Practice Area Articles
January 16, 2023
Gordon Barr and Malavika Vijayan
Back to International Employment Law
KEY DEVELOPMENTS FOR 2023
Labour Law amendments
At the end of 2020, the KSA Ministry of Human Resources and Social Development (“MHRSD”) published draft amendments to the Labour Law. Although no timetable had been set as to when any amendments to the Labour Law may be implemented, we understand that the MHRSD are still in consultation with key stakeholders over the amendments. Accordingly, we expect them to be introduced during the course of 2023.
Some of the proposed amendments to the Labour Law will address the provisions relating to:
an employer’s obligation to bear the recruitment and repatriation costs of foreign workers;
a reduction in the weekly working hours;
an increase in the maternity leave period;
the statutory termination provisions; and
compensation for unlawful termination.
It remains to be seen how, if at all, any of the draft amendments will impact on contractual requirements and whether employers will be required to update employment contracts for their workforce over the next year, particularly in light of the increased emphasis on the contractual relationship between the parties. We understand that the MHRSD are still in consultation with key stakeholders over the amendments. Employers in the private and public sectors should remain diligent in ensuring that they remain updated about any amendments to the KSA Labour Law, which are expected to be announced over the course of 2023.
During the course of 2022, we have seen the MHRSD target professions and sectors which it considers attractive to Saudi nationals and those where there is a large pool of qualified but unemployed Saudi undergraduates.
Saudisation decisions relating to some professions such as aviation, consultancy, healthcare and postal delivery services are being introduced over a phased period which will continue into 2023 so that a larger proportion of those professions will be made up of Saudi nationals over the coming 12 months.
Looking forward into 2023, we expect the MHRSD to issue further decisions which will increase the Saudisation requirements in sectors of the economy where the MHRSD feel there is a sufficient number of suitably qualified Saudi nationals to replace foreign workers. Amongst others, this is likely to include the further professions in the healthcare sector.
Employers will need to ensure that they have sufficient Saudi nationals in the targeted professions and sectors to remain compliant with the Saudisation quotas set by the MHRSD. Failure to do so may result in monetary fines as well as online services being stopped by the MHRSD, including but not limited, to the ability to apply for new visas and renew current work permits. Employers in the private and public sectors should remain diligent in ensuring that they remain updated about any newly introduced Saudisation decisions, which may be announced over the course of 2023.
The laws and government policies of the KSA include a Saudisation policy requiring a minimum number of Saudi nationals to be employed by all employers. The current version of the Saudisation policy is implemented through the Nitaqat system, which applies to all entities in the private sector in KSA with six or more employees. Every employer must have a minimum of one Saudi national employee, even if they have less than six employees. From December 2021, the “Evolved Nitaqat” system was implemented under which there are increasing Saudisation requirements for all employers over a three-year period.
The MHRSD website include a Saudisation calculator that uses an algorithm designed by the MHRSD to calculate the percentage of Saudi national employees an entity must employ in order to be considered compliant based on its commercial activities and the number of employees within the entity. It will then provide the entity with its current Saudisation percentage as well as its requirements for the next two years from December 2022. Failure to meet the required Nitaqat percentages would mean that the entity would have their MHRSD services stopped, including but not limited to, restrictions on their ability to apply for new work permits for expatriate foreign nationals, or to renew existing work permits.
Companies need to ensure that they have appropriate workforce recruitment plans in place to comply with the increasing Saudisation quotas that will be applicable to them over the next two years.
KEY DEVELOPMENTS FOR 2022
Amendments to the KSA Labour Law are expected
Changes to the KSA Labour Law are anticipated this year and the proposed changes are likely to amend a significant portion of the existing law. It is anticipated that the changes will affect recruitment, the employment of KSA nationals, contracts of employment, working hours, statutory rights, end of service gratuity, probation and family friendly rights. The implementation date has not yet been confirmed.
Employers should be aware of the proposed changes and ensure they take legal advice in respect of how the changes will affect their business. For example, it is very likely that employment contracts, handbooks and policies will need to be reviewed and updated in compliance with the new law.
Changes to the Nitiqat Programme
The MHRSD issued Ministerial Resolution number 182495 dated 11/10/1442H corresponding to 23 May 2021 (the "Resolution") as an enhancement to the Nitaqat system through which the Saudisation policy is implemented. The Resolution came into effect on 1 December 2021 and introduces an enhancement to the Nitaqat system, requiring employers to employ an increasing number of Saudi nationals over a three-year period.
