Saudi Arabia’s dynamic transformation under Vision 2030 has made it a hub for international business expansion in the Middle East. However, to build successful teams and remain compliant, companies must understand the legal frameworks that govern employment. Whether you’re a multinational organization or a startup, grasping the intricacies of Labour Laws in Saudi Arabia is essential for protecting both employer and employee rights. This guide outlines everything you need to know about contracts, wages, benefits, hiring regulations, and how an Employer of Record can simplify your operations when hiring in Saudi Arabia.
Table of Contents
- Overview of Saudi Arabia’s Labour Law
- Working Hours, Overtime, and Leave Policies
- Wages, Payroll, and End-of-Service Benefits
- Hiring and Termination Regulations
- Worker Protections and Employer Responsibilities
- Saudi Arabia’s Labor Reforms and Vision 2030
- Hiring Through an Employer of Record (EOR)
- Conclusion
- FAQs
Overview of Saudi Arabia’s Labour Law
Saudi Arabia’s labor framework provides a comprehensive legal foundation to regulate the rights and duties of employers and employees. Centralized authorities enforce the law across most private-sector employment relationships to ensure fair labor practices. Understanding these foundational aspects is crucial for building compliant HR policies and handling cross-border employment smoothly.
Legal Foundation and Authorities
The legal framework for employment in Saudi Arabia is based on the Labour Law of 2005, issued by Royal Decree No. M/51. Over the years, the law has seen significant amendments—especially since the launch of Vision 2030—to improve transparency, empower workers, and align with global standards. The Ministry of Human Resources and Social Development (MHRSD) oversees the enforcement and interpretation of these laws, while related bodies like the General Organization for Social Insurance (GOSI) handle contributions and benefits.
Employment Contracts in Saudi Arabia
Employers must formalize all employment contracts in writing and in Arabic. A valid contract includes details like job role, salary, working hours, location, and leave entitlements. Employers often use fixed-term contracts for project-based roles or visa-limited assignments and indefinite contracts for long-term employment. If they renew a fixed-term contract three or more times—or if it exceeds four years—it automatically converts into an indefinite contract. These distinctions play a central role in Labour Laws in Saudi Arabia.
Working Hours, Overtime, and Leave Policies
Work-life balance and fair compensation for time worked are cornerstones of Saudi labor law. Employers must strictly adhere to working hour limits, compensate employees fairly for overtime, and grant adequate paid leave, including for sickness, family, and religious observances.
Standard Working Hours
According to Saudi labor law, employees may work up to 48 hours per week or 8 hours per day, typically Sunday through Thursday. During Ramadan, Muslim employees are only required to work 36 hours weekly. For roles involving physically demanding labor or exposure to hazards, working hours may be adjusted for health and safety.
Overtime Rules and Compensation
Any time worked beyond the regular schedule must be compensated as overtime, with an additional 50% on top of the regular hourly wage (i.e., 150% total). Overtime laws also apply to work on rest days and official holidays. Employers must obtain employee consent for overtime and keep clear records of hours worked.
Annual, Sick, and Other Leave
Employees are entitled to 21 days of paid annual leave, increasing to 30 days after five years of service. Sick leave can go up to 120 days per year, and maternity leave is set at 10 weeks with paid benefits. Paternity leave offers 3 days of paid leave. All leave entitlements must be honored and cannot be forfeited.
Wages, Payroll, and End-of-Service Benefits
Wage transparency, timely payments, and retirement benefits are vital to ensuring employee well-being and long-term retention. Saudi Arabia mandates strict payroll practices, backed by real-time digital monitoring and end-of-service rewards designed to encourage workforce loyalty.
Minimum Wage and Payment Methods
The minimum wage for Saudi nationals is set at SAR 4,000 per month. Employers must pay salaries via bank transfers through the Wage Protection System (WPS), ensuring timely and traceable payments. Payment delays, deductions without consent, or wage disparities are strictly penalized.
Wage Protection System (WPS)
The WPS monitors salary disbursements and prevents salary abuse or late payments. Employers must upload payroll data regularly and ensure wages match what’s specified in employment contracts. Non-compliance may result in fines and suspension of employee visa services.
End-of-Service Gratuity
This is a mandatory severance payment owed to employees upon resignation, termination, or contract expiry. Employees earn half a month’s wage per year for the first five years and a full month’s wage for each subsequent year. Partial benefits may apply if the employee resigns voluntarily after two years of service.
Suggested Read: Remote Employees Onboarding Checklist with EOR in Saudi Arabia
Hiring and Termination Regulations
Recruitment and separation practices in Saudi Arabia are governed by legal structures that ensure fairness and alignment with national employment goals like Saudization. Whether hiring locals or expatriates, companies must follow precise legal and procedural steps.
