The basis of Saudi Arabia’s employment legislation framework is fashioned on two pillars. The first pillar is the Royal Decree Number M/51 23 Sha’ban 1426/27 September 2005, with amendments announced in Royal Decree number M/46 of 05/05/1436H (The Labor Law).
The second pillar is the “Implementing Regulations” of the Labor Law. The Labor Law contains detailed provisions that address matters such as, recruitment, employment of non-Saudi personnel, employment contracts, termination of employment, and working conditions. The Labor Law also regulates dispute resolution and provides for fines and a punishment regime for specific offenses.
Who is this Labor Law applicable to?
As per Article 5 of the Labor Law, the Law shall apply to:
- Any contract whereby a person commits himself to work for an employer and under such employers management or supervision for a wage/remuneration;
- Workers of public organizations and the government and institutions including those who work in pasture or agriculture;
- Charitable institution workers;
- Workers of agricultural and patrol firms that employ ten or more workers;
- Workers of agriculture firms that process their products;
- Workers who on a permanent basis repair and operate agricultural types of machinery;
- Qualification and training contracts with workers other than those working for the employer within the limits of the specified provisions provided for in this law;
- Part-time workers in connection with safety, occupational health, and work injuries, as well as, what is decided by the Ministry of Labor.
Article 12 of the Labor Law sets out that every employer who employs ten or more workers must prepare internal regulations that the firm will be bound by. The basis of the internal regulations must be on the draft regulations provided by the Ministry of Labor, following this, the approval by the Ministry of Labor of the regulations is required. The regulations shall include the work organization rules and all related provisions including the provisions relating to privileges, violations, and disciplinary penalties and procedures. The regulations shall not contradict with the provisions of the Labor Law.
The Labor Law applies to both Saudi-national workers as well as foreign workers. A matter of vital importance to the foreign workers is that, before they can participate in any work, they need to obtain from the Ministry of Labor a work permit, according to Article 33 of the Labor Law. For granting a permit, the fulfillment of some conditions must take place. Such provisions include that the foreign worker needs to have lawfully entered Saudi Arabia and must be authorized to work. The foreign worker also needs to possess the professional and academic qualifications, which the country needs or which are not possessed by the citizens.
The foreign worker must have a contract with the employer and must be under the employers’ responsibility. Article 33 of the Labor Law also states that the definition of work in this specific article is any industrial, commercial, agricultural, financial or other work, and any service including domestic service.
The domestic workers’ rights and duties are regulated by Ministerial Decision Number 310 of 1434 regulating the employment of domestic workers and Ministerial Decision Number 605 of 1434 permitting domestic workers to transfer between employers in certain circumstances (together with the Law of Domestic Workers).
Saudi Arabia has a select group of free zones which can be divided into industrial cities and economic cities. The authority for the industrial cities is the Saudi Industrial Property Authority, and it is the Saudi Arabian General Investment Authority (SAGIA) who has authority over the economic cities. SAGIA offers a fast track government immigration center for the cities to deal with, for example, visas, labor law requirements, renewal of visas, and work permits. The economic cities are private projects and therefore, they must adjust to the Saudization, but a more liberal regime will apply to employment issues than in the rest of Saudi Arabia.
2.1 Work contracts
The contract concluded between an employer and an employee, is a contract whereby the employee undertakes to provide services under the management, control or supervision of the former for remuneration in pursuance of Article 50 of the Labor Law.
Generally, this contract shall be in writing, and each party should have one copy. This provision for a written contract can be an optional provision since the law still validates an unwritten work contract. In the case of an unwritten work contract, the interpretation of the terms will be in favor of the employee. At any time one can demand that the contract shall be in writing, no matter if such person is the employer or employee, according to Article 51 of the Labor Law. There are some exceptions to this general rule about the work contract. The work contract for foreign workers needs to be in writing and of a specific period according to Article 37 of the Labor Law. Workers of the government and public corporations do not need a written contract of work. Instead, the appointment decision or order by the competent authority serves as the contract.
A person under 15 years may not be employed. In exceptional cases and for light works, the Ministry of Labor may allow persons between 13-15 years old to work, according to Article 162 of the Labor Law.
According to Article 52 of the Labor Law, a work contract shall primarily include, the name of the employer and employee, venue, nationality, identification number, agreed remuneration, type and location of work, date of employment, and duration of the contract (if it is a fixed contract).
There are two types of work contracts:
- Term contracts, which consist of fixed-term contracts and an indefinite term contract.
- Project-based contracts
Article 55 of the Labor Law states that a fixed-term contract terminates upon the expiration of its term. If the parties wish to continue the employment, the contract shall be deemed to be renewed for an indefinite period and thereby become an indefinite contract. This extension of contract does not need to be in writing. The fixed-term contract may also become an indefinite contract when renewal takes place for three consecutive times or the total period of the fixed-term contract and renewal is equal to 4 years or more. A project-based contract shall terminate with the completion of the work as agreed upon according to Article 57 of the Labor Law.
