0    Employee Benefits

5.1       Expenses

Expenses are calculated at the client’s behest.

6.0    Visas & Work Permits

Individuals cannot apply for a permit themselves; their sponsor must apply for one on their behalf.

Employment Visas (a.k.a Block Visas) are allocated to a company by the KSA government to enable the company to recruit non-Saudi nationals from outside KSA. The company will be allocated a defined number of visas for each country and labor category. The company must meet industry- and size-specific Saudization requirements in order to qualify for expatriate employment visas. The company will not be able to hire expatriate employees if the established Saudization levels are not met.

The company must have an employment visa for the respective country and labor category available in order for a candidate to qualify for an employment visa. The candidate must also be in possession of the required documents that prove their qualifications required for the respective visa labor category.

In many countries, employment visas can only be processed by authorized recruitment and visa processing agencies. If and when required, the company will refer the employment visa applications to the authorized local agencies for processing. Employees will be notified with the contact information of the authorized agencies. Employees are required to follow the instructions provided by the agencies in a timely manner.

Eligibility

For a prospective Employee to obtain an Employment Visa, they must have:

 

  • Professional skills or academic qualifications that are lacking or unavailable in Saudi Arabia
  • An employment contract with a Saudi citizen, a Saudi company or a foreign organisation licensed to do business in the country

Given that there is currently a drive towards ‘Saudization’ of organisations, Employers have to prove to the Saudi government there are no Saudi citizens available to fill the position in question.

Employment for women is restricted to a limited number of professions – mainly in the education, healthcare and domestic help sectors.

Application Procedure

To start the process off, the sponsor will first open an ‘immigration file’ at the Ministry of Interior and apply for a visa. Once the application has been approved, the Employee is required to submit the following documents to the Saudi embassy in the country of residence:

  • Original passport: valid for the duration of the employment contract with a minimum of two consecutive blank pages
  • Three colour passport photographs
  • Completed application form: this will either be provided by the Employer or can be requested from the embassy or consulate of Saudi Arabia in the home
  • Copy of the employment contract: signed by both the Employee and the sponsor (Employer)
  • Letter from the sponsor (usually the Employer), certified by the Saudi Chamber of Commerce and the Ministry of Foreign Affairs, including the number and date of the visa, as well as the name of the applicant and the job title
  • Copy of a degree or diploma received by the foreign Employee, certified and notarised by the relevant organisation in the home country as well as the embassy or consulate of Saudi Arabia in that country
  • Three copies of a medical report (with three passport photographs) certifying the absence of the HIV virus and any contagious diseases: this must be issued by a licensed doctor from a Saudi Embassy-approved clinic in the country of origin within three months of the application. All individual copies need the doctor’s signature along with details of name, address and licence number (where applicable), and may need to be paid for by the Employee
  • Police report detailing any criminal records held by the applicant, which must be issued within six months of the application
  • Notification of the number of the Employment Visa applied for by the sponsor from the Ministry of Foreign Affairs in Saudi Arabia and its date of issue
  • Application fee: this should be paid by the Employer, but if it is required to arrange this personally, check how it should be made in the country of origin with the Employer.

These documents can be directly submitted to the Saudi embassy, but it is often faster, to go through an agency nominated by the Employer to handle the application.

The below table summarizes the various immigration alternatives that are available for the employees, contractors and visitors of a company:

Visa Type

Applicability

Allowed to Work

Convertible to Iqama

Visa Exits Required

Family

Issued from Home Country

Local (Iqama) Transfer

Full time employees

Yes

N/A

No

Yes1

No

Employment Visa

Full time employees

Yes

Yes

No

Yes1

Yes

Work Visit Visa

Consultants

Employees in probation period

Yes

No

Yes

No

Yes

Commercial Visit Visa

Consultants

Visitors

No

No

Yes

No

Yes

1 Ability to sponsor family for an Iqama depends on the employee’s labor category.

ABOUT MERCANS

We are your trusted HR function outsourcing partner, simplifying employment tasks worldwide. We deliver bespoke human capital management services and global payroll solutions to empower businesses across all continents. A borderless people engagement enabler, driven by technology and innovation and committed to make your teams happy, we ensure your consistent and sustainable growth.

Mercans operate globally, ensuring timely and measurable results, and bottom-line savings. Supported by 500+ payroll and HR specialists with in-depth local knowledge, our pioneering human resources consulting services and trailblazing SaaS payroll software, HR Blizz™ & Mesaar™, are already satisfying 5,000+ international clients, regardless of the size of their organization and their industry. Visit mercans.com

SIMPLIFYING EMPLOYMENT TASKS WORLDWIDE

Local Presence. Regional Strategy. Global Success.

We are a borderless people engagement enabler, committed to make your teams happy. Driven by technology and innovation, we pride ourselves in being global people experts with striking local presence. We deliver bespoke human capital management services and innovative global payroll solutions to empower international businesses.

We are your reliable HR function outsourcing partner, delivering innovative HCM solutions, along with cutting-edge human capital management advice, to ensure consistent business growth, regardless of the size and industry of your company. We develop SaaS software and outsource HCM solutions tailored to 5,000+ clients across all continents.

Mercans operate globally, ensuring timely measurable results and bottom-line savings. We employ 500+ payroll and human resources specialists with in-depth local knowledge. Thanks to success-oriented teams striving for excellence and taking care of your organization’s tasks within budget, we have gained the trust of major multinational companies.

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