Using an Employer of Record in Saudi Arabia

Onboarding and paying employees in Saudi Arabia can be complicated, as it’s important to comply with evolving local labor and employment laws. But using an Employer of Record (EOR), like Payoneer Workforce Management, helps streamline the process of engaging international talent.

Find out more about Payoneer Workforce Management, or read on to find out about using an EOR in Saudi Arabia.

How to hire employees in Saudi Arabia

Companies looking to engage local talent in Saudi Arabia essentially have three options: Setting up a local entity, hiring contractors, or using an Employer of Record. 

There are advantages and disadvantages to each, which we’ll take a look at in this section.

1. Setting up a local entity: This gives companies great operational control but involves high set-up costs and ongoing commitments. Businesses must register with the Chamber of Commerce, obtain a tax ID, enroll in Saudi Arabia’s social security system, and appoint legal representation. It also means that you’ll have to manage payroll, taxes, and benefits locally.
2. Hiring contractors: This option offers flexibility and is suitable for short-term or project-based work. However, it comes with the risk of contractor misclassification, which can result in penalties, including retroactive tax and benefit payments.
3. Using an Employer of Record: Partnering with an Employer of Record in Saudi Arabia allows businesses to legally access and engage local talent without setting up a local entity. The EOR assists with managing payroll, taxes, benefits, and labor law requirements.

Businesses can get support to stay compliant with local labor laws by using Payoneer Workforce Management’s infrastructure.

How to onboard employees in Saudi Arabia

When engaging and onboarding talent in Saudi Arabia, there are a few factors to take into consideration.

• Payroll and benefits setup: Make sure the local employees are added to the payroll system and enrolled in all required statutory benefits in line with regional employment regulations.
• Provisioning and equipment setup: Equip the local talent with the necessary hardware and tools so they can start performing their duties without delay.
• First‑week orientation: Organize an introductory session during the employee’s initial week to walk them through company policies, the onboarding workflow, and the expectations associated with their position.
• Introductions to team and colleagues: Arrange opportunities for the new joiner to meet the immediate team and connect with colleagues across the broader organization.

Payoneer Workforce Management enables companies to compliantly engage talent across borders through its technology platform.

Pay employees in Saudi Arabia

In this section, we’ll give you an overview of how to manage Saudi Arabia payroll.

• Payout currency: Saudi Riyal (SAR)
• Pay date: Last day of the month
• Minimum wage in Saudi Arabia: SAR 4,000 per month
• Annual bonus: Not mandatory

When it comes to taxes, here’s what you need to know:

•  Income tax: Saudi Arabia doesn’t have individual income tax.
• Social security: In Saudi Arabia, social security is primarily provided through the General Organization for Social Insurance (GOSI). The GOSI covers all Saudi and non-Saudi employees working in the private sector, as well as domestic workers, with certain exceptions. Both employers and employees contribute to the social insurance program administered by GOSI.
• Other employer costs: 15% VAT on additional services such as health insurance and Saudization charges. It applies to both expats and local employees.

Employees may also be entitled to:

• Public health insurance: Cooperative Health Insurance (CHI) provides mandatory health insurance coverage for all Saudi citizens and residents.

An Employer of Record, like Payoneer Workforce Management, offers a streamlined way to pay employees in Saudi Arabia. Our unified, all-in-one platform gives you a single dashboard to manage a global workforce and lets you pay contractors in just a few clicks.

Employment laws in Saudi Arabia

Saudi Arabian employment laws define requirements for working hours, overtime, probation, notice periods, and end-of-service benefits. Employers must follow these rules closely to remain compliant.

Working hours

Employees can work up to 8 hours per day and no more than 48 hours per week. The standard workweek runs from Sunday through Thursday, with Fridays and Saturdays treated as weekends.

Overtime

Total daily working hours, including overtime, must not exceed 11 hours. Overtime worked on regular business days is paid at 50% above the employee’s standard hourly wage. 

Any hours worked on public holidays or during Eid holidays are compensated at 150% of the regular hourly rate.

Probation period

The initial probation period may not exceed 90 days. This period may be extended by written agreement between the employer and employee, provided the total probation period does not exceed 180 days.

Notice period during probation

During probation, either the employer or the employee may terminate the employment contract without notice. However, giving around 5 days’ notice is recommended to allow time for administrative and paperwork preparation.

Notice period after probation

Notice periods after probation depend on the contract type and who initiates termination. If a Saudi national resigns from a non-fixed-term contract, a 30-day notice period applies. If the employer terminates a non-fixed term contract, 60 days’ notice is required.

For fixed-term contracts, employees who resign must provide 30 to 60 days’ notice, depending on the terms of the contract. If no notice period is specified, a default notice period of 60 days applies.

End-of-service award

Employees are entitled to an end-of-service award upon termination. Employers must pay half a month’s wage for each of the first 5 years of service, and 1 full month’s wage for each additional year. The award is calculated based on the employee’s final wage and includes proportional payment for partial years of service.

Stay compliant with local labor laws using Payoneer Workforce Management’s infrastructure.

