Understanding Payroll in Saudi Arabia: What Global Companies Need to Know About Saudi Arabia's Payroll System

Apr 18, 2017  | Topic: Country Payroll

Saudi Arabia situates itself on the world's largest peninsula, surrounding itself between three continents - Asia, Africa, and Europe. The West Asian country is an Arab sovereign state and is a robust space to do business.

Saudi Arabia is a staunchly nationalistic country. The opportunities are extraordinary for anyone who can pass the government's muster, but the standard is extremely high. Learning and adhering to payroll regulations is vital to remain clear of profit killing sanctions and penalties. Read on to learn about what you need to know and incorporate into your global payroll strategy.

Getting Started

It must be noted that although Saudi Arabia does allow women to own businesses, regulations dictate that business must be managed by a man if its products/services cater to both genders.

Aside from this, the process of doing business in Saudi Arabia begins with the reservation of a company name through the Ministry of Commerce and Industry. The process is quick and can be completed online. The articles of incorporation/association are then submitted to the Ministry to be authenticated. Once this is done, the notary public will officially notarize the articles with a stamp. None of these processes has an independent charge or fee.

A company must then open a bank account with a bank that is domestic to Saudi Arabia and gets a business license with the Riyadh municipality. The "Wasel" post office must also officially register the address of the business.

The first fee of the process shows up for the publication of the summary of the articles of incorporation. This fee is SAR 500 ($134, £107, €126)  for processing and SAR 650($173, £138, €163) for the actual publication. After this is paid, the business proprietor may submit all of the approved documents to the Ministry of Commerce and Industry and get a Certificate of Registration.

The second round of fees correspond with the formation of an official company seal, which costs SAR 50 ($13, £11, €13) . This seal is used in the Chamber of Commerce and the General Organization for Social Insurance. Documents are then submitted to the Chamber of Commerce, and the business is made an official member of the Chamber once a SAR 2,000 ($533, £425, €501) membership fee is submitted. The company will complete the process by registering with the Ministry of Labor, the General Organization of Social Insurance and the Department of Zakat. None of these registrations has any charge associated with it.

Payroll Assessment

Employee Laws / Employee Rights

Employees are protected from working more than 8 hours per day or 48 hours per week in Saudi Arabia.

Employees must take a break for rest, prayer and food after working 5 hours consecutively. This break must be at least 30 minutes. Because one day of rest is required per week, companies are usually pushed to require that day correspond with the Friday holy day.

Contracts are a huge part of the employer - employee relationship in Saudi Arabia. All part time workers must have a contract that states an official termination date. Part time contracts are renewable only one time. Foreign workers are required to have a fixed term contract. Contracts remain in force even if the ownership of the company changes hands. Any back pay owed to employees is also prioritized by law in the case of a company bankruptcy.

Employees have rights upon dismissal provided that they serve the employer with 30 days' notice under a monthly payment contract. Employees receiving payment under other types of contracts must provide 15 days' notice, if a specific period is not given in the employment contract.

Compensation, Bonuses & Severance Pay

Overtime in Saudi Arabia is payable at 100% of the normal hourly wage of the employee. There is also a 50% bonus that must be paid to the employee as well. Any work that is done on Friday or any public holiday is paid at the overtime rate.

Severance pay is mandated by law to be 15 days of wages for an employee's first 5 years of employment. Employees receive a full month of wages for every year after the fifth year.

Saudi nationals have more rights to certain levels of compensation upon termination than do expatriates. Compensation, severances and bonuses are also usually detailed specifically in the employment contract. Labor unions are not a huge focre in the country, but the court system to handle cases of compensation is quite robust.

Tax Requirements, Collection & Withholding

Saudi residents pay no personal income tax. Foreign residents, however, may be taxed depending on the decisions of the finance minister.

Leave – Sick, Maternity, Vacation, Absence, Holidays

There are several required paid leave scenarios required by law - most of them have to do with allowing employees to fulfill a religious function. However, Saudi Arabia also allows employees to take leave for many secular needs as well.

Employees who are pregnant or breastfeeding have specific rights. Employees who are just married are given a paid leave of 5 days. Paid leave is also given when a family member passes away.

Date  Saudi Arabia's Public Holiday Schedule
1 - 3 Shawwal  Eid ul-Fitr/Feast of the End of Ramadan
 9 - 12 Dhul-Hijjah  Eid ul-Adha/Feast of the End of Hajj
 September 23rd  Saudi National Day

Your Payroll in Saudi Arabia

Do not let mistakes in your international payroll prohibit you from taking advantage of the huge opportunity that Saudi Arabia offers. With companies from all over the world vying for the limited real estate in the country, you will definitely have an advantage with a dedicated and experienced global payroll specialist on your side.

This article is for informational purposes only and not intended to convey or constitute legal or any other advice. It is not a substitute for advice from a qualified professional.