Hire in Saudi Arabia through our Employer of Record (EOR)

Saudi Arabia's employment landscape is a dynamic blend of traditional values and modern aspirations. The country's workforce is characterized by a significant presence of foreign workers, a youthful demographic, and ongoing efforts to increase female participation. With a strong emphasis on higher education and a push towards economic diversification, Saudi Arabia is witnessing shifts in its labor market dynamics. Let's delve deeper into the key aspects of employment in this Gulf nation.

Overview of Labor Laws

Saudi Arabia's labor laws are designed to protect both employers and employees while aligning with the country's cultural and religious values. The primary legislation governing employment relationships is the Saudi Labor Law, which covers various aspects of employment, including:

• Employment contracts and termination procedures
• Working hours and leave entitlements
• Wage protection and minimum wage requirements
• Workplace safety and health regulations
• Saudization quotas for hiring Saudi nationals

It's crucial for employers to stay updated on these laws, as they are subject to periodic revisions aimed at modernizing the workforce and improving working conditions.

Cultural Considerations

Understanding and respecting Saudi Arabian culture is vital for successful employment relationships. Key cultural aspects to consider include:

1. Religious practices: Accommodating daily prayer times and observing Islamic holidays
2. Gender segregation: Maintaining appropriate workplace arrangements for male and female employees
3. Communication styles: Emphasizing indirect communication and relationship-building
4. Hierarchy: Respecting authority and decision-making structures
5. Work-life balance: Recognizing the importance of family commitments

Employers should be sensitive to these cultural norms to foster a harmonious work environment and maintain positive relationships with employees.

Challenges of Direct Hiring

Direct hiring in Saudi Arabia can present several challenges for foreign companies:

1. Saudization requirements: Meeting quotas for hiring Saudi nationals can be difficult, especially for specialized roles
2. Visa and work permit complexities: Navigating the bureaucratic process for hiring expatriates can be time-consuming and complex
3. Cultural adaptation: Ensuring foreign hires can adapt to Saudi work culture and lifestyle
4. Skill mismatches: Bridging gaps between available skills in the local workforce and job requirements
5. Legal compliance: Keeping up with evolving labor laws and regulations
6. Administrative burden: Managing payroll, benefits, and other HR functions in accordance with local laws

These challenges often lead companies to consider alternative solutions, such as partnering with an Employer of Record (EOR) like Rivermate, to simplify their hiring process and ensure compliance with local regulations.

Saudi Arabia's payroll and tax system is a unique blend of modern financial practices and traditional Islamic principles. The Kingdom has established a comprehensive framework that governs the financial responsibilities of both employers and employees, ensuring a balanced approach to economic growth and social welfare.

In Saudi Arabia, the payroll process involves careful consideration of various elements, including basic salary, allowances, and deductions. The tax system, while not imposing personal income tax on employees, does include other forms of contributions and taxes that both employers and employees need to be aware of.

Employer Contributions

Social Insurance Contributions (GOSI)

Employers in Saudi Arabia are required to register their employees with the General Organization for Social Insurance (GOSI) and make regular contributions. For Saudi nationals, employers contribute 11.75% of the employee's salary, which breaks down as follows:

• 9% for social insurance
• 2% for occupational hazard insurance
• 0.75% for SANED unemployment insurance

For expatriate employees, employers only need to contribute 2% for occupational hazard insurance.

These contributions are calculated based on the employee's basic salary, housing allowance (if applicable), and commissions, with a monthly cap of SAR 45,000. GOSI contributions must be paid monthly by the end of the following month.

Zakat

Companies with Saudi ownership are subject to Zakat, an Islamic wealth tax. The rate is 2.5% of the company's Zakat base, which is calculated from adjusted net assets. Zakat is assessed annually and is typically due within 120 days from the end of the company's fiscal year.

Corporate Income Tax

Saudi Arabia imposes a corporate income tax of 20% on companies operating within the Kingdom. Corporate income tax returns must be filed and paid within 120 days from the end of the company's fiscal year.

Withholding Tax

Employers are required to withhold tax on certain payments made to non-residents for services rendered in Saudi Arabia. The withholding tax rates range from 5% to 20%, depending on the type of service. This tax must be paid to the General Authority of Zakat and Tax (GAZT) by the 10th of the month following the payment.

Employee Contributions

Social Insurance Contributions (GOSI)

Saudi employees and GCC nationals working in Saudi Arabia are required to make social insurance contributions. The employee's contribution is 9.75% of their gross salary, which includes:

• 9% for social insurance
• 0.75% for SANED unemployment insurance

These contributions are capped at a monthly salary of SAR 45,000.

Zakat

While not a direct payroll deduction, Zakat is an obligatory religious tax for Muslim employees whose wealth exceeds a certain threshold (nisab). The typical rate is 2.5% of eligible wealth held over a lunar year. Employees can either calculate and pay Zakat themselves or have their employer estimate and deduct it based on their salary and assets.

It's important to note that Saudi Arabia does not impose personal income tax on employees. However, the combination of social insurance contributions and Zakat (for Muslim employees) forms a significant part of an employee's financial responsibilities.

Understanding these payroll and tax obligations is crucial for both employers and employees in Saudi Arabia. Employers must ensure compliance with all relevant regulations to avoid penalties, while employees should be aware of their contributions to make informed financial decisions. As the Kingdom continues to develop its economy, staying informed about these financial responsibilities becomes increasingly important for all parties involved in the Saudi workforce.

