Employer of Record in Saudi Arabia

Navigating the complexities of hiring employees in Saudi Arabia requires a clear understanding of the local labor landscape. For companies looking to expand their operations or hire specific talent in the Kingdom, the traditional path involves establishing a local legal entity, which can be a time-consuming and resource-intensive process. However, several other avenues exist that allow businesses to engage talent effectively while ensuring full compliance with Saudi Arabian regulations.

When considering employment in Saudi Arabia, you typically have three main options:

• Establishing a local entity: This involves setting up a branch office, subsidiary, or a new company in Saudi Arabia, requiring significant investment in time and resources for registration, legal setup, and ongoing administration.
• Utilizing an Employer of Record (EOR) service: An EOR like Rivermate acts as the legal employer, handling all local employment responsibilities on your behalf while you retain full control over your employees' daily tasks and management.
• Hiring independent contractors: This option allows for project-based work without formal employment, but it carries risks if the working relationship is later deemed to be employment by Saudi authorities, leading to potential penalties.

How an Employer of Record Works in Saudi Arabia

An Employer of Record service in Saudi Arabia simplifies global hiring by taking on the legal and administrative burdens of employment. This means your chosen EOR handles:

• Payroll processing and tax withholding in compliance with Saudi Arabian income tax and social insurance regulations.
• Benefits administration, including mandatory GOSI (General Organization for Social Insurance) contributions, private health insurance, and other locally required benefits.
• Compliance with local labor laws, such as the Saudi Labor Law, Nitaqat Saudization quotas, and specific rules regarding working hours, leave, and end-of-service benefits.
• Visa and immigration support for expatriate employees, managing the necessary permits and documentation like Iqamas.
• Employment contract management, ensuring all contracts are legally compliant and protect both the employee and your business interests.

Benefits of Using an EOR in Saudi Arabia

For companies aiming to tap into Saudi Arabia's vibrant talent pool without committing to a full entity setup, an EOR offers distinct advantages:

• Rapid market entry: Hire employees quickly, often within days, without the lengthy process of entity registration.
• Reduced legal and compliance risk: Mitigate the complexities and potential penalties associated with navigating unfamiliar Saudi labor laws and tax regulations.
• Cost-effective solution: Avoid the significant upfront and ongoing costs of establishing and maintaining a local legal entity.
• Access to top talent: Recruit and onboard skilled professionals, both local Saudi nationals and expatriates, from across the Kingdom.
• Full employment compliance: Ensure adherence to all mandatory requirements, including GOSI contributions and the Nitaqat Saudization program.

Rivermate's transparent pricing model eliminates complexity with a single, competitive monthly fee per employee. Unlike traditional PEO providers, our pricing in Saudi Arabia includes comprehensive HR support, benefits administration, compliance management, and access to our proprietary dashboard for real-time workforce analytics. No hidden costs, no setup fees—just straightforward pricing that scales with your business needs while ensuring full legal compliance in Saudi Arabia.

Saudi Arabia does not impose personal income tax on residents or expatriates, simplifying payroll for employers. However, employers must fulfill social security obligations through GOSI, contributing 9% of salaries for both the Annuities branch and Saudi employees, and 2% for Occupational Hazards for all employees, including non-Saudis. Non-Saudi employees are only subject to Occupational Hazards contributions, with no contributions required for the Annuities branch.

Employers are responsible for monthly GOSI contributions, payable within the first 15 days of the following month, and must register within one month of starting operations. There are no income tax withholding requirements or employee tax deductions, easing payroll processing. Foreign companies must also comply with work permit regulations, Saudization targets, and are subject to a 20% corporate income tax, with VAT at 15% applicable to goods and services.

Saudi Arabia's salary landscape is evolving under Vision 2030, emphasizing competitive pay, benefits, and gender inclusion. Salaries vary by industry, role, and location, with major cities offering higher compensation. For example, petroleum engineers earn SAR 25,000–60,000/month, while medical doctors can earn SAR 30,000–70,000/month. Minimum wage laws apply only to Saudi nationals, set at SAR 4,000/month, with no statutory minimum for expatriates, though fair market rates are expected.

Additional benefits such as annual bonuses (1–2 months' salary), housing, transportation allowances, medical insurance, and end-of-service gratuity are common. Salaries are paid monthly via bank transfer, with compliance to social security contributions required. Salary trends forecast increased demand for skilled professionals, higher pay in growth sectors, and a shift toward performance-based incentives, alongside greater female workforce participation and Saudization efforts.

Saudi Arabia's vacation and leave policies, governed by the Saudi Labor Law, provide employees with various entitlements to promote well-being and productivity. The minimum annual paid leave is 21 days, increasing to 30 days after five years of service. Employers must grant leave within the year, with pay provided in advance, and may postpone up to half of the leave to the following year upon agreement. Employees can cash out untaken leave upon termination.

Public holidays include Eid al-Fitr, Eid al-Adha, and Saudi National Day, with durations of 4 days, 4 days, and 1 day respectively. If holidays fall on weekends, no compensation is typically provided unless the employer requires work, in which case additional pay or days are mandated. Sick leave allows up to 30 days at full pay, 60 days at 75%, and 30 days unpaid, with medical certification often required. Parental leave includes 10 weeks of maternity leave with full pay, 3 days of paid paternity leave, and unspecified adoption leave, depending on company policy.