Foreign workers can only get a fixed-term contract. If there is no specification of the term in the employment contract, it automatically ends when the expatriates’ work permit expires. A point worth noting is that according to Article 40 of the Labor Law, the employer shall incur the fees of recruitment of non-Saudi workers. The employer shall also incur the fees of the residence permit and employment permit in conjunction with their renewal and the penalties resulting from their delay. The employer is also obliged to pay the exit and re-entry visa and at the end of the work contract, pay return tickets to the foreign employee’s home country.
Article 39 of the Labor Law provides that the employer may not employ the foreign worker in an occupation other than the one specified in his work permit. There is a prohibition against the foreign worker from engaging in a profession other than the one in the work permit, before the correct procedures take place for the changing of a profession. Until such time, the employer may not allow his foreign worker to work for another person or other employers according to Article 39 of the Labor Law.
2.2 Qualification and Training Contract
Article 45 of the Labor Law states that a qualification and training contract is a contract which binds the employer to qualify and train a person for a specific profession. The contract shall be writing and shall include the profession for which training is contracted, the duration of the training and successive stages and the allowance to be paid to the trainee in each stage, provided that the basis of such allowance is on a piecemeal or productivity basis as per Article 46 of the Labor Law. The qualification and training contracts are subject to the Labor Law’s provisions on official holidays, annual vacations, daily and weekly rest periods, maximum working hours, work injuries and their conditions, occupational health and safety rules, as well as, whatever is decided by the Minister of Labor in accordance with Article 49 of the Labor Law.
3. Probation Period
The Labor Law regulates probation rules; probation gives both the employer and the employee a chance to understand the work environment and other factors before a final decision to continue the contract of employment. If there is an agreement about a probation period, it should be expressly mentioned and indicated in the work contract. The probation period can be up to 90 days. Agreement of both parties can extend the probation period; however, such an extension cannot be for more than 180 days. The probation period does not include Eid al-Fitr and Eid al-Adha holidays and sick leave. The provisions on probation are in Article 53 of the Labor Law. Additional probation rules apply to teachers who gain employment in Saudi Arabia – a teacher can have probation of a period of up to two years.
At the end of a probation period, an employee should not be placed on another probation period except where the parties otherwise agree, however, the extenuation of such must be due to the fact that the employee will now be undertaking to perform additional work or act under another profession as per Article 54 of the Labor Law. Both parties have the right to terminate the contract during the probation period as long as the contract does not include a clause giving the right to terminate the contract to only one of them. Neither party shall be entitled to compensation if the termination of the contract is during the probation period. The employee also has no right to an end-of-service benefit. A foreign employee has to bear the cost of returning to his home country if he resigns within the probation period or the employer terminates him as he is not fit for the necessary job.
The domestic workers regulation allow for a 90 day probation period, according to the Law of Domestic Workers. The employer may end the service without assuming responsibility if the worker is determined to be incompetent during the probation period.
4. Working hours, Leave and Wages
4.1. Working hours
Generally, according to Article 98 of the Labor Law, an employee may not work more than eight (8) hours a day or forty-eight (48) hours a week. Article 100 of the Labor Law states that it is acceptable to exceed these work hours when the work is done in shifts, as long as the average hours in a three-week cycle is not more than eight (8) hours a day or forty-eight (48) hours a week. The employees must not stay more than twelve (12) hours per day at his/her workplace. An exception from the general rule of working hours is during Ramadan for Muslims. Article 98 of the Labor Law states that during Ramadan the work hours are reduced to a maximum of six (6) hours a day or thirty-six (36) hours a week.
In some particular industries and jobs where the workers do not work continuously, the raising of the work hours can be to nine(9) hours a day according to Article 99 of the Labor Law. The reduction of the work hours can also be to seven (7) hours a day for specific hazardous or harmful industries and jobs. For these exceptions, the employer needs to seek for the approval of the Ministry of Labor. Article 108 states that in certain cases the regulation of work hours provided for in Article 98 and 100 shall not apply. Exempt from those articles, are persons occupying high positions of authority in management and policy, depending on whether the position grants the persons occupying such position authority over employees. They also shall not apply to preparatory or supplementary works, which must be finished on or after the commencement of work, and on work that is intermittent by necessity. The provisions shall not apply for guards and janitors, excluding civil security guards. According to Article 101 of the Labor Law, all employees have the right to a break in work of no less than half an hour every day for lunch and prayer. Employees shall not work more than five (5) continuous hours without a break. There is no inclusion of the breaks in the actual work hours. All employers are obliged to pay their employees overtime pay equal to the hourly rate plus 50% of his basic pay. As per Article 104, Fridays are the weekly rest day. However, the employer may replace this day for some of his employees by any other day of the week as long the employer makes a proper notification to the competent labor office. The weekly rest day shall be fully paid and shall not be less than twenty-four (24) consecutive hours.
