Saudi Labor Law enhancements announced to promote investment in the Kingdom of Saudi Arabia in 2023

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Saudi Labor Law enhancements announced to promote investment in the Kingdom of Saudi Arabia in 2023

Saudi Labor Law enhancements announced to promote investment in the Kingdom of Saudi Arabia in 2023

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December 21, 2023

The Kingdom of Saudi Arabia's (KSA) employment and environment has witnessed extensive development in 2023, in particular in the last quarter of the year in the run-up to the Ministry of Investment (MISA) Regional Headquarters (RHQ) programme deadline of 1 January 2024. No formal update has been made to the KSA Labor Law and its Implementing Regulations (KSA Labor Law)¹ since the 2021 consultation which proposed changes to it. However, the Ministry of Human Resources and Social Development (MHRSD) has actively been working on improvements to increase efficiency and enhance the rights of employees and employers in KSA. A summary of these changes and their impact for employers are discussed below.

Amendments to the list of violations and fines under the KSA Labor Law

The most recent and significant update on 10 December 2023 has been the issuance by the MHRSD of the amendments to the list of violations and penalties under the KSA Labor Law. Companies are categorised into classes in accordance with the number of employees they have, with higher monetary fines for larger companies. 92 different violations have been detailed, with the following summarising some of the key updates:

The list of violations and penalties also reiterate that companies licensed to practise the activity of recruitment must ensure that they are practising activities related to their licences on a continuous basis. Additionally, companies are not permitted to lease or grant their licences to others, even if no financial compensation is involved. Companies must also include all their license information into all of their documents and publications. In the event that a licence is suspended or cancelled, the company must immediately cease practising activities under that licence or be subject to a penalty.

From the employee contract perspective, as per the list of violations and penalties issued, employers must also ensure that they are fully compliant with the contract form issued by the MHRSD, as well as the minimum contract requirements determined by the MHRSD. Any deviations from the prescribed format or the omission of mandatory clauses may result in penalties. Employers must also ensure the MHRSD contract is issued in electronic form. The list of violations also lists penalties by companies for failure to use the Arabic language in all employment contracts, data, records, files of workers and instructions issued by the employer to its workers. Furthermore, companies must ensure they submit performance reports to the MHRSD in accordance with the established standards, as well as annual reports covering operational performance, technical aspects and financial information, or they will be eligible for a penalty.

Qiwa portal updates

The MHRSD Qiwa platform, introduced to digitalise many employment and labor processes, has recently undergone a series of enhancements aimed at streamlining the work system and ensuring the protection of the rights of both employers and employees. It now serves as a centralised hub for managing a wide range of employment-related processes, including contract documentation, payroll management, Saudisation compliance and dispute resolution. By streamlining these essential tasks, the Qiwa platform promotes efficiency, transparency and adherence to labor regulations.

Among the additions is the "type of salary" feature, which allows employers to specify whether the basic salary is a fixed minimum or a variable amount linked to a specific percentage of sales, profits or production. The percentage is further explained in the calculation rule icon. This is in accordance with Article 2 of the KSA Labor Law – the basic wage encompasses all compensation provided to an employee in exchange for their services, regardless of the type or method of payment, in addition to periodic bonuses. This comprehensive definition of basic wage ensures that employees are adequately compensated for their contributions.

Furthermore, establishments can now print Wage Protection Certificates and Nationalisation Certificates from the Qiwa platform. This digitalisation streamlines the process and enhances efficiency for both employers and employees. Furthermore, the Qiwa platform introduces the salary identification column, enabling establishments to approve requests for salary certificates submitted by employees. These certificates provide essential information regarding an employee's salary and work duration. Additionally, the portal facilitates the retrieval of Saudisation account information, whether immediate or cumulative, at intervals of 26 weeks. This functionality assists in monitoring compliance with Saudisation regulations and ensuring a balanced workforce.

The Qiwa platform has also been updated to reflect the permitted maximum probation period for an employee to be 90 days. Previously, employers could set the probation period to 180 days without the employee's written agreement, which is in violation of Article 53 of the KSA Labor Law. 180 days' probation is now only applicable on the Qiwa platform, if the employee's consent is provided to the additional period. This revision aligns with the stipulations of Article 53 of the KSA Labor Law, which mandates a maximum probationary period of 90 days for employees (notwithstanding the exception under Article 54). The decision to reduce the probation period was prompted by observations that many employers were inadvertently setting the probation period to 180 days while documenting employment contracts through the Qiwa platform. This error stemmed from the platform's initial default setting for the probation period.

Other KSA Labor Law updates

Employment rights for persons with disabilities

The Rights of Persons with Disabilities Law (ROPWD) was enacted by Royal Decree (M/27) in August 2023. It aims to protect and promote the rights of persons with disabilities and to ensure their access to various services, including employment. The ROPWD specifically seeks to guarantee the right of persons with disabilities to work and be employed without discrimination. To achieve this goal, the ROPWD focuses on designing and implementing employment programmes for people with disabilities, providing them with vocational and technical training, and motivating both government and private employers to hire them. Additionally, employers are obligated to adapt their work environments and systems to accommodate the specific needs of individuals with disabilities, including providing accessible facilities, equipment and assistive technologies. The ROPWD also explicitly prohibits discrimination against persons with disabilities in employment practices. Furthermore, governmental and non-governmental entities are tasked with raising awareness and enhancing the status of people with disabilities in society, publicly communicating their rights, abilities and contributions.