The Enhanced Nitaqat system combines the 85 economic activities under the current version of the Nitaqat system into 32 categories to help streamline the system. In addition, the Enhanced Nitaqat system applies to all employers with six or more employees and introduces a new formula to calculate an employer’s Saudisation requirements over a three-year period. The Enhanced Saudisation system will result in Saudisation requirements that increase every year for the coming three-year period and which will require employers to employ an increasing number of Saudi nationals over that period in order to remain compliant with their Saudisation requirements.
Employers should ensure they are aware of their Saudisation requirements that will be applicable for the next three-year period starting from 1 December 2021 to ensure they remain compliant and to avoid any penalties or disruption to their KSA operations.
New requirement to authenticate all employment contracts via ‘Mudad’ and ‘Qiwa’
The MHRSD’s template containing key employment terms should be used as a basis for the authenticated contract process via the relevant Government portal. Employment contracts for Saudi and non-Saudi nationals should have been authenticated by being uploaded on to the relevant portal by the beginning of 2022. Employers should ensure that this is done or at least a work in progress in order to avoid a violation of this requirement.
KEY DEVELOPMENTS FOR 2021
The Labour Reform Initiative
In a bid to improve mobility for foreign workers and create a more robust labour market, the KSA Ministry of Human Resources and Social Development ("MHRSD") launched a Labour Reform Initiative ("LRI") in November 2020 by Resolution No. 51848/1442. The LRI was due to come into effect on 14 March 2021.
The LRI proposes to make significant changes to the current rules governing the sponsorship of foreign workers. The KSA operates under the kafala system which places a great deal of responsibility and control in the hands of the foreign worker's sponsor and employer (the kafeel). The kafeel is solely empowered to obtain, renew and cancel the residency and work permits, and entry and exit visas of foreign workers. Additionally, the kafeel has the right to object to the foreign worker transferring their employment to another sponsor/employer or to leaving the country. Where a foreign worker fails to obtain permission from their kafeel then they can be reported as having absconded and be at risk of having their immigration status compromised and be deported.
The LRI proposes to introduce the following changes:
- Labour Mobility
Under certain conditions (including having served at least one year with their current employer and complying with notice requirements) employees will be permitted to change employers either during their employment or at the end of it without requiring the employer's consent. In some circumstances such as where an attested employment contract is not in place or where there is a dispute between the parties, the employee will be able to move without having to fulfil these conditions.
- Exit and Re‑Entry Visas, and Final Exit Visas
Foreign employees will also be able to directly obtain and renew exit and re‑entry visas to travel without having to go through their employer. They will also be able to obtain final exit visas. Employees will need to have in place an attested employment contract, have no violations or unpaid governmental fees, and agree to measures being taken by the employer if the employee fails to return to the country.
We expect that the LRI will usher in further employment reforms in keeping with the Vision 2030 programme. There is likely to be a greater emphasis on employee flexibility and atypical working as the KSA Government deals with the ongoing effects of the pandemic on the economy.
In 2020, the MHRSD had focussed its attention once more on continuing the trend of Saudisation of sectors and professions and this is expected to continue. During the course of 2020, we saw the MHRSD target professions which it considers will attract Saudi nationals and where there is a large pool of qualified but unemployed Saudi undergraduates. This focus has fallen on the IT and communications sector where 25 per cent of roles have been Saudised, the engineering profession where the impact has been on 20 per cent of roles, the dentistry and pharmacy professions which have had 25 per cent and between 20—30 per cent of roles Saudised respectively. The Saudisation decisions relating to some of these professions are being introduced over a phased period which will continue so that a larger proportion of those professions will be made up of Saudi nationals over the coming months.
We expect the MHRSD to issue further decisions which will increase the Saudisation requirements in sectors of the economy where the MHRSD feel there is a sufficient number of suitably qualified Saudi nationals to replace foreign workers. Amongst others, this is likely to include the retail and healthcare sectors.
Labour Law amendments
The MHRSD has published draft amendments to the Labour Law. Although no timetable has been provided as to when any amendments to the Labour Law may be implemented, we expect them to be introduced soon, particularly in light of the LRIs.
Some of the proposed amendments to the Labour Law will address the provisions relating to:
- an employer's obligation to bear the recruitment and repatriation costs of foreign workers;
- probation periods;
- a reduction in the weekly working hours;
- an increase in the maternity leave period;
- the statutory termination provisions; and
- compensation for unlawful termination.
It remains to be seen how, if at all, any of the draft amendments will impact on contractual requirements and whether employers will be required to update employment contracts for their workforce over the next year, particularly in light of the increased emphasis on the contractual relationship between the parties following the abolition of the kafala system in March 2021, as explained above in respect of the LRI.
KEY DEVELOPMENTS FOR 2020
Increased expat fees
The 'expat fee' is payable by employers for their expatriate employees and is collected on the issuance and renewal for work permits. As of January 2020, the fee for 2020 has increased to SAR 8,400 for each expat employee where the number of expats does not exceed the number of Saudi employees, and SAR 9,600 where there are more expat employees than Saudi employees.
