Employment Contracts in Saudi Arabia

A Comprehensive Guide to Employment Contracts in Saudi Arabia
Saudi Arabia's labor laws, governed by the Saudi Labor Law, require employers to comply with several key provisions when drafting employment contracts. Whether you're hiring directly or through an Employer of Record in Saudi Arabia, ensuring the contract meets legal requirements is critical for a successful business operation.

1. When Does the Employment Contract Start?
The employment contract in Saudi Arabia becomes effective once the employee signs the agreement, and they officially begin working. The contract should be finalized before the employee starts their duties.
💡 Pro Tip: Both parties should sign the contract before work begins to ensure all terms are clear and enforceable.

2. Key Components of a Saudi Arabian Employment Contract
The employment contract must include the following elements:
Job Title and Description: Clearly outline the employee’s role and responsibilities to avoid disputes.
Workplace Location: Specify the place where the employee will work, which can impact tax considerations and work permits.
Contract Type: The contract can be permanent, fixed-term, or project-based, depending on the nature of the job.
Compensation and Benefits:
Salary: Include the agreed-upon salary, which must be in Saudi Riyals (SAR).
Allowances: Common allowances include housing, transportation, and other role-specific benefits.
Health Insurance: Mandatory for employers to provide health insurance coverage to their employees.
Working Hours: The standard working hours are 48 hours per week, typically 8 hours per day for six days.
Leave Policies:
Annual Leave: Employees are entitled to 21 days of paid leave after completing one year of service.
Sick Leave: Employees are entitled to sick leave, usually 30 days with full pay, followed by half pay for the remainder.
Maternity Leave: Female employees are entitled to 10 weeks of maternity leave with full pay.
Termination Terms: The contract should outline notice periods and severance pay, which depend on the duration of the employee’s service.
💡 Why This Matters: A clear and legally compliant contract helps avoid legal disputes and ensures both parties understand their obligations.

3. Salary Structure in Saudi Arabia
The salary structure in Saudi Arabia typically includes:
Base Salary: The basic salary, which is subject to tax and social security contributions.
Allowances: These may include transportation, housing, and meal allowances, depending on the employer’s policies.
Bonuses: Performance-based bonuses can be included in the contract as additional compensation.
💡 Key Takeaway: The salary and allowances should be clearly defined in the contract to prevent any confusion.

4. Legal Considerations: Protecting Your Business
a. Non-Compete and Confidentiality Clauses
Non-compete clauses are enforceable in Saudi Arabia, provided they are reasonable in scope and duration. Confidentiality clauses are also widely used to protect business information.
b. Statutory Contributions
Employers in Saudi Arabia must comply with mandatory contributions, such as:
Social Insurance: Contributions to the General Organization for Social Insurance (GOSI) are required, covering pensions, health, and unemployment insurance.
End of Service Benefits (ESB): Employees are entitled to severance pay at the end of their employment based on the length of service.
💡 Tip: Ensure that all statutory obligations are met to avoid penalties and maintain compliance.

5. Background Checks and Employee Protections
Background checks are common in Saudi Arabia, but they must comply with local privacy laws. Employers must obtain the employee’s consent before conducting checks, which can include criminal history, academic qualifications, and employment history.

6. The Importance of Written Contracts
In Saudi Arabia, written contracts are mandatory. These contracts should clearly outline the terms and conditions of employment to ensure both parties understand their rights and responsibilities and protect against future disputes.

7. Why Partner with GlobainePEO?
Partnering with GlobainePEO ensures a seamless hiring and contracting process in Saudi Arabia. By working with us, you can:
Simplify the legal complexities of hiring and contract creation.
Ensure compliance with Saudi labor laws and statutory contributions.
Focus on growing your business while we handle the administrative tasks.

💡 GlobainePEO Advantage: As your trusted Employer of Record in Saudi Arabia, we manage everything from drafting compliant contracts to overseeing employee benefits and statutory requirements.

Drafting compliant employment contracts is essential for a successful business expansion into Saudi Arabia. Partnering with Saudi Arabia EOR, like GlobainePEO, allows you to focus on growing your business while we ensure compliance with legal and administrative requirements.