Article 105 of the Labor Law states an exception to the abovementioned rule in that when it comes to professions which requires continuous work, there can be an alteration of the rest periods. In those cases, weekly rest periods will accrue to the worker, and the consolidation of such may be for up to 8 weeks. The employee and the employer must agree to such, and the Ministry of Labor must approve it.
According to Article 90 of the Labor Law, the payment of the worker´s wages shall be in Saudi Arabia’s official currency, which is the Saudi Riyal (SAR). When it is necessary, and upon a proposal by the Ministry of Labor, the Council of the Ministry may set a minimum wage according to Article 89 of the Labor Law. A minimum wage of SAR 3,000 per month applies to Saudi-nationals in the private sector. In 2014, the Ministry of Labor was considering fixing the minimum wage for Saudi-nationals, in the private sectors, to SAR 5,300 and SAR 2,500 for foreign workers.
According to Article 90 of the Labor Law, the wages shall be paid during working hours and at the workplace or, with the consent of the worker, through accredited banks in the Kingdom. The payment of the wages shall be in the following manner:
- If the worker is paid on a daily basis, such payment must take place at least once a week.
- If the employee is remunerated monthly, such remuneration must take place once a month.
- If the work is done on a piecemeal basis and requires more than two weeks, the worker shall get a payment each week commensurated with the completed portion of the work.
- In other cases than above-mentioned, the payment of the worker shall be at least once a week.
If the wages are not set in the contract between the employer and employee, it shall be set by the wage estimated for the same type of work in the firm. If there is none, the setting of the wage shall be as per the professions’ norms at the place where the performance of the work takes place. This provision is according to Article 95 of the Labor Law. The employer cannot reclassify a monthly-paid worker to, for example, a daily paid worker unless the employee agrees in writing.
Article 91 of the Labor Law provides that if the worker causes loss, damage, or destruction to machinery or products owned by the employer while under his watch, the deduction of the cost of the repair or restoration to the original condition can come from the worker’s wages. The dedications cannot exceed five-days wage per month. This deductions will only apply if the damage, loss, or destruction is a result of the employee’s fault or a violation of the employer’s instructions. If it is a result of a third party’s conduct or force majeure, the deduction shall not be made. Both the employee and the employer can file a grievance with the Commission for Settlement of Labor Disputes (CSLD) if they do not agree with the other party.
According to Article 97 of the Labor Law, the employer shall continue to pay the worker 50 % of the employee’s wage in cases where the worker is arrested or taken into custody by the competent authorities where such matters are related to work or occasions by it. The employer shall pay 50 % until the case is decided, provided that the period of custody does not exceed 180 days. If the period of custody exceeds 180 days, the employer is not required to pay any amount of the wage for the excess period. If the worker is acquitted or they did not have enough evidence, so the case is closed, the employer shall return the amount previously deducted from the worker’s wage to the worker. The employer is not entitled to the right to get the payments back if the worker is found guilty, unless the judgment provides for such return.
There are different occasions for the granting of paid leave according to the Labor Law:
- Paid Annual Leave- employees are allowed to have twenty-one (21) days paid annual leave. This leave can be increased to thirty days if the worker spends five (5) consecutive years in the service of the employer, according to Article 109 of the Labor Law.
- Five (5) days fully paid leave is allowed where a male employee’s wife dies. In case of the death of a female employees husband, she is entitled to paid leave of fifteen (15) days leave according to Article 160 of the Labor Law.
- Maternity leave entitles a female employee ten (10) weeks of leave as per Article 151 of the Labor Law. This entails four (4) weeks before the birth and six (6) weeks after the birth. If the female employee gives birth to a baby with special needs and the baby needs a permanent attendee, the female employee has right to a month paid leave after the end of maternity leave.
- Paternity leave is three (3) days according to Article 113 of the Labor Law.
- Marriage leave- five (5) days of paid leave is allowed after marriage as per Article 113 of the Labor Law.
- Short-term work-related disability leave gives an employee the right to fully paid leave for the first sixty (60) days, and three-quarters of the wages owed to him/her for the next ten (10) months of treatment and recovery, regarding Article 137 of the Labor law.
- Eid leave
Domestic workers are entitled to one (1) month paid leave after two (2) years of service, according to the Law of Domestic Workers, as long as there is a renewal of the contract. The domestic worker is also entitled to thirty (30) days of sick leave as long as a medical report is provided certifying the need for leave.
The availing of the annual leave must be within the year of accrual. The employee can request his employer to defer his entire annual leave or part thereof to the next year according to Article 110 of the Labor Law. The employer also has a right to postpone the annual leave for not more than three (3) months after the completion of the year if work conditions require it. If the work requires an extension of the postponement, the employer needs consent from the employee in writing. During the leave, the worker is not allowed to work for another employer, as per Article 118 of the Labor Law.
Leave for injury – when it comes to work injuries, the employers have a responsibility to carry all the expenses in connection with to the treatment of the injury provided for by Article 133 of the Labor Law. If the employee’s chances of recovery are meager after one (1) year, the injury will be treated as a permanent disability and will qualify as a ground for termination due to disability.