UPDATE (2019): Companies with a minimum of 10 employees are now subject to WPS guidelines.
The Wage Protection System – An Introduction
The wage protection system ensures that wages are paid out fairly to all employees of private sector organizations. The system is in place to safeguard both Saudi and expat employees. A database pertaining to the payment of wages is established for private sector employees based on the information provided regarding salaries in the GOSI system. WPS ensures that private sector organizations abide by labor laws and pay private sector employees in a timely manner in accordance with salaries established in their contracts and subsequently registered with GOSI.
Companies subject to WPS
The Wage Protection System was implemented by the Ministry of Labor of Social Development and became mandatory for all Saudi companies with over 3,000 employees on 1 September 2013. A number of announced phases which were dependent on the number of employees at the organization. The current WPS applies to organizations with over 40 30 10 employees. WPS will gradually be rolled out for organizations with fewer number of employees based on the schedule provided below. The aim here is to allow organizations to develop their capacity and processes for adherence to WPS and protect private sector employees at all sizes of organizations.
Rules and regulations
There are a number of regulatory compliance processes which companies should be aware of with respect to WPS. The submission file should be compliant with the structure outline. The data regarding deductions, increments and salaries should be accurate and match all other sources linked with the Ministry. There are significant fines and repercussions associated with non-compliance such as suspension of MOL file.
Process and procedures
The outlined process for completing the electronic submission process is not very complicated. However, companies should be mindful of the various nuances within the data required and related explanations for any exceptions. Human resource professionals with significant experience with WPS will know specific issues applicable based on a company’s payroll structure and activities. This becomes especially pertinent with more stringent WPS exception rules which are now applicable. The basic WPS process is outlined below:
- Each organization must register with the payroll program provided by its bank in Saudi Arabia.
- The organization will fill the payroll file to the Bank in specific format and information. All payroll should be processed and deposited through company’s registered bank.
- The bank will generate a WPS file in txt format after 3+ business days from the processing of the payroll file.
- Organization will be required to upload the WPS text file in Ministry of Labor portal before 10th of each month and fill in the required information in the online form.
- Ministry of Labor will reply after five days roughly to clarify the compliance rate and notes.
- The organization needs to submit reasons for the notes along with related proofs. There are two channels for submission of reasons and they depend on the type of notes. One channel is to submit through the online portal and the second is directly through the labor office.
- The organization must visit the labor office to confirm whether the reasons are accepted, otherwise there may be penalties, if there are violations related to payroll.
Each organization operating in Saudi private sector must be registered with General Organization for Social Insurance regardless of whether WPS applies to them. The organizations subject to WPS should pay their employees according to registered wages in GOSI. It is important to note that MLSD will match the wages data in WPS files with GOSI’s data.
Benefits of the WPS Program
For the private sector employees:
- The employee is ensured to receive his wage or salary on time and with the amount agreed upon without any delays, discrepancies or fraud.
- Avoiding any disparity between the data registered by the employer from what has been previously agreed upon and is normally paid.
- Outlining an employee’s rights through transparent information regarding wages in the event there are any disagreements on wages.
For the employer (the establishment owner)
- Reducing the labor disagreements or troubles and providing a healthy work environment which encourages increasing the productivity.
- Making the labor dues or accruals on top of the priorities of the employer.
- Proving the payment of the labor wages without needing the receipt payrolls and to retrench the malicious complaints.
- Providing the required precise information in order to enable the Ministry of Labor to release or publish statistics and data about the labor market in a way that serves all the parties including the employer (the establishment).
- Increasing the competitiveness in the labor market and attracting the national cadres or staff.
For the community
- Providing a level of social welfare, psychological settlement or reassurance and a safe work environment.
- Ensure providing the social protection to all the private sector employees after retirement and in case of injuries via the compliance of the wages data registered in social insurances to the actual wages.
- Controlling the foreign labor wages and linking them with what suits the labor contracts in addition to evaluating the suspected banking cases.
- Reducing the risks and the thefts cases resulting from paying the labor wages in cash money.
- Contributing in increasing the productivity of the labor in the private sector because of ensuring their rights.
- Providing the opportunities of establishing economic entities and jobs for the Saudi citizens through retrenching the fictitious employers, the foreign loose or abandoned labor and the labor concealment.
- Providing actual or real updated information and data which reflects the condition of the private sector and its future requirements.
Importance of Effective WPS Management
The importance of effective WPS management cannot be emphasized enough. Non-compliance can have serious impacts on business operations through penalties, suspension of service from Labor Office which might include critical operational elements such as work permit renewals, sponsorship transfers, Saudization certificates, new work visa requests, etc.
Companies can adopt the following best practices to better manage their WPS process:
- Map out the WPS life cycle specific to your organization’s payroll and banking cycle.
- Designate a WPS process owner who is specifically tasked with following and completing the WPS life cycle each month.
- Develop an internal information repository recording all exceptions faced by the company, their related explanations and actions taken to resolve them.
- Define clear channels of communication between HR and payroll to make sure employee details are updated and processed accurately.
- Stay abreast of updates and news releases from the Ministry as the process goes through continuous improvements.