Your guide to payroll in Saudi Arabia

Running a Saudi Arabian payroll requires a clear understanding of the country’s unique regulatory framework, legal obligations, and cultural considerations. 

From navigating the Wage Protection System (WPS) to adhering to Saudization (Nitaqat) requirements, employers must maintain payroll compliance in Saudi Arabia set by the Ministry of Human Resources and Social Development. 

This guide walks you through everything you need to know to pay employees in Saudi Arabia, including income tax, employer taxes, social security contributions, and more. 

With smooth payroll management in Saudi Arabia, the workforce gets paid compliantly, accurately, and on time. 

EOR services like Payoneer Workforce Management help streamline onboarding, benefits administration and more, along with Saudi Arabia payroll processing. 

Saudi Arabia payroll: Wages and other payments

While employers pay employees in Saudi Arabia, they must stay compliant with certain payroll regulations in the country. These include wage payment, bonus, overtime pay, maternity and paternity pay, sick pay, and more. 

Here are some details:

Payroll cycle in Saudi Arabia

The payroll cycle in Saudi Arabia typically depends on the kind of worker.

• For daily-rated workers, the wages are paid at least once every week. 
• Workers who have monthly wages are paid once every month. The pay date is the last day of the month. 
• If workers work on a piece-rate basis, and the period of work exceeds two weeks, the worker will receive a payment each week commensurate with the work completed. The remaining wage is paid within the week following the delivery of the work. 

Minimum wage

The minimum wage in Saudi Arabia is 4,000 SAR. 

Overtime pay

In Saudi Arabia, daily working hours should not be more than 11 hours. The time beyond that is calculated under overtime pay at the following rate. 

• 50% extra for each overtime hour with the hourly wage worked during regular working days.
• 150% extra for all hours worked on public holidays or Eid holidays.

Sick pay

Among the various employment costs in Saudi Arabia, sick leave and pay are prominent ones. Employees are entitled to 30 days of sick leave in Saudi Arabia. The payment for sick leave is as follows:

• The employee gets full payment for the first 15 days.
• For the next 15 days, the employee gets 75% of the payment. 

Maternity pay

In Saudi Arabia, female employees are entitled to a maternity leave of 12 weeks. 

The amount of maternity leave pay depends on the female employee’s service tenure with the employer. 

Paternity pay

Male employees are entitled to 5 days of paternity leave in Saudi Arabia with 100% payment. 

Severance pay

Severance pay is mandatory for employees in Saudi Arabia. Here is the severance pay for an indefinite-term contract. 

For a definite-term contract, the wages for the remainder of the contract term should be paid out. In both scenarios, the compensation should not be less than the worker’s wage for a period of 2 months. 

Payroll in Saudi Arabia: contributions and deductions

According to the employment regulations in Saudi Arabia, employers and employees have certain social security and taxation obligations. 

Income tax

There is no individual income tax in Saudi Arabia. 

Social security contributions in Saudi Arabia

Social security in Saudi Arabia is primarily provided through the General Organization for Social Insurance (GOSI). Both employers and employees contribute to the social insurance programme. 

• The social insurance tax is paid monthly based on the basic wage. 
• For non-Saudi employees, the rate is 2%, paid by the employer. For Saudi employees, the rate is 22% and is paid by both the employee (9%)  and the employer (12%).

Other employee benefits

Though there is no income or salary tax in Saudi Arabia, employees still enjoy certain benefits in the country. 

Some of them are as follows:

Public health insurance

Cooperative Health Insurance (CHI) provides mandatory health insurance coverage for all citizens and residents of Saudi Arabia. 

Private health insurance 

Private health insurance is mandatory in Saudi Arabia. There are individual-level plans, covering the employee, spouse, and children. The insurance typically offers coverage for inpatient, outpatient and dental treatments. 

Annual bonus

An annual bonus is not mandatory in Saudi Arabia. Sometimes employers provide a bonus to employees based on their performance. 

Annual holiday or vacation 

Employees in Saudi Arabia are entitled to a holiday or vacation annually. The number of days of annual leave in Saudi Arabia depends on the tenure of the employee with the same employer. Employees have to enjoy this annual leave in the year it is due. During this time, employees are paid fully. 

End of service benefit

Employees in Saudi Arabia are entitled to an end-of-service benefit from the employer. The amount of the award is calculated on the basis of the last wage.

• The award is equivalent to half a month’s wage for each of the first 5 years and a 1-month wage for each of the following years. 
• The employee will be entitled to an end-of-service award for the portions of the year in proportion to the time spent on the job.

Saudi Arabia payroll compliance best practices

Payroll compliance in Saudi Arabia is mandatory, keeping the various labor and tax regulations in mind. Here are some payroll compliance best practices in the country that employers must follow:

• It is important to register with the right authorities in the country. For example, employers must register their business with the Ministry of Human Resources and Social Development and the General Organization for Social Insurance (GOSI) before Saudi Arabia payroll processing. 
• Employers must adhere to the Wage Protection System (WPS) by transferring the salaries of employees electronically through approved financial institutions. This helps meet WPS requirements and avoid penalties. 
• Along with employer taxes in Saudi Arabia, employers must submit the social security insurance contributions on time. 
• Employers must comply with the Saudization (Nitaqat) quotas and maintain the required ratio of Saudi nationals in the workforce. 
• Employers must maintain accurate payroll records with detailed records of salaries, deductions, and payments. 
• For employees, there are strong pay slip requirements in Saudi Arabia. Employers must provide proper payslips to employees outlining gross salary, deductions, and net pay in each pay period.
• Remaining updated on Labor Law amendments is mandatory for the employer in Saudi Arabia. This helps maintain payroll compliance in the country. 

Your options for payroll services in Saudi Arabia

For employers seeking to engage and pay employees in Saudi Arabia while optimizing employment costs, here are some options to choose from:

Payoneer Workforce Management helps streamline payroll management in Saudi Arabia. It offers assistance with employee onboarding, benefits, taxation, rules and regulations compliance, leave entitlements, and more. 

The EOR service helps minimize the administrative tasks and simplify business expansion. 

Book a demo today!

FAQs

1. What are the GOSI contribution rates in Saudi Arabia?

The General Organization for Social Insurance (GOSI) governs social security in Saudi Arabia. Both employers and employees contribute to the social insurance programme. For non-Saudi employees, the rate is 2%, paid by the employer. For Saudi employees, the rate is 22% and is paid by both the employee (9%)  and the employer (12%).

2. Do employees in Saudi Arabia have to pay income tax?

No, Saudi Arabia does not impose personal income tax on employee salaries.

3. What happens if payroll compliance rules are violated in Saudi Arabia?

Violations such as delayed salary payments or WPS non-compliance in Saudi Arabia can result in fines, suspension of government services, and restrictions on hiring new employees until all outstanding obligations are fulfilled.

4. What records must employers maintain for payroll compliance in Saudi Arabia?

Employers in Saudi Arabia must maintain payroll records, including salary details, deductions, and payment history for a minimum of two years. These records may be audited by the Ministry of Human Resources at any time.

5. Is there a minimum wage in Saudi Arabia?

Yes, there is a minimum wage in Saudi Arabia. The minimum wage in the country is 4,000 SAR.