The main Saudi Arabian statute governing employer-employee relationships is the Labour Regulation, Royal Decree No. M/51 of 23rd Sha'ban 1426 Hejra corresponding to 27th September 2005 Gregorian, which entered into force on 26th April 2006 superseding the Labour and Workmen Regulation, Royal Decree No. M/21 of 6th Ramadan 1389 Hejra corresponding to 15th November 1969 Gregorian. The new Regulation introduced only changes of detail, leaving the main framework of the old legislation in place.
With one of the world's highest birthrates at around 3%, and an expatriate population which in 2007 stood at 27% of the total population of 24 million, creating employment opportunities for its citizens has long been a high priority of the Saudi Arabian government. The Labour Regulation provides that the percentage of Saudi workers employed by an employer shall not be less than 75% of his total workers, but gives the Minister of Labour authority to decrease this percentage in case of unavailability of Saudi workers with technical expertise or academic qualifications, or if it is difficult to fill a given post with a Saudi citizen.
Since 18th June 2011 the Ministry of Labour has begun to implement a new Saudization programme known as Nitaqat. The concept is that, based on the percentage of Saudi Arabian employees, businesses are classified as Excellent, Green, Yellow or Red, and that the employer will receive privileges or be subject to sanctions connected with the employment of foreign staff depending on the category it falls into. In general, employers in the Green and Excellent categories will find it easy to obtain work permits for foreign staff, while employers in the Yellow category may only renew current work permits without being granted new ones, while employers in the Red category will not, eventually, even be able to renew existing work permits. Part of the Nitaqat programme is a detailed list of quotas which are determined by the business sector and size of the business entity. For example, a petrochemicals business with 500 employees requires at least 45% Saudi Arabian employees to be in the Green category, while a general manufacturing business of the same size requires only 20% Saudi Arabian employees to be in the Green category.
Women may be employed, but work permits for non-Saudi women tend to be restricted to the health, education and air transport sectors. There are no restrictions on the employment of Saudi women, provided that the appropriate working environment is provided.
Article 8 of the Labour Regulation states that an agreement whereby the employee waives any rights established in his favour by law is null and void, and that he may not forsake any rights which he has acquired in the course of his employment. Employment contracts must be in writing, but the employee's rights are not prejudiced if his employer has failed to execute a written agreement. Employment contracts must state whether they are for a fixed term or an indefinite term, specify the employee's salary and whether he is paid monthly or otherwise, list the employee's benefits, if any, and state whether or not a probationary period applies. Otherwise, most aspects of the employment relationship, such as working hours, holidays and rights of termination, are governed by the Regulation and need not be set out in the employment agreement. There is at present no minimum wage in Saudi Arabia.
Normal working hours are eight hours per day for six days a week. Work in excess of 48 hours per week must be compensated at overtime rates, except for certain categories of work, primarily of relevance in the catering trade. Saudi Arabian public holidays are set by the Minister of Labour under the Regulation, and may not exceed ten days per year. During Ramadan, the month of fasting, the maximum working hours for Muslim employees is reduced to six hours per day for six days a week for a total of thirty-six hours. It is common for Muslim employees to receive a thirteenth month's salary on the occasion of the Eid Al Fitr public holiday, which marks the end of Ramadan.
A workers' compensation plan exists under the direction of the General Organization for Health and Social Security (GOSI). For both Saudi employees and expatriate employees, employers must contribute an amount equal to 2% of their salary towards a workers' compensation and disability plan administered by GOSI, which is regulated in some detail in the Social Insurance Regulation, Royal Decree No. M/22 of 3rd Ramadan 1421 Hejra corresponding to 29th November 2000 Gregorian. The retirement scheme is administered by GOSI, but covers only Saudi nationals. Contributions on behalf of Saudi employees equal 18% of an employee's wages, with the employer contributing 9% and the employee contributing 9%. While there is no government health plan, medical and hospital care is free for Saudi citizens. For all non-Saudi employees, and for Saudi employees who want to be covered, health benefits are required to be provided by the employer depending on the number of employees in a particular geographic area.
The Labour Regulation provides for prevention against major industrial accidents in high-risk facilities and vocational injuries. A high-risk facility is defined as one that produces hazardous substances or a facility that handles, removes, or stores such hazardous waste. Employers will have to coordinate with the Ministry of Labour to determine the status of their facilities based upon guidelines that will be issued by the Minister. Furthermore the Minister of Labour will issue decisions that will set forth the necessary safety arrangements to be made by the employer and the employer's obligations in this regard including prevention of major accidents and limiting the risks of major accidents.
Under the Labour Regulation employers are responsible for any vocational injury that an employee may sustain while working. An employer is obligated to provide treatment to his employee and pay all expenses related to the vocational injury.
It is generally accepted, and has been ruled in the past by the Commission for the Settlement of Labour Disputes, that the salary and benefits under a fixed term contract, as well as the employee's status, may not be reduced during the contract term. However, at the end of a fixed term contract the parties may re-negotiate their respective positions, provided that the employee is given a clear choice whether or not he wishes to accept the new employment conditions. In the past it was also accepted that an employee enjoyed the same protection under an indefinite term contract. However, in recent years the view has emerged that, if an indefinite term contract is terminated upon proper notice, it may be possible to "re-hire" the employee on new terms with reduced wages and benefits, particularly where the employer can demonstrate that there are valid reasons for such change.
The Regulation sets out provisions concerning end-of-service awards, to which most employees are entitled in principle unless they are dismissed for cause. Pursuant to Article 84, when a fixed term employment agreement comes to an end, or when an employer terminates an indefinite term agreement other than for cause, the employee is entitled to one-half of one month's wages for each of the first five years of employment and a full month's wages for each year of employment thereafter, in both cases pro-rated for part of a year's service. An employee who resigns during the term of a contract receives no end-of-service award for the first two years of employment. There are further detailed rules concerning the end-of-service award payable to an employee who resigns in the course of a contract for periods exceeding two years. The wages by reference to which an end-of-service award is calculated includes base salary, overseas service premiums, regular bonuses and additional benefits which are paid on a regular basis, such as housing and transport allowances. The only payments which are excluded from such calculations are extraordinary bonus or incentive payments like commissions and percentages on sales, which have been identified as such by an express written agreement between the parties. The wage is calculated by adding the last three payments which the employee received and dividing them by three, to arrive at a monthly average. In accordance with Article 8 of the Regulation, an employee cannot contract out of his right to an end-of-service award.
The Ministry of Labour has published Model Disciplinary Rules, pursuant to which non-summary dismissal must follow written warnings in respect of transgressions committed by the employee. Summary dismissal is regulated by Article 80 of the new Regulation, which lists nine reasons for which an employment agreement may be cancelled without notice or payment of the end-of-service award. These include acts of physical violence, the commission of offences, and sabotage at the workplace. An employee can contest his dismissal by lodging a complaint with the Labour Office, and, if an amicable settlement is not achieved, the matter is referred to the Labour Dispute Settlement Authorities. It is common for employees who have been found to be dismissed unjustly to receive the equivalent of three months' wages as compensation.
*This Saudi Arabian Law Overview is not intended to be legal advice, and cannot be relied on as a substitute for legal advice. We make no representation that the contents of this Saudi Arabian Law Overview are or will remain accurate or current.
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