Overview on Significant Amendments to the Kingdom of Saudi Arabia's Labor Law

Significant Amendments to the Kingdom of Saudi Arabia's Labor Law

On August 6, 2024, the Kingdom of Saudi Arabia’s (KSA) Council of Ministers approved substantial amendments to the country's Labor Law, marking the most significant reforms since 2015. These changes are set to enhance both employer and employee rights and obligations and to align labor practices with global standards while addressing domestic concerns, such as Saudisation. The amendments, which will come into effect 180 days after their publication in the Official Gazette, bring forth new definitions, rights, and obligations that are crucial for businesses and workers in Saudi Arabia to understand.

This article delves into the key modifications to the Labor Law, covering new provisions on probation periods, maternity leave, paternity leave, non-Saudi employee regulations, penalties for non-compliance, termination rules, and discrimination protection, among others.

Probation Period Extension

The probation period has been extended from a standard 90 days to 180 days. This change grants both employers and employees a more extended period to evaluate whether the employment relationship is suitable. Previously, the probation period could only be extended by mutual agreement, but the amendment now allows for a direct inclusion of the 180-day period in the employment contract without additional consent.

This flexibility benefits employers who need more time to assess the compatibility of an employee with the job. However, it also provides employees with a longer timeframe to adjust to new working conditions and evaluate their career fit. Both parties retain the right to terminate employment during this probation period.

Enhanced Maternity and Paternity Leave

Under the new amendments, the Kingdom has further bolstered its support for family life. Maternity leave has been extended from 10 weeks to 12 weeks, with full pay. This step is a significant improvement, aligning with international labor standards and demonstrating KSA's commitment to supporting working mothers.

Male employees are now entitled to three days of paid paternity leave, which must be taken within seven days of childbirth. This is a progressive move in a region where paternity leave has traditionally been limited or non-existent, marking a shift towards a more family-friendly work culture.

Bereavement Leave

Employees are now entitled to three days of paid bereavement leave in the event of the death of a sibling, adding to existing rights for the loss of immediate family members. This adjustment reflects the increasing recognition of the importance of family support during times of grief.

Non-Saudi Employee Restrictions

The amendments introduce stricter regulations for non-Saudi employees, particularly concerning their ability to work for third parties or engage in personal employment activities. Under Article 39, non-Saudi nationals are prohibited from working for any entity other than their sponsoring employer. This aims to curb illegal employment practices and ensure that foreign workers adhere to the conditions of their work visas.

The Ministry of Human Resources and Social Development (MHRSD) will now be empowered to inspect establishments and penalize violations, with additional powers granted to the Ministry of Interior (MOI) to impose penalties and monitor compliance.

Training Policies for Saudi Nationals

In line with the Saudisation policy, which seeks to increase the participation of Saudi nationals in the workforce, Articles 42 and 43 of the Labor Law have been updated. Employers are now required to establish clear training policies for Saudi employees, but the requirement to train them specifically to replace non-Saudi employees has been removed.

This change indicates a shift towards improving the skills of Saudi employees for broader roles rather than simply replacing expatriates. Companies with more than 50 employees must train at least 12% of their Saudi staff annually, although the exact rate may be determined by ministerial decision.

Fines for Unlicensed Manpower Services

Entities that provide manpower services without a proper license or bring non-Saudi nationals into Saudi Arabia without the necessary work authorizations will face steep fines ranging from SAR 200,000 to SAR 500,000. This stringent penalty framework seeks to crack down on illegal recruitment practices and protect the integrity of the labor market.

Termination of Employment Contracts

The new amendments expand the grounds for lawful termination of employment. Notably, bankruptcy has been added as a valid reason for terminating an employment contract. If a final ruling is issued by a competent court in any bankruptcy proceedings, employers may terminate the employment contract.

The right of resignation has also been codified for employees working under fixed-term contracts. Employees can submit a written resignation, and it will be deemed accepted if the employer does not respond within 30 days. This move adds flexibility for employees to exit fixed-term contracts, and employers are given the right to postpone resignation for up to 60 days if necessary.

Non-Renewal of Work Permits

Under Article 35, if employers fail to comply with Saudisation or other regulatory conditions, the MHRSD now has the authority to decline the renewal of work permits for non-Saudi employees. The amendment further specifies that if a work permit is not renewed due to such violations, the affected employee has the right to transfer to another employer without the current employer's consent.

This provision protects employees from being unfairly penalized for their employer's failure to meet regulatory requirements, providing them with more mobility and employment security.

Housing and Transportation Allowances

A crucial change under Article 61 requires employers to provide either adequate housing and transportation or cash allowances to employees. This amendment ensures that market practices regarding housing and transportation are now enshrined in law, offering employees greater security and predictability in their employment conditions.

Disciplinary Action and the Right to Grievance

The Labor Law now grants employees the right to appeal disciplinary actions within 30 days. Article 72 allows employees to file a written grievance with their employer, and if no resolution is provided within 15 days, the employee retains the right to escalate the matter to the Labor Court.

This extension of grievance rights provides workers with a more structured avenue for resolving disputes related to disciplinary actions and penalties, offering an alternative before seeking judicial recourse.

Prohibition of Discrimination

The new amendments to Article 3 and Article 61 further emphasize the Kingdom's commitment to equality in the workplace. Employers are now explicitly required to ensure equal opportunities and treatment in employment, refraining from discrimination based on race, color, gender, age, disability, or social status. This progressive development strengthens protections against workplace discrimination, reinforcing the right of citizens to work without fear of exclusion or bias.

Overtime and Compensatory Leave

The amendment to Article 107 provides that employers may compensate employees for overtime not just with additional pay (which currently stands at 150% of the regular hourly wage) but also with compensatory leave, subject to the employee's consent. This option offers greater flexibility in compensating employees for extra hours worked and aligns with modern labor practices that prioritize work-life balance.

Fixed-Term Contract Clarifications

For non-Saudi employees, the default period for fixed-term contracts, if not specified, is now set at one year from the start date of employment. If the work permit expires during this period, the contract will automatically renew for a similar period. This ensures clarity and continuity in employment contracts for expatriate workers, addressing a previous gap in the law.

Notice Periods for Termination

The amendments also address the notice period for terminating indefinite-term contracts. While employees can terminate their contracts with 30 days' notice, employers must provide a minimum of 60 days' notice. This adjustment strengthens job security for employees while maintaining reasonable flexibility for employers.

Conclusively, The amendments to Saudi Arabia’s Labor Law represent a balanced approach to modernizing the employment landscape. With enhanced rights for employees, especially concerning leave entitlements, anti-discrimination protections, and grievance procedures, the changes reflect a growing emphasis on worker welfare. At the same time, employers benefit from clearer regulations, particularly regarding probation periods, contract terminations, and Saudisation requirements.

As these changes take effect in early 2025, both employers and employees must adapt to the new legal environment. Understanding these amendments will be essential for compliance and for navigating the evolving labor market in the Kingdom.