KSA Employers Guide to Employment Contracts

Over the past few years, the Kingdom of Saudi Arabia (KSA) has enacted a number of new labor laws. The newly enacted laws substantially changed the provisions of standard employment contracts for employees in the public and private sectors. These are parts of Vision 2030, the economic plan of the Kingdom through which Saudi Arabia has a vision of making its economy non-oil-dependent and creating new employment opportunities for the Saudi people. Today’s post serves as the employment contract guide for employers in the KSA. It outlines all important aspects of employment contracts and highlights the recent changes in the labor law governing the contracts.

Employment Contracts – An Overview

An employment contract in Saudi Arabia refers to a legal agreement between the employer and the employee that specifies the terms and conditions of employment. The terms of employment are the contractual provisions that may specify certain ways through which the business relationship between an employer and an employee is governed. These include aspects such as pay, paid leaves and sick days, number of working hours per week/month, work location, and probationary periods.

Employment, termination, and labor laws of Saudi Arabia offer a comprehensive framework that seeks to regulate employer-employee relations, offer fair treatment to both parties, protect their rights, and provide clear provisions for termination of employment. Saudi Labor Law (Royal Decree No. M/51) can be understood as a set of rather extensive rules and measures that regulate the existing employment relations and procedures of termination.

Saudi labor law demands written employment contracts that include specifics like job description, salary package, working hours, other perks, and termination policy.

There are two types of employment contracts in KSA, and both of them have clear provisions for renewal and termination:

Definite Term Contracts: Fixed-term contracts are specific contracts that have a specified duration and run for that specified duration only without requiring any renewal. They are mostly deployed on short-term and project-based recruitments.

Indefinite Term Contracts: Indefinite term contracts are open-ended contracts that do not include an expiration date and can continue indefinitely unless one or both of the parties decide to end the contract.

Employment Contract Guide According to Saudi Labor Law

The contract must include the following terms to establish a legally binding employment agreement:

  1. Remuneration and Benefits

Employment contracts should be written and must include information on the employee’s remuneration package, that is, salary scales, allowances, bonuses, and other monetary aspects.

  1. Probationary Period

One of the conditions mentioned under the employment contract requires the employer and employee to specify the probationary period, which should not exceed 90 days in the contract. During this period, the involved party can terminate the contract with the other party without any valid reasons to be given. In addition, there should be a provision for the probation terms in the contract.

  1. Termination

An employment contract in the KSA cannot be silent on matters concerning termination; the parties must state down the periods to be taken in serving termination notice as well as the circumstances that can lead to termination of employment.

  1. Employee Rights

Employment conditions, which include rights to be granted leave, number of working hours, and other legal requirements connected with perks among employers, have to be included in the contract.

  1. Off Days and Working Hours

The employment contract must reflect a schedule of ‘working hours’ as well as ‘time off’ in strict compliance with the labor laws.

  1. Duration and renewal

The duration and the terms for the renewal of definite term contracts have to be spelled out clearly.

Guidelines for creating an employment contract under Saudi Labor Laws

The two articles elaborate on the basic terms of an employment agreement regarding the labor legislation in Saudi Arabia. These are:

  1. Article 51

According to Article 51, employment contracts must have details such as the name and surname of the employee, the post or position that they hold, their wage, and the place of work. Also, it requires that such contracts should be in Arabic, and both parties must sign them.

  1. Article 52

According to Article 52, the parties have to provide the commencement date of the contract, the probationary period, and the termination conditions. It ensures that each party is well informed concerning their rights and liabilities.

Termination and Notice Requirements

In Saudi Arabia, for the termination of an employee’s contract, there remain well-defined causes under the provision of the Labor Law. The justification for the dismissal of indefinite duration contracts includes gross misconduct, negligent performance of contract duties after being warned, repeated violations of safety measures, undue absence for twenty nonconsecutive or ten consecutive days respectively, divulgence of secrets, conviction of an offense that involves honor, integrity and public decency, and any other lawful reasons as may be provided by the employment contract.

Legal reasons for termination of fixed-term contracts include:

  1. fulfilling the agreed number of terms
  2. performing the fixed project
  3. consent from both the employer and the employee

Whenever there is an indefinite-term contract, employees are entitled to a written notice. Under this, any employee receiving a monthly wage is entitled to a notice of 60 days, while the others are entitled to a notice of 30 days. Notice periods to work may also be longer if provisions are included in the contract of employment. No notice period is needed to provide when working under a fixed-term contract. It is terminated once the fixed term or project is over.

Recent Changes to Saudi Labor Laws

The KSA government changed its existing labor laws under the Federal Labor Law. The recent changes that impact employment contracts include:

  1. New limits on working hours
  2. Mandatory rest breaks
  3. Expanded employee leave allowances
  4. Updated protection against workplace harassment
  5. Formal definition of wage abuse and payroll fraud

The Rights of Persons with Disabilities Law, which seeks to protect and promote the employment rights of disabled workers, was enacted in August 2023. Key features include:

  1. Guaranteeing employment without discrimination
  2. Allowing disabled employees to work by offering them certain accommodations
  3. Raising awareness on workplace disability

They enhance the rights and protection of all the employees in the Kingdom. The reforms protect employees from their employers’ arbitrary behavior while also making contract conditions more comprehensible for the firms and employees alike.

Conclusion

Labor laws and employment contracts of the Kingdom of Saudi Arabia have been radically transformed in the recent past, and these changes offer significant benefits and safety to employees all over the Kingdom. The economic fortunes of the Kingdom depend on the optimized use of its human capital. The most recent series of worker-oriented reforms contribute greatly to the building of trust and harmony between Saudi employees and employers. At Arthur Lawrence, we assist firms in building the skills base that enables them to cope with the evolving market environment in the region. Our management and technology consultants help organizations in the MEA region with their capabilities and expertise in talent acquisition, finance and accounting services, customer experience, and digital transformation. Contact us to get more information.