Changes to Saudisation
Several Saudisation changes have been made to the labour market, particularly in relation to the Nitaqat program which categorises companies by colour, depending on their fulfilment of Saudisation targets. Saudisation of the dentistry profession has now become a requirement and was implemented in two phases, with the first phase requiring 25% of roles to be filled by Saudi nationals by 26 March 2020, and the second phase requiring 30% of roles to be filled by Saudi nationals by 20 August 2020. The penalties for non-compliance include the suspension of services with the Ministry of Labour and Social Development, such as the issuance of visas and work permits. The next significant change is the elimination of the 'yellow category' from the Nitaqat program, which means that all companies that were in the 'yellow category' will automatically be transferred into the ‘red category' and will be considered non-compliant with Saudisation targets until their rating improves. As a result of these changes, these companies will suffer from further penalties such as being prohibited from renewing the work permits of their expatriate employees.
Rules on the employment of women
Women in employment have continued to be an area of focus for the Government with the issuance of Ministerial Resolution No. (39860), which set out a number of new rules. The key rules are the following:
- defining night shift work by specifying the hours over which it will apply (6 pm to 6 am) and the type of work that can be undertaken (e.g., health or charitable work, the media, etc.);
- making it unlawful to treat women differently to men when it comes to paying for work of equal value;
- requiring women to wear modest attire;
- making employers directly responsible for creating a suitable working environment for women;
- prohibiting privacy between men and women; and
- prohibiting women from working in establishments designated for men only, and vice versa.
One addition for KSA is an amendment to Article 27 of the Executive Regulations of the Labour Law, which introduced a concept of flexible working for Saudi nationals. From July 2020, a new Government program has regulated the flexible employment of Saudi national workers and wages are now calculated on an hourly basis. Employers are required to sign an electronic contract and register the Saudi worker with the General Organisation for Social Insurance. Individuals are allowed to work part-time for up to 95 hours per month for a single employer and will be counted as one-third of a full-time employee in the Nitaqat system for their employer.
KEY DEVELOPMENTS FOR 2019
New Anti-Harassment Law
The Anti-Harassment Law which came into effect on 10 June 2018 and makes it a criminal offence (punishable by a fine and/or imprisonment) for anyone to harass a person by way of a statement, an act or signal of a sexual nature by whatever means, including the use of modern technology.
It is a wide reaching piece of legislation that applies to both the public and private sector, and specifically in the workplace. The law requires employers to develop measures to combat harassment in the workplace by putting in place mechanisms to receive and investigate complaints, and to raise awareness amongst employees of the measures that will be taken to deal with harassment. Employers are also required hold their employees accountable if they breach any provisions of the law.
The severest penalties (imprisonment for up to 5 years and a fine of SAR 300,000) are reserved for harassment in the work environment and in cases where the harasser has direct or indirect authority over the victim. Additionally, the law treats any accomplice to the harassment in the same way as the harasser by subjecting them both to the same penalty.
Tenancy agreement required to issue and renew work permits
The Ministry of Labour and Social Development and the Ministry of Housing jointly announced (pursuant to Ministerial Decision No. 292 dated 16/05/1438H from September 2018) that a tenancy agreement authenticated by the Ministry of Housing will be required for work permit renewals. Authentication will be carried out through the e-platform 'Ejar' by which lease agreements will be registered with the Ministry of Housing. Only contracts prepared in a template provided by Ejar will have legal and administrative effect.
Initial work permit applications will also require a tenancy agreement but the implementation date for this new requirement for first-time applicants has not yet been announced.
The change is likely to impact the overall time necessary to complete the immigration process in Saudi Arabia. It will add to the costs of obtaining employment status and will likely complicate matters for those who share accommodation.
Saudisation in the retail sector
In January 2018, the Ministry of Labour and Social Development (MLSD) announced that 12 sub-activities in the retail sector will be reserved for Saudi nationals as part of its ‘Total Saudisation’ program. This follows the Total Saudisation in the car rental and mobile phone sales and repair sectors that occurred in previous years. However, unlike these sectors, which experienced 100 per cent Saudisation, the MLSD has made it clear that employers are required to ensure that not less than 70 per cent of the affected roles are reserved for Saudi nationals. These new restrictions in the retail sector were implemented in phases from September 2018 to January 2019.
KEY DEVELOPMENTS FOR 2018
Revised Saudisation Policy
Employers will need to reassess their compliance with Saudisation due to the revision of the Nitaqat regime which came into effect on 3 September 2017. The revision has created new employer sizes (such that employers with fewer employees, 6 or more, will be caught), redefined sector activities and changed percentage quotas.