Saudi Arabia offers a comprehensive set of employee benefits, ensuring workers receive fair compensation and protection. As an Employer of Record (EOR), Rivermate expertly manages these benefits, ensuring compliance with local laws while providing valuable support to both employers and employees. By handling the complexities of benefit administration, an EOR allows companies to focus on their core business activities while maintaining a satisfied and productive workforce.

Mandatory Benefits

• 30 days of paid annual leave per year
• Paid time off for official Saudi public holidays (10-12 days annually)
• Sick leave: 30 days at full pay, 60 days at 75% pay, and 30 days unpaid
• Maternity leave: 10 weeks fully paid (6 weeks before and 4 weeks after childbirth)
• Paternity leave: 3 days fully paid
• Marriage leave
• Hajj pilgrimage leave after two years of service
• Bereavement leave for family member's death
• Enrollment in the General Organization for Social Insurance (GOSI) program
• Work-related accident and disability insurance
• Death and permanent disability insurance
• Unemployment insurance
• End of Service Gratuity upon employment termination

Optional Benefits

Financial Benefits

• Relocation allowances
• Profit sharing schemes

Work-Life Balance Benefits

• Flexible working hours
• Paid Time Off (PTO) banks
• Childcare assistance

Other Benefits

• Company car provision
• Educational assistance
• Gym memberships or wellness programs
• Discounts on products or services

By offering a mix of mandatory and optional benefits, employers in Saudi Arabia can create an attractive compensation package that helps recruit and retain top talent while ensuring compliance with local labor laws. As an EOR, Rivermate simplifies the process of managing these benefits, allowing companies to provide a competitive and compliant benefits package to their employees in Saudi Arabia.

The process of termination and offboarding in Saudi Arabia is governed by specific regulations designed to protect both employers and employees. Understanding these procedures is crucial for companies operating in the Kingdom to ensure compliance with local labor laws and maintain positive relationships with their workforce.

Grounds for Termination

In Saudi Arabia, employers must have valid reasons for terminating an employee's contract. For indefinite term contracts, these reasons may include:

• Gross misconduct
• Failure to perform essential job duties despite warnings
• Repeated violation of safety regulations
• Unauthorized absence for extended periods
• Disclosing company secrets
• Conviction for certain offenses

Fixed-term contracts can be terminated upon:

• Completion of the agreed-upon term
• Completion of the specific work project
• Mutual agreement between employer and employee
• Force Majeure circumstances

Notice Requirements

Proper notice is a crucial aspect of the termination process in Saudi Arabia:

• For indefinite term contracts: 60 days' written notice for monthly-paid employees, 30 days for others
• For fixed-term contracts: No strict notice requirement, as these contracts terminate upon completion of the term or project

Employers may opt to provide pay in lieu of the required notice period.

Severance Pay

Saudi Arabian law mandates severance pay, also known as an End-of-Service Award, for eligible employees:

• For indefinite term contracts: Employees with at least two years of continuous service are eligible
• Calculation: Half a month's pay for each of the first five years, one full month's pay for each subsequent year
• For fixed-term contracts: Employees terminated before contract expiry (excluding misconduct) are entitled to severance pay

Offboarding Process

A smooth offboarding process is essential for maintaining a positive company reputation and ensuring all legal obligations are met:

1. Provide written notice of termination, clearly stating the reasons
2. Conduct an exit interview to gather feedback and address any concerns
3. Retrieve company property, including access cards, equipment, and confidential information
4. Calculate and process final payments, including severance pay and any outstanding wages or benefits
5. Issue necessary documentation, such as a certificate of employment and final settlement statement
6. Update internal records and systems to reflect the employee's departure
7. Ensure proper handover of responsibilities and knowledge transfer

By following these guidelines, companies can navigate the termination and offboarding process in Saudi Arabia effectively, minimizing legal risks and maintaining positive relationships with departing employees.

Saudi Arabia has become an increasingly attractive destination for foreign workers seeking employment opportunities in various sectors. The Kingdom offers a range of visa and work permit options for expatriates, but navigating the requirements can be complex. Here's a concise overview of the visa and work permit process for foreign workers in Saudi Arabia:

Work Visa Types

Saudi Arabia primarily offers two types of work visas:

1. Employment Visa: This is the most common type for foreign workers, allowing them to live and work in the country for a specific employer.

2. Business Visa: Intended for short-term business activities, such as attending meetings or conferences.

Work Permit Requirements

To obtain a work permit in Saudi Arabia, foreign workers typically need:

• A valid passport with at least six months validity
• A job offer from a Saudi employer
• Educational qualifications and professional certificates
• A clean criminal record
• Medical fitness certificate

Application Process

1. The Saudi employer initiates the process by obtaining approval from the Ministry of Labor.
2. Once approved, the employer applies for a work visa on behalf of the foreign worker.
3. The worker then applies for the visa at the Saudi embassy in their home country.
4. Upon arrival in Saudi Arabia, the worker undergoes medical tests and biometric registration.
5. The employer then applies for the final work and residence permits (Iqama).

Important Considerations

• Work visas are typically valid for one to two years and are renewable.
• Foreign workers are generally not allowed to change employers without permission.
• The Saudi government has implemented a Saudization policy, prioritizing employment for Saudi nationals in certain sectors.

Understanding these requirements and working closely with a knowledgeable employer or Employer of Record can significantly streamline the process of obtaining work authorization in Saudi Arabia.