Overview of Saudi Arabia's Labor Law
Saudi Arabia's Labor Law — enacted under Royal Decree M/51 — governs employment relationships between employers and workers in the private sector. Both Saudi nationals and expatriate workers are covered by the law. For foreign companies and expat-heavy businesses operating in the Kingdom, understanding the core provisions is essential to avoid violations and their significant financial penalties.
Employment Contracts — What's Required
Every employment relationship must be documented in a written contract registered through the government's Mudad platform. Verbal contracts are legally insufficient. The contract must specify: job title and description, agreed salary, working hours, leave entitlements, contract duration (fixed or open-ended), and conditions of termination. Contracts must be in Arabic (or bilingual) for enforceability.
Working Hours & Overtime
Standard working hours are 8 hours per day and 48 hours per week. During Ramadan, Muslim employees' working hours are reduced to 6 hours per day. Work beyond standard hours is compensated at a minimum of 150% of the regular hourly rate. Night shift work and Friday overtime attract additional premium rates.
Annual Leave Entitlements
- 21 days paid annual leave for employees with fewer than 5 years of service
- 30 days paid annual leave for employees with 5 or more years of service
- Sick leave: 30 days at full pay, 60 days at half pay, 30 days unpaid
- Maternity leave: 10 weeks for Saudi female employees
End-of-Service Gratuity (Maaash)
End-of-service gratuity is a mandatory benefit that accumulates over an employee's tenure and is payable on departure:
- Half month's wage for each of the first five years of service
- One full month's wage for each year of service beyond five years
- Calculated based on the last basic salary drawn
- Reduced proportionally if the employee resigns before completing 5 years
This is a significant financial liability that accumulates over time — one reason many companies use Ajir System labor contracts or monthly hire arrangements to manage their workforce more flexibly.
Wage Protection System (WPS)
The Wage Protection System requires all private sector companies to pay salaries electronically through approved channels by the designated monthly deadline. Companies that fail to pay on time are flagged and face restrictions on government services including the ability to issue new work visas. WPS compliance is actively monitored by the Ministry of Human Resources.
Nitaqat — Saudization Requirements
Nitaqat is Saudi Arabia's Saudization quota system that requires private sector companies to maintain minimum percentages of Saudi national employees relative to their total workforce. Required ratios vary by sector and company size, ranging from under 5% to over 35% for some sectors. Companies that fail to meet their Saudization quota face restrictions on expatriate labor recruitment and government service access.
Termination Rules
For open-ended contracts, termination by either party requires a minimum 30-day notice period (60 days for senior employees). Termination without valid cause obligates the employer to pay compensation equal to 2 months' wage for every year of service. Workers can also resign and retain gratuity rights after completing minimum service periods.