Labour Law Penalties
Employers will be subject to the following fines for violation of employee rights:
- SAR 25,000 (approx. USD 6,666) for registering Saudi national employees with the General Organisation for Social Insurance (“GOSI”) without their approval;
- SAR 20,000 (approx. USD 5,333) for recruiting expats to jobs reserved for Saudi nationals;
- SAR 10,000 (approx. USD 2,666) and closure of the establishment for 1 day where a male expat is employed in a role reserved for Saudi nationals;
- SAR 2,000 (approx. USD 533) for holding an employee’s passport without his/her consents;
- SAR 5,000 (approx. USD 1,333) for employing a worker without a contract, or for failing to provide a copy of the contract or having it written in Arabic; and
- SAR 5,000 (approx. USD 1,333) for not complying with the conditions of a training contract, or for not maintaining employee records, including names, salaries, fines, attendance and medical records, or for withholding in full or part the employee’s salary.
In addition to the above fines, the Ministry may also close the employer’s establishment for up to 5 days.
Mass Termination of Saudi National Employees
The Minister of Labour issued a Resolution on 30 January 2017 which prohibits the “mass termination” of Saudi nationals for any reason that is attributable to the employer (e.g. redundancy), except in cases of bankruptcy or dissolution. Where an employer wishes to make such mass terminations, it is required to give at least 60 days’ notice to the local labour office and submit a feasibility study for its consideration and approval. The Resolution applies to employers with 50 or more employees who propose to dismiss Saudi nationals who comprise at least 1 per cent of the total workforce or 10 Saudi employees within the period of 1 year from the dismissal of the last Saudi national employee.
All employers in the private sector with 50 or more employees must follow the process set out by the Minister of Labour and Social Development (“MLSD”) for “mass termination” of Saudi nationals. Employers failing to comply will be subject to penalties that will mean a withdrawal of the Ministry’s services in relation to the issuance and renewal of visas for expat employees.
KEY DEVELOPMENTS FOR 2017
Saudi nationals given additional protections in the private sector
It is expected that the trend towards increased Saudisation in the private sector will continue into 2017. The Ministry of Labour is due to implement a new version of the Saudisation program called ‘Mawzoom’ with the aim of increasing employment rate, helping Saudis to get high-salaried jobs, increasing the number of female workers in companies and ensuring job stability for Saudis. For all employers, the emphasis will shift from simply counting the numbers of Saudis employed to also considering other factors, such as the average salary paid to Saudi employees, the percentage of women employees, time spent in employment, and the percentage of Saudis employed in the highest salary bracket in the organisation.
The KSA government has also been considering steps to limit the number of work visas granted or renewed for expatriates. In October 2016, the Ministry of Civil Service did not renew 478 visas for expatriates working at King Saud University (who had spent more than 10 years in their position). The Ministry has suggested that it is considering counting expatriate workers aged 60 or above as two workers for the purposes of Saudisation and this proposal could be implemented in 2017.
Finally, as part of Vision 2030 announced in the second half of 2016, the KSA government proposed introducing a green card system for expatriates. There is a possibility that this could be introduced in 2017, but it seems unlikely.
KEY DEVELOPMENTS FOR 2016
Extension of wage protection scheme
In February 2016, the Wage Protection Scheme (“WPS”) was extended to employers with 11 to 100 employees. The WPS system makes it mandatory for employers to transfer salaries into employee’s accounts and ensure that employees are being paid in a timely manner and as agreed upon in their employment contracts. It is being rolled out in Saudi Arabia in phases.
Saudisation in telecommunication industry
Resolution No. 1592 was announced in March 2016 and stated that all work in the activity of the sale and maintenance of mobile phone devices and accessories would be restricted to Saudi nationals. Employers in the mobile phone industry needed to replace 50% of their expatriate employees with Saudi national employees by 6 June 2016. By 3 September 2016, employers in the mobile phone devices and accessories market had to have a 100% Saudi national workforce.
Various legislative changes impacting employment contracts and the disabled
Temporary employment contracts that continue beyond 90 days will become permanent employment contracts (subject to all provisions of the labour law).
There is also a standard form employment contract which contains obligatory clauses to be included in all employment contracts.
Additional changes include the ability to extend probationary periods, the maximum overtime hours which can be worked each year (limited to 720 except where employee agreement has been obtained), provisions relating to sick leave whilst employees are on annual leave, and provisions relating to expatriates and sponsorship.
Employers must not retain the passport of non-Saudi workers without written consent.
Additional protections for disabled persons, including requirements in respect of working conditions, facilitating access and the right to request modifications to enable disabled persons to perform the duties of their role.