Saudi Arabia Employment Contracts

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Saudi Arabia Contracts

International corporations moving into the Kingdom of Saudi Arabia’s powerful economy must first decide which business structure is the best fit for their expansion plans. The most popular choice is to open a private limited liability company (LLC) – an essential move as foreign companies must establish a legal entity to hire staff and run payroll.

The employer-employee relationship is mainly governed by the Labor Law (2005), with additional limits for benefits and entitlements applied by the Ministry of Human Resources and Social Development (HRSD), formerly the Ministry of Labor and Social Development.

Additionally, employers must follow rules set by the Saudization program – also known as Nitaqat – which enforces quotas on how many foreigners can be hired compared with Saudis or citizens from the other five Gulf Cooperation Council (GCC) nations, the United Arab Emirates, Bahrain, Qatar, Oman, and Kuwait.

General considerations include:

  • Under the Labor Law, only Saudi and GCC nationals can be employed on indefinite, open-ended contracts at the start of employment. They can also be on fixed-term contracts
  • If a Saudi has a fixed-term contract that is renewed three times, or the total period reaches four years, their contract becomes indefinite
  • Employer or employee can terminate an open-ended contract giving a valid reason, in writing, 60 days’ notice before the termination date if employees are paid monthly, with 30 days’ notice for others
  • If a non-Saudi’s contract does not specify the fixed term, it will equal the length of their work visa or permit
  • Under Article 55 of the Labor Law, the fixed term can be renewed for the same or similar period if specified in the original contract. Under Article 56 it is added to the period of service in terms of the employee’s rights
  • Non-Saudis can work only in a profession/company specified in their permit
  • Any probation periods must be included in the contract, usually to a maximum of 90 days although the employee can give permission, in writing, for an extension to a maximum 180 days. Either party can terminate without given a reason

Employment Contracts in Saudi Arabia

Open-ended, indefinite employment contracts: Only Saudis and Gulf Cooperation Council (GCC) citizens can be placed on these contracts at the start of their employment. The contract can be terminated by either party by following correct procedures under the Labor Law.

Fixed-term employment contracts: These can apply to either Saudi, GCC or foreign nationals. Where the contracts for Saudi and GCC employees are renewed three times or total four years, they become open-ended. Fixed-term contracts for foreigners can be renewed if they contain a clause to that effect, with employees’ rights and benefits extended throughout the entire service period. However, they cannot be converted to an open-ended contract. If the fixed-term period is not specified, it equals the length of the visa or work permit.

Probation periods: These must be included in the contract, usually for 90 days although the employee can give written agreement for an extension to a maximum 180 days. Either party can terminate without reason.