Saudi Arabia has emerged in recent years as a real economic powerhouse in the Middle East. Combined with a ruling regime that is making the country more open to global trade, it means that Saudi Arabia is now a more attractive prospect to multinational businesses than ever before.

As of 2019, annual GDP in Saudi Arabia is approximately five times what it was in 2000, standing at $785 billion and rivalling Turkey as the biggest economic output in the region. Much of that growth has been based on Saudi Arabia’s vast oil production, but the country is now starting to reduce its reliance on oil and diversify into other areas.

Saudi Arabia, however, remains a very nationalistic and devout Muslim country. This means that legislation and culture around employment and payroll differs significantly compared to developed, Western economies. But if you can meet the expectations of the government and the 34 million people that live there, the opportunities for successful operations are huge. This guide explains the basics around Saudi Arabia payroll:


Getting Started

In February 2018, the Saudi government gave women permission to start businesses in Saudi Arabia without needing male consent. However, while more rights have been given to women in Saudi Arabia in recent years, it will take some time for its patriarchal culture to change. Organizations with female representation at high levels should bear this in mind when expanding into the country.

The most common kind of business entity used by foreign enterprises in Saudi Arabia is a limited liability company (LLC). This enables the company to engage with both the public and private-sector, and to sponsor incoming employees for residency. The minimum share capital required for a Saudi LLC is 500,000 riyals (approximately £107,000; $133,000; €119,000).

The first steps of business registration in Saudi Arabia is to apply for a foreign capital investment licence from the Saudi Arabian General Investment Authority (SAGIA), and to reserve a company name with the Ministry of Commerce and Industry. 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. This can be a slow process and often takes more than a month. With a bank account open, the company should then get a business license with the Riyadh municipality, and register the address of the business with the "Wasel" post office.

Other requirements include publishing the summary of the articles of incorporation, submitting all approved documents to the Ministry of Commerce to obtain a Certificate of Registration, formation of an official company seal, and becoming a member of the Chamber of Commerce. None of the fees associated with these processes are significant.


Employment Considerations

Contracts are a huge part of the employer/employee relationship in Saudi Arabia. For example, all part-time workers must have a contract that states an official termination date, and part time-contracts can only be renewed once. Foreign workers are required to have a fixed-term contract and are not eligible for part-time work. Any back pay owed to employees is also prioritized by law in the case of a company bankruptcy.

From 2019, all employers in Saudi Arabia are required to upload employment contracts to the General Organization for Social Insurance’s online portal. Probation periods should be explicitly stated in contracts and normally run for three months, although they can be extended to six months by written agreement.

The maximum working time for employees is eight hours per day or 48 hours a week. This can be varied from week to week (i.e. in shift work) as long as these limits aren’t breached over a three-week rolling average. These limits are reduced during Ramadan to six hours per day and 36 hours per week. A minimum of one rest day is mandated per week; most companies make this Friday due to its status as the holy day in Islam.

Employees must take a break of at least 30 minutes for rest, prayer and food after working five hours consecutively. Additionally, employees are banned from working outdoors between midday and 3pm between 15 June and 15 September, in order to protect them from the fierce summer heat.

Notice periods run for 60 days on normal open-ended contracts and 30 days under fixed-term contracts. Notice must be served on a fixed-term contract, even if it is approaching its date of expiry.

Compensation & Severance

Saudi Arabia has no legal minimum wage requirement in the private sector. There is a minimum wage in the public sector of 3000 riyals per month (approx. £640, $800, €710).

Working overtime in Saudi Arabia generates an extra 50% on top of the normal hourly wage. This applies for working time beyond the maximum daily or weekly limits, and for working any time on Fridays or on national holidays.

Severance pay is mandated by law to be 15 days of wages for an employee's first five years of employment. Employees receive a full month of wages for every year over and above this. Saudi nationals generally 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 force in the country, but the court system to handle cases of compensation is quite robust.

Tax and Withholding Requirements

Saudi residents pay no personal income tax. Foreign residents, however, may be subject to Withholding Tax on the income they make in Saudi Arabia. The rates of these vary, depending on the tax treaties established between Saudi Arabia and different countries.

The social security rate for Saudi residents is 22%. The employer and employee pay 9% each for social insurance and 1% each for unemployment insurance. The employee also pays 2% for occupational hazard contribution. Non-residents are only subject to the 2% for occupational hazard.

Holiday and Leave Considerations

Employees in Saudi Arabia are entitled to 21 days’ paid leave each year, increasing to 30 days after five years of service. Additionally, five days’ paid leave is granted immediately after a marriage. Male employees receive five days’ paid leave if their wife dies, but female employees receive 15 days if their husband dies. The current retirement age in Saudi Arabia is 60 for men and 55 for women.

Saudi Arabia has three public holidays. The Saudi National Day always falls on 23 September, but the other two - Eid ul-Fitr (the end of Ramadan) and Eid ul-Adha (the end of Hajj) - last several days each and move annually. This is because Saudi Arabia observes the Islamic calendar, in which years last only 354 or 355 days. At present, these holidays are around May and July respectively, but are moving 10-12 days earlier in the Gregorian calendar every year.

Women are entitled to ten weeks’ paid maternity leave, four weeks before the birth and six weeks after it. Paternity leave entitlement is three days.

Sick leave entitlement is a maximum of 30 days, as long as the illness is certified by a doctor. In the event of an employee suffering an injury at work, the employer must cover all expenses relating to treatment.

In Summary

With a completely different culture compared to most Western nations, Saudi Arabia can represent a daunting prospect for international expansion. But this barrier is not insurmountable, and the potential opportunities are so great that this shouldn’t deter you. Teaming up with an established and experienced global payroll partner can help you stay on the right track with all elements of your Saudi Arabia payroll, and gain a real advantage in a country where compliance and cultural acceptance are essential.


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.



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