What does the new Saudi labour law mean for you?

Author: Criselda Diala-McBride | Date: 05 Oct 2015

Legal experts highlight the key areas for HR practitioners to consider

Saudi Arabia’s labour market is set to change dramatically on October 18, when 38 amendments to its labour law take effect. Rebecca Ford and Sara Khoja, partners at Clyde & Co, said the new labour law will have significant implications for labour relations in the kingdom, as the amendments provide more certainty over terms of employment, as well as facilitating training for Saudi nationals and offering more support to departing employees looking for alternative employment.
 
“They provide greater flexibility to employers in managing employment, by (amongst other things), increasing the probation periods, adjusting the fixed term periods, and increasing working hours,” they said.
 
People Management asked Ford and Khoja to run through the most important developments for companies operating in the country.
 
Certainty over employment terms
The amendments will require all employers, regardless of the number of staff, to provide workplace regulations, which were previously only imposed on companies with more than 10 staff. In addition, the Ministry of Labour will develop a uniform employment contract.
 
Saudi nationals in the workplace
Under the new labour law, “employers with 50 or more employees must provide training on an annual basis to Saudi employees making up not less than 12 per cent of the total workforce,” Ford and Khoja said. Previously, the requirement was for 6 per cent of the workforce.
 
The period of fixed-term employment to Saudi nationals has also been increased from two to three consecutive terms or for a total period of four years, whichever is shorter, before the contract is converted to unlimited term.
 
Updated work practices
Employers must now pay salary into an employee’s account through approved banks, reflecting the wage protection system being rolled out in the Kingdom. Currently, only companies with 170 employees or more have to comply with the system. Maximum working hours have also been increased from 11 to 12 hours per day.
 
Paid leave periods have likewise been raised: to five calendar days for paternity, marriage and compassionate leave; and four months and 10 days of Iddah leave for a female Muslim employee whose spouse has died. An additional one month’s unpaid maternity leave, in addition to 10 weeks of paid leave, may also be taken by a female employee.
 
Termination of employment
The current probationary period of 90 days may be extended by a further 90 days, and for Saudi nationals, the notice period has been increased from 30 to 60 calendar days under an unlimited term contract. Dismissal for unauthorised leave can only be carried out if an employee has been absent for at least 30 calendar days a year or 15 consecutive days. Previously, this was 20 and 10 days respectively.
 
In addition, “the concept of redundancy will now be included in the law, so that a valid reason for termination arises where the establishment of the employer is being closed or there is a cessation of business within the unit or operation where the employee works,” the Clyde & Co partners said.
 
An employee will also be entitled to paid time off to look for an alternative job when notice is served by the employer, but the most significant amendment to the law relates to compensation due on termination for an invalid reason.
 
“The amendments to the law now allow the parties to expressly state in the employment contract the level of compensation which may be payable where either party terminates the contract without reason, provided that it must not be less than two months' wages.
 
“In the absence of prior agreement, the amendments to the Labour Law state that the compensation shall be 15 calendar days' pay per year of service in the case of an unlimited term contract, and pay for the remainder of the term in the case of a limited term contract,” Ford and Khoja said.
 
Increased sanctions
Heavier penalties are imposed for labour law violations. According to media reports, the fines range from SAR100,000 (USD26,673) to a temporary or permanent shutdown of the business for repeat offences.
 
Ford and Khoja added that the amendments introduce a form of whistleblowing through financial incentive to encourage the reporting of violations. “An individual assisting in the detection of violations may be rewarded up to 25 per cent of the value of a fine imposed on an employer by the Ministry [of Labour].”
 
The lawyers believe that the implementation of the new labour law will change workplace practices in Saudi Arabia, and employers should take steps to update employment contracts and company policies.