Training and development

The MHRSD has emphasised the role of employers in training employees as per the list of penalties and violations detailed above. In addition it has established 12 sector skills councils to enhance workforce training and development in KSA. These councils will focus on identifying and addressing skill gaps in key sectors, including wholesale and retail trade, culture and entertainment, construction and real estate, healthcare, professional services, logistics and transportation, security, digital technologies, finance and insurance, tourism and hospitality, energy and public utilities, and manufacturing. The initiative aims to boost employment rates, increase worker productivity and attract local and international talent, leading to a more stable and productive workforce. Companies within the private sector with 50 or more employees must now conduct yearly reports on their training programmes. Such reports shall be submitted on the Qiwa platform. The reports must include the type of training, number of training hours, number of trainees, details of the training programmes and outcome. The purpose of this initiative is to improve the quality of training programmes in the private sector, improve employee performance and record employee progress and development data at the national level.

In summary, in 2023, the employment and environment in KSA has undergone significant transformation, with a focus on streamlining employment practices, promoting compliance with labor regulations and safeguarding the rights of both employers and employees. The Qiwa platform has evolved into a centralised hub for managing employment-related processes, from contract documentation and payroll management to Saudisation compliance. In 2024, formal updates of the KSA Labor Law are expected following the 2021 consultation, the results of which were issued in 2023, to update the language and practices and to address current gaps which have created uncertainty that is currently left for clarification in the KSA Labor courts.

For further information please contact our KSA Employment team on: KSAEmploymentTeam@dentons.com

Also see the Dentons Global Quarterly Employment review here for quarterly updates on KSA employment and law.

This article is also available in Arabic, click here to download.

All references to KSA Labor Law refer to Royal Decree No M/51 of 23 Sha’ban 1426 AH (corresponding to 27 September 2005), which entered into force on 26 April 2006 with its subsequent amendments and the Implementing Regulations promulgated by virtue of Ministerial Decision No. 1/693 of 29 Safar 1428AH (corresponding to 19 March 2007) and its subsequent amendments.↩

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Saudi Labor Law enhancements announced to promote investment in the Kingdom of Saudi Arabia in 2023

Saudi Labor Law enhancements announced to promote investment in the Kingdom of Saudi Arabia in 2023

Amendments to the list of violations and fines under the KSA Labor Law

Qiwa portal updates

Other KSA Labor Law updates

Employment rights for persons with disabilities

Training and development

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No.	Description of violation	Fine (in SAR)
No.	Description of violation	Class C (20 workers or less)	Class B (from 21 to 49 workers)	Class A (50 workers or more)
1.	The employer's failure to adhere to the rules of occupational protection, health and safety (approved by the MHRSD) and failure to take the necessary precautions to protect workers in all activities. The employer or its agent is responsible for accidents that injure others at the facility's headquarters.	1,500	2,500	5,000
2.	Failure to provide medical insurance for the worker and their family members, subject to the provisions of the Cooperative Health Law.	300, to be multiplied by the number of workers	500, to be multiplied by the number of workers	1,000, to be multiplied by the number of workers
3.	Employing a non-Saudi worker without obtaining a work permit or Ajeer notice.	10,000, to be multiplied by the number of workers	10,000, to be multiplied by the number of workers	10,000, to be multiplied by the number of workers
4.	The employer enables the non-Saudi worker to serve in a profession other than the one set out in the work permit.	300, to be multiplied by the number of workers	500, to be multiplied by the number of workers	1,000, to be multiplied by the number of workers
5.	The employer performing any act that involves any type of discrimination, whether against its employees or those applying for employment with it, in terms of the conditions of work or when recruiting or announcing job vacancies, or committing wage discrimination between workers (men and women) in jobs of equal value or any work that results in prejudicing and weakening equal opportunities.	1,000, to be multiplied by the number of cases	2,000, to be multiplied by the number of cases	3,000, to be multiplied by the number of cases
6.	Employing a worker without obtaining a professional work licence for activities restricted to Saudis or without renewing such licence in accordance with the Ministry's requirements.	1,000, to be multiplied by the number of workers	2,500, to be multiplied by the number of workers	5,000, to be multiplied by the number of workers
7.	Failure of the facility to use the Arabic language in employment contracts, data, records, files of workers and instructions issued by the employer to its workers.	300	500	1,000
8.	Employing non-Saudi workers in professions or activities restricted to Saudis.	2,000, to be multiplied by the number of workers	4,000, to be multiplied by the number of workers	8,000, to be multiplied by the number of workers
9.	The employer registers a Saudi worker among its facility's workers without a labor relationship	2,000, to be multiplied by the number of registered people	2,000, to be multiplied by the number of registered people	2,000, to be multiplied by the number of registered people
10.	The facility’s failure to train and qualify its Saudi workers in its business at a rate of no less than 12% of its total workers annually if the number of workers is 50 or more according to the mechanism determined by the Ministry.	Not applicable	Not applicable	500, to be multiplied by the number of workers who have not been trained
11.	Failure to comply with electronic registration/documentation of the workers' contracts in accordance with the ministerial decision regulating this.	300, to be multiplied by the number of workers	500, to be multiplied by the number of workers	1,000, to be multiplied by the number of workers
12.	The employer's failure to pay the worker's wages and settle their rights within a period not exceeding one week from the date of the end of the employment relationship, or within a period not exceeding two weeks if the termination of the contract was based on the will of the worker.	1,000, to be multiplied by the number of workers	2,000, to be multiplied by the number of workers	3,000, to be multiplied by the number of workers
13.	Failure of the employer to submit the wage protection file on a monthly basis, or failure to comply with the compliance rate specified by the Ministry when submitting the file on a monthly basis.	500	1,000	2,000
14.	Failure to disclose training by documenting it on the Qiwa platform within one month of the end of the calendar year.	Not applicable	Not applicable	5,000