Legal overview on Key Amendments to Saudi Arabia's Labour Law

Key Amendments to Saudi Arabia's Labour Law

Saudi Arabia's labor market is experiencing one of its most dramatic changes in years. With the promulgation of Cabinet Decision No. (117) dated August 6, 2024, and Royal Decree No. (44) dated August 12, 2024, the Kingdom has issued far-reaching amendments to its Labour Law, which will come into effect on February 19, 2025 (20 Sha'ban 1446 AH). These reforms represent an important step towards the modernization of the country's labor laws as part of the overall Vision 2030 program.

The amendments seek to establish a more balanced and dynamic labor market, with protection for both the employer and employee, better working conditions, and increased attractiveness of the Saudi labor market. The following article examines the major amendments, the justification for the change, and how they are expected to affect the workforce and business environment in the Kingdom.

The Amendmentstry's strategic plan to diversify its economy, reduce reliance on oil revenues, and strengthen the participation of Saudi nationals in the private sector.With close to 13.5 million employees in the Kingdom, of which about 74% are expatriates, there has been a strong effort to balance the workforce, safeguard rights, and provide opportunities for Saudi nationals while keeping the Kingdom open as a destination for foreign talent.

Saudi Arabia's labor market reforms align closely with Vision 2030, the counThe priorities of the government through these amendments are:

i.      Increasing job security and stability.

ii.    Encouraging equal opportunities and avoiding discrimination.

iii.   Enhancing working conditions, especially for expatriates and women.

iv.   Streamlining procedures and diminishing conflicts between employees and employers.

v.    Promoting investment by providing a just and reliable labor environment.

Major Changes to the Saudi Labour Law

I.        Modifications to Employment Contracts

Among the most significant reforms is the regulation of employment contracts. The reforms require that any contract for expatriate employees should be written. This action eliminates uncertainties and safeguards the interests of employers as well as foreign workers. In cases where there is no specific time mentioned in the contract, the law now deems the contract to have a duration of one year from the date the employee begins working.

Furthermore, in the event that the employment relationship is prolonged after the expiry of the contracted term without a specific renewal, the contract shall renew itself for the same period as the initial term. These conditions ensure certainty and clarity for both parties, especially for fixed-term contracts, which are common in the Saudi labor market.

II.       Resignation Procedures

For the first time, the Saudi Labour Law specifically stipulates the procedure for resignations. Those employees who want to resign from a fixed-term contract must provide a written resignation. After submitting the resignation, the employer has 30 days to react. If the employer does not respond within that time, the resignation is deemed accepted.

But if there are good reasons with business requirements, the employer can withhold the acceptance of the resignation for a period not exceeding 60 days. Additionally, workers have the right to withdraw their resignation during submission within seven days, as long as the employer has not accepted it yet. This procedure provides equity and transparency, minimizing controversies and misunderstandings regarding resignations.

III.      Notice Periods and Termination Provisions

The amendments create tighter regulations regarding notice duration and termination process. Workers must give 30 days' notice when they leave. However, employers must issue 60 days' notice upon terminating employees earning monthly salaries. For workers receiving non-monthly salaries, the employer is expected to give 30 days' notice.

A significant new provision to the law is the addition of bankruptcy as a valid reason for ending an employment contract. In the event of a business being declared bankrupt, it can legally terminate employment contracts, showing a pragmatic regard for economic conditions and business continuity.

IV.    Wages and Compensation

To increase flexibility and promote employee welfare, the amendments include new options regarding wages and benefits. Employers may now offer compensatory time off instead of paying overtime wages, provided the employee agrees to this arrangement. This gives businesses greater flexibility in managing workloads and helps employees maintain a better work-life balance.

In addition, employers are now made to offer employees either transportation and accommodation or money equivalent to for these fundamental essentials. This element especially favors those earning lower wages and ensures the employees are free from the stress of basic expenses.

V.    Increased Leave Entitlements

Employee well-being is also covered with increased leave arrangements. Maternity leave has now been increased to 12 weeks from the earlier 10 weeks, providing working mothers with extra time to rest and look after their new-borns. Paternity leave remains at three days but is now required to be taken within seven days of birth, promoting hands-on family involvement.

The amendments also provide for bereavement leave in the event of the death of a sibling, with employees being allowed three days off in such an event. This is a more sympathetic approach to family-related leave, considering the value of family support in the event of loss.

VI.     Probationary Period Adjustments and Training Programs

In an attempt to provide more flexibility to employers and certainty for employees, the duration of the maximum probationary periods has been increased from 90 days to 180 days. But this increase will only apply if it is clearly set out in the contract of employment at the beginning. The probation period is a period when both employers and employees must assess suitability, and this adjustment allows for a longer period of assessment.

The law also strengthens the requirement for Saudi nationals to be invested in by their employers. Instead of merely substituting expatriates with Saudis, companies are now supposed to create formal training programs that equip Saudis with the skills they need to excel in their positions. This marks a move towards long-term national workforce development.

VII.    Workplace Equality and Anti-Discrimination Measures

In a major progressive move, the amendments include clear bans on discrimination in the workplace. Employers are now legally prohibited from discriminating against workers or job applicants on the basis of race, gender, color, age, disability, marital status, or other personal characteristics.

Such protection is especially necessary while Saudi Arabia continues to advocate for the employment of women and individuals with disabilities in the workforce. Employers are now required to examine and revise their workplace policies to guarantee observance of these anti-discrimination provisions.

Penalties and Compliance Enforcement

To enforce compliance with the new law, penalties have been tightened. Companies involved in manpower supply services without proper licenses from the Ministry of Human Resources and Social Development (MHRSD) are subject to fines between SAR 200,000 and SAR 500,000.

Moreover, companies that do not meet Saudization targets or falsify employment records to meet targets are subject to more severe penalties. These policies aim to safeguard the integrity of nationalization efforts and ensure a level labor market.

Implications for Expatriates

Since expatriates constitute a major chunk of the Kingdom's labor force, the amendments hold special significance for foreign workers and companies that have overseas staff on their payroll. With more defined regulations regarding contracts, layoffs, vacation, and perks, expatriate workers enjoy better protection and awareness.

For firms from nations like India, the Philippines, Egypt, and Pakistan—key labor-supplying countries the reforms require that employment practice needs to be thoroughly checked to make sure they are in compliance with Saudi rules, both for the safety of workers and to avoid legal exposure.

How Employers Should Prepare

To be in line with the changes to come, Saudi employers must move quickly to revise internal practices and policies. This involves updating employment contracts, revising human resources policies on leave and remuneration, revising notice procedures, implementing anti-discrimination policies, and developing strong training programs for Saudi staff. Employers must also ensure that any third-party labor providers they engage with are appropriately licensed and in line with MHRSD requirements. With proactive action, companies can steer clear of fines and create healthy working environments that encourage talent to join and stay.

Conclusion

The 2025 Saudi Arabia Labour Law amendments represent a vital step in the Kingdom's drive towards a modern, fair, and competitive labor market. Not only do these reforms safeguard the rights of the worker whether Saudi or expatriate but also offer clarity and support for companies operating in a vibrant and ambitious economy.

By bringing labor standards into conformity with international best practices and in support of Vision 2030 objectives, these reforms are set to bring long-term improvements to the Kingdom's labor market, ultimately leading to national prosperity and international competitiveness.