In the Saudi Arabia, there are many regulations that affect the way companies run their human resource departments such as local employment law, Saudization, GOSI, WPS and Nitaqat. For foreign investors, the regulations are often very different to the ones in their own country so it is advised to seek professional assistance when first establishing the HR department.
The labour law in Saudi Arabia is a fundamental part of operating for every employer. All employees must be registered in the Ministry of Labour and Social Development (MLSD) and the General Organization for Social Insurance (GOSI).
Key features of the labour law that employers must consider are; non-Saudi employees must be hired on a fixed term basis corresponding with their residence visa, employers can request a probationary period of 90 days maximum, once this period is complete, if necessary, it can only be extended for another 90 days. Employees are entitled to 21 days of paid holiday, extending to 30 days after five years of service, the retirement age is 60 for men and 55 for women and the employer must provide medical insurance for the employee and their dependents.
Saudization is the nationalization scheme that requires companies to hire a percentage of Saudi nationals depending on the company size and industry.
Certain roles in Saudi are restricted for nationals only, employers must consider these restrictions when hiring to ensure they remain compliant. Companies need to consider their recruitment strategies depending on their industry requirements.
Businesses should prepare for Saudization by creating Saudization objectives and then create a plan to reach them. Considering the process of recruitment and the retaining employees.
The General Organization for Social Insurance (GOSI) is a semi-governmental body which executes the Social Insurance Scheme for social cooperation and solidarity. The scheme provides cover for private and public sector workers and provides aid to employees and their family should an individual not be able to work due to retirement, a workplace injury, disability or death.
Employers must make GOSI contributions on behalf of their employees each month called employer’s share. This amount is 9 percent for annuities branch and 2 percent for occupational hazard branch.
Employers who must contribute are those with contractual agreements with employees to work in the Kingdom, Saudi national employees who work abroad but the employer’s head office is within the Kingdom, employees of the state and semi-state bodies who do not benefit from the Civil or Military Retirement Schemes. Occupational Hazards Branch is applied on a mandatory basis to all workers.
Wage Protection System
The Wage Protection System (WPS) ensures the fair payment of wages to employees in the private sector. The WPS database contains the payment information for all private sector employees based on GOSI information and protects employers and employees. Companies with more than 10 employees are subject to WPS guidelines and the amount paid must match the registered wages of GOSI.
Companies that are required to register for WPS must do so through the payroll program provided by their bank. All payroll must be made through their registered bank and the company will supply the bank with specific payroll information. The bank will generate a WPS file that the organization must upload to the Ministry of Labour portal before the 10th of each month with an online form.
For private sector employers, WPS helps reduce labour disagreements and the WPS system gives employers proof of payment without payroll receipts. The payroll information, allows the MoL to publish statistics and data about the labour market which companies can use as part of recruitment planning.
Nitaqat is the compliance system for Saudization which determines whether a company is compliant through a colour coding system. Companies are categorized into four zones, compliant zones are platinum and green and non-compliant zones are yellow and red.
Companies must check the number of Saudis they must hire and in which positions depending on the company industry and size to ensure compliance. Companies with less than 10 employees are exempt from the rating system but must hire at least 1 Saudi national.
Saudi Arabia’s human resource framework creates an environment that is fair and accessible for all employees and employers. The government continues to work to increase Saudi national participation in the private sector workforce which can sometimes cause challenges for private sector companies.
If you require assistance with human resource compliance, contact us on +966 11 411 1127 or firstname.lastname@example.org.