Hiring Local vs. Foreign Talent
The Nitaqat program classifies companies based on their Saudi-to-expat employee ratio. Businesses must meet localization targets to continue hiring foreign workers. All expatriates need valid iqamas, work visas, and a local sponsor—either the employer or an authorized Employer of Record.
Termination Conditions and Severance
Employers may terminate workers for justifiable reasons such as misconduct, redundancy, or poor performance. A notice period of 30–60 days is required unless termination is for gross misconduct. Severance pay applies in most cases and must be calculated based on the employee’s final wage and tenure.
Employee Resignation Rights
Employees have the right to resign with prior notice as per their contract terms. If they resign after two years of service, they may be entitled to a partial gratuity. Employers must issue an employment certificate if requested and process end-of-service settlements promptly.
Worker Protections and Employer Responsibilities
Saudi Arabia places significant emphasis on creating safe, equitable, and discrimination-free workplaces. Employers must foster inclusive work environments, offer protective gear, and follow occupational health and safety regulations.
Anti-Discrimination and Equal Opportunity
The Labour Laws in Saudi Arabia prohibit workplace discrimination based on gender, religion, disability, or nationality. Employers must offer equal pay for equal work and cannot dismiss or penalize employees for lodging complaints or exercising legal rights.
Workplace Safety and Occupational Standards
Employers are obligated to protect workers from occupational hazards. This includes providing training, protective gear, and access to medical facilities. Industries like construction, oil, and mining have additional safety regulations and frequent inspections by authorities.
Saudi Arabia’s Labor Reforms and Vision 2030
Saudi Arabia’s commitment to labor market modernization is evident through multiple reforms under its Vision 2030 initiative. These changes aim to boost private-sector participation, improve employment flexibility, and empower local talent.
Labor Reform Initiative (LRI)
The Labor Reform Initiative launched in 2021 was a major milestone, especially for expatriate workers. It eliminated the need for employer consent for job transfers and travel, introduced digital employment contracts, and gave workers greater mobility. These reforms have significantly improved worker autonomy and market competitiveness.
Impact of Vision 2030 on Employment Law
Vision 2030 encourages private sector growth, female workforce participation, and a decrease in reliance on foreign labor. The Saudi government continues to restructure labour laws to attract investment, foster talent development, and increase regulatory transparency.
Hiring Through an Employer of Record (EOR)
For businesses looking to enter the Saudi market without establishing a legal entity, an Employer of Record provides a fast, compliant, and cost-effective hiring route. This is especially valuable for remote-first teams and pilot operations.
What is an EOR in Saudi Arabia?
An Employer of Record is a third-party service provider that becomes the legal employer of your workforce in Saudi Arabia. While the EOR handles contracts, payroll, taxes, and benefits, your company retains operational control of day-to-day tasks and performance management.
Benefits of Using an EOR for Labour Compliance
Using an EOR ensures full compliance with Saudi labor laws, including Saudization quotas, payroll via WPS, and proper visa handling. It also eliminates the need to incorporate a local entity, which can be time-consuming and costly. An EOR simplifies hiring in Saudi Arabia, especially for short-term, freelance, or project-based talent.
Suggested Read: EOR Saudi Arabia: A Detailed Guide on Employer of Record 2025
Conclusion
Whether you’re a global company exploring the Middle East or a regional employer seeking growth, understanding Labour Laws in Saudi Arabia is key to navigating contracts, benefits, and compliance challenges. From statutory leave and working hours to localization quotas and termination laws, staying updated with labor policies protects both employer and employee rights.
For international firms, working with an Employer of Record can unlock Saudi talent faster and safer—ensuring you meet regulatory obligations while focusing on your business goals. As labor regulations evolve, aligning with local expertise is more crucial than ever.
FAQs
Employees can work up to 8 hours per day or 48 hours per week, reduced to 6 hours daily during Ramadan for Muslims.
Yes, the minimum wage for Saudi nationals is SAR 4,000 per month, with no official minimum for expatriates.
Fixed-term and indefinite contracts are both valid; fixed contracts become indefinite after three renewals or four years.
It’s a severance payment based on tenure—half a month’s wage per year for the first five years, then one month per year after that.
Employers must meet Saudization targets and sponsor foreign employees through valid visas or use an Employer of Record.
WPS requires employers to pay salaries electronically to ensure transparency and timely payments monitored by the government.
Employees receive 21 days of paid annual leave, increasing to 30 days after five continuous years of service.
Yes, partial gratuity applies if the employee resigns after two years, depending on contract terms.
Yes, the law prohibits workplace discrimination based on gender, religion, disability, or nationality.
Yes, using an Employer of Record allows foreign companies to legally hire without establishing a local entity.
Not to be considered as tax, legal, financial or HR advice. Regulations change over time so please consult a lawyer, accountant or Labour Law expert for specific guidance.