Minimum wage in Saudi Arabia

The minimum wage for Saudis is SAR 4,000 per month. Wages may differ for non-Saudis, expat employees, and part-time workers. 

You can find more details on the official Saudi government website.

Employment contracts in Saudi Arabia

The Ministry of Human Resources and Social Development has set a standard form for all types of employment contracts, which should include:

• The name and place of the employer
• The name and nationality of the employee
• Proof of identity of the employee
• Employee’s address
• Agreed remuneration, including benefits and allowances
• The type and place of work
• Commencement date
• End date if it’s a limited-term contract
• The rights and basic obligations of each party

With Payoneer Workforce Management, you can onboard talent quickly and securely with localized contracts and payroll.

Leave policy in Saudi Arabia

Here are key details about the leave policy for employees in Saudi Arabia.

Public holidays & vacation time

There are 16 public holidays in Saudi Arabia. You can find dates and details on Saudi government websites.

Employees with 1 to 5 years of service are entitled to 21 days of vacation time. After 5 years with the same employer, employees earn 30 days of vacation time

Saudi labor law requires that vacation leave be taken in the year it falls due. Carrying leave forward is allowed only if the employer approves, and is typically limited to one year. Beyond that, the leave lapses and is not recoverable unless expressly agreed in the contract.

Up to 21 days (1 year’s entitlement) can be carried forward.

Sick leave

Employees in Saudi Arabia are entitled to 30 sick days per year. They receive full pay for the first 15 days and earn 75% of their regular salary for the next 15 days.

Maternity leave and paternity leave

In Saudi Arabia, mothers are entitled to 12 weeks of maternity leave. Fathers get 3 days of paternity leave.

Other leave

Here are other types of leave in Saudi Arabia:

Work permit in Saudi Arabia

The rules for work permits in Saudi Arabia vary depending on the employee’s country of origin and the type of work being performed. Employers and employees should always check government websites and resources for specific details.

Background check in Saudi Arabia

Background checks can be conducted before engaging an employee and typically include criminal history, employment and education history, and social media screening. Employers may typically need employee consent to conduct checks and will likely need to disclose what they’re checking. Always check local regulations before conducting any checks.

Employment termination in Saudi Arabia

Employers in Saudi Arabia may only terminate employees for valid reasons. Termination without valid grounds may be considered unfair dismissal and can lead to legal consequences for the employer. Termination is a complex process and must be handled carefully on a case-by-case basis.

Common termination scenarios include: 

• Employee resignation 
• Mutual agreement between the employee and the employer 
• Termination during probationary period 
• Termination by the employer due to misconduct, performance issues, absence without leave, etc.

Notice periods for employees can range from 1 week to 3 months

Severance pay varies by length of service. For indefinite term contracts:

• 15 days of gross salary up to 5 years of service
• 30 days of gross salary after 5 years of service

When a fixed-term contract is terminated, the worker must be paid the wages for the remainder of the contract period.

Regardless of the contract type, the compensation provided must be at least equivalent to two months of the worker’s wages.

If a contract is terminated during the probationary period, neither the employer nor the worker is owed compensation, and the worker is not eligible for an end-of-service award.

Company registration in Saudi Arabia

Companies may choose to register a business in Saudi Arabia to establish a permanent presence, access local markets, or meet long-term strategic goals. Details on registration requirements and processes are available through government websites. 

However, an EOR in Saudi Arabia offers a streamlined and faster option for engaging talent locally. With Payoneer Workforce Management, you can expand into 160+ countries without setting up a local entity.

PEO in Saudi Arabia

A Professional Employer Organization (PEO) in Saudi Arabia can support HR and payroll functions, but requires you to have a legal entity in-country. 

On the other hand, an Employer of Record in Saudi Arabia does not require a legal entity and instead acts as the legal employer for your local team. This often makes it the better choice for companies new to the Saudi Arabian market.

Payoneer Workforce Management’s Employer of Record services in Saudi Arabia

Payoneer Workforce Management helps growing companies onboard, pay, and manage employees in Saudi Arabia without setting up a local entity. 

As your EOR in Saudi Arabia, we offer assistance with employment contracts, benefits administration, taxes, and payroll, while you retain control over daily operations.

Book a demo to learn more about Payoneer Workforce Management.

FAQs

1) What is an Employer of Record in Saudi Arabia?

A Saudi Arabian Employer of Record is a third-party organization that legally employs workers on your behalf and manages payroll, taxes, and employment contracts, so you can engage talent without setting up a local entity.

2) How much does it cost to hire in Saudi Arabia?

Engaging talent in Saudi Arabia costs roughly 14% for an annual salary of USD 60,000. Plus, employers must pay 15% VAT on additional services such as health insurance and Saudization charges. This applies to both expats and locals.

Use our employee cost calculator to get an employment cost estimate.

3) Why should you hire Saudi Arabian talent with an EOR?

Payoneer Workforce Management allows you to onboard and pay independent contractors and employees across the globe in 70+ currencies, without setting up a local entity.Get in touch for more details.