Overview on Key Amendments to Saudi Arabia's Labour Law

Key Amendments to Saudi Arabia's Labour Law

Saudi Arabia's ambitious Vision 2030 continues to transform the government's legal framework in a way that will make its labor market more attractive and dynamic. These amendments are geared towards enhancing job security, improving working conditions, and providing equal opportunities for everyone. They also seek to invest in human capital development. On 6 August 2024, the Saudi Council of Ministers ratified significant alterations to the Labour Law of 2005, which was promulgated by Royal Decree No. M/51 dated 23 Sha'ban 1426; these alterations are to take place from 18 February 2025.This report outlines the changes in detail and explains their implications for workers and employers in the Kingdom.

The amendments are yet a yet another reflection of the MHRSD's efforts to harmonize labor practices with international standards. The changes resulted from extensive public consultation with more than 1,300 participants across various sectors. The updates have included changes in 38 articles, removal of 7 articles, and the introduction of 2 new articles covering definitions, leave entitlements improvements, regulation of resignation processes, and clarification of termination rights.

I.             Introduction of New Definitions

The amendments introduce two major definitions to Article 2 of the Labour Law:

i.   Manpower Activity: Service for recruiting and providing employees on a contractual basis to employers by a licensed manpower agency.

ii.   Resignation: A written declaration by an employee to terminate a fixed-term employment contract, made voluntarily and not under compulsion.

II.            Duration of Contract of Non-Saudi Nationals

Article 37 of the Labour Law states that in case a non-Saudi national is employed on an open-ended contract, then it will be considered a one-year fixed-term contract from the date of employment and will renew automatically for the same period afterwards. This clarification removes the ambiguities that previously existed when the duration of the contract was related to the employee's work permit, which most of the time created confusion.

III.          Saudi National Training Policy

Employers are now expected to have a training policy on Saudi nationals focusing on technical, administrative, and vocational skills development. The executive regulations, prior to the coming into effect of the new amendments, will set out specific requirements for training.

IV.          Probation Period Increase

A probation period has been extended for a duration of 90 days to 180 days after two people have given their written consent. Either party may terminate the contract during this probation period. In addition, leave days will not be included in the computation of the probation period. The employers have to review and revise the onboarding and employment policies of the companies with respect to the extended probation period.

V.            Accommodation and Transportation

There is now a duty on employers to provide accommodation and transportation or offer a cash allowance in lieu of these benefits. This will add a statutory requirement that many employers will have to include in their compensation policies.

VI.           Equal Opportunities and Anti-Discrimination

A significant update in the Labour Law is the protection against discrimination. Employers must ensure equal opportunities for all employees and job applicants, prohibiting discrimination on the basis of race, color, sex, age, disability, marital status, or any other characteristic.

Employers must revise recruitment and employment practices to comply with these enhanced anti-discrimination provisions.

VII.         New Leave Provisions

The amendments introduce several changes to leave entitlements:

i.      Maternity Leave Increased to 12 weeks with full pay. A law mandates the taking of at least six weeks of leave immediately after childbirth but can be initiated four weeks prior to the estimated date of delivery.

ii.    Paternity Leave Male workers are entitled to three days paternity leave and must be exercised within seven working days from date of birth.

iii.   Bereavement Leave: Employees are entitled to three days of leave in the event of the death of a sibling, in addition to the current leave for the death of ascendants and descendants.

VIII.        Resignation Procedures

The amendments regulate the resignation process for employees on fixed-term contracts, clarifying several key points:

i.      If the employer does not respond within 30 days of receiving the resignation, it will be automatically deemed accepted.

ii.    The employer may rescind acceptance of the resignation within 60 days if he has valid reasons for doing so, but the employee must be informed within 30 days.

iii.   The employee may withdraw the resignation within seven days if it has not yet been accepted by the employer.

iv.   The employee cannot give a date for resignation other than the day he submits the resignation.

v.    Employment terminates on the earliest of the following dates: the date of acceptance of resignation, 30 days after submission in case no reply is received, or at the end of the justified delay period.

IX.          Termination of Employment

The new provisions provide bankruptcy as a legal ground for the termination of an employment contract under Article 74 of the Labour Law. This is part of the rising interest in the insolvency rules of business enterprises in Saudi Arabia.

Notice Periods for Termination

Article 75 reduces the notice period for Saudi nationals terminating an indefinite-term contract for a valid reason to 30 days, while the notice period for employers remains 60 days.

X.           Overtime and Compensatory Leave

Article 107 has been modified to allow employees and employers to agree on compensatory leave in lieu of overtime pay by mutual consent. The Executive Regulations shall further elaborate on the implementation procedures of such policy.

XI.           Disciplinary Actions and Internal Appeals

The amendment of Article 72 has increased the period for the filing of an internal appeal against disciplinary actions as follows:

i.      30 days to present an internal appeal to the employer.

ii.    If the employer denies the appeal or fails to reply within 15 days, then the employee is entitled to submit the case to the Labour Court within 30 days.

iii.   Employers should modify their disciplinary codes to include this internal appeal procedure.

XII.         Fines and Licensing Requirements

The new rules have introduced fines between SAR 200,000 and SAR 500,000 for entities which:

i.      Provide manpower services without obtaining the proper licensing.

ii.    Employ non-Saudi nationals without the work authorizations needed.

iii.   Companies engaging in manpower activities must ensure compliance with licensing regulations to avoid penalties.

Conclusion

The amendments to Saudi Arabia’s Labour Law represent a significant shift in employment practices, aligning the Kingdom’s labor framework with modern standards and enhancing worker rights. Employers must take immediate steps to Review and revise employment contracts, handbooks, and policies. Ensure compliance with new leave entitlements, equal opportunity requirements, and resignation procedures. Prepare for Executive Regulations, which will further detail many of these provisions. The scope and nature of these changes are so extensive that employers should consider consulting lawyers to ensure all bases are covered.