Other leave types include bereavement (3-5 days), marriage (3-5 days), study leave, sabbatical (employer discretion), and pilgrimage (Hajj) leave of 10-15 days, usually unpaid. The following table summarizes key leave entitlements:

Saudi Arabia's employee benefits landscape is shaped by mandatory legal requirements and evolving social expectations aligned with Vision 2030. Employers must provide core benefits such as social insurance contributions to GOSI, paid annual leave (21 days, increasing to 30 after five years), sick leave, maternity leave (10 weeks at half pay), public holiday pay, and end-of-service gratuity based on years of service. Repatriation costs are typically covered by employers, and additional benefits like housing and transportation allowances, education support, company cars, performance bonuses, airfare allowances, and life insurance are common, especially for expatriates and senior staff.

Health insurance is mandatory, regulated by the Council of Cooperative Health Insurance, requiring employers to cover employees and dependents with policies meeting minimum standards. Retirement benefits are primarily provided through GOSI contributions from both employer and employee, with some companies offering supplementary plans. Benefit packages vary by industry and company size, with sectors like oil and gas offering comprehensive perks, while SMEs tend to provide basic mandatory benefits. The following table summarizes key benefit components:

Employment agreements in Saudi Arabia must comply with the Saudi Labor Law, ensuring clarity, fairness, and legal protection for both parties. The main contract types are fixed-term, indefinite-term, part-time, and work-from-home, each suited to different employment arrangements. Fixed-term contracts specify a set duration and may be renewed, but continuous renewals could convert them into indefinite contracts. Indefinite contracts offer greater job security, with termination governed by legal procedures. Key contract clauses include employee ID, job title, department, start date, work location, working hours, compensation, payment method, notice period, and additional benefits.

Probation periods are limited to 90 days, extendable up to 180 days with mutual agreement. During this time, employers can terminate employment without cause, provided the contract specifies the probation terms. Confidentiality and non-compete clauses are common; enforceability depends on reasonableness regarding duration, scope, and activity restrictions. Contract modifications require mutual written consent, and termination must follow legal notice periods—typically 30 days for indefinite contracts or as specified in the agreement. Employers must adhere to proper procedures, especially in cases of misconduct or breach, to avoid legal liabilities.

Remote work in Saudi Arabia is gaining momentum as part of the Vision 2030 initiative, promoting economic diversification and digital transformation. Employers are encouraged to formalize remote arrangements through written contracts that specify working hours, performance, and data security, while ensuring compliance with evolving labor laws. Key legal obligations include providing a safe work environment, ergonomic assessments, and maintaining regular communication with remote employees.

Flexible work options such as flextime, compressed workweeks, job sharing, telecommuting, and part-time roles are increasingly adopted to enhance work-life balance. Employers should establish clear policies on equipment provision, expense reimbursement, and ergonomic support, considering tax implications. A robust technology infrastructure—featuring communication tools, cloud services, VPNs, and technical support—is essential for effective remote operations.

Terminating employees in Saudi Arabia requires strict compliance with labor laws, including proper notice periods, severance pay, and procedural steps. Employers must provide appropriate notice based on employee category and length of service, with minimum periods of 15 to 60 days. Severance pay is mandatory after at least one year of continuous service, calculated as half a month's salary for the first five years and one month for each additional year, payable within a week of termination.

Legal grounds for termination include misconduct, poor performance, or violations (with cause), while redundancy or restructuring are considered without cause. Employers must document reasons, issue written notices, settle final dues, and notify labor authorities to ensure lawful termination. Wrongful dismissal claims can lead to compensation, reinstatement, or penalties, especially if discrimination or procedural violations are proven.

Saudi Arabia's economic transformation is enhancing the labor market by integrating flexible work arrangements, leading to an increase in the use of freelancers and independent contractors for specialized, project-based roles. For employers, understanding the legal distinctions between employees and independent contractors is crucial to avoid misclassification, which can result in significant penalties. Key factors in classification include the level of control, integration into business operations, duration of engagement, exclusivity, financial dependence, and provision of tools.

A well-structured contract is essential to maintain a clear independent contractor relationship. Contracts should outline the scope of work, payment terms, duration, termination conditions, confidentiality, intellectual property rights, and the contractor's independent status. Intellectual property rights must be clearly assigned to the company to avoid default ownership by the contractor. Contractors are responsible for their own tax obligations and insurance, including registration with the Zakat, Tax and Customs Authority (ZATCA) and potentially VAT registration if income thresholds are met.

Independent contractors are prevalent in sectors like technology, media, consulting, and construction, driven by the demand for specialized skills and flexibility. As Saudi Arabia continues to diversify its economy, the reliance on independent professionals is expected to grow, offering businesses the opportunity to tap into a dynamic and skilled workforce.

Foreign nationals seeking employment in Saudi Arabia require both a visa and a work permit (Iqama). The primary visa types include the Work Visa (employment, 1-2 years, renewable), Business Visa (short-term, up to 90 days), Visit Visa for Work (initial entry), and Family Visit Visa (for dependents). Employers sponsor these visas, and the process involves medical exams, documentation (passport, educational and professional certificates), and application submission through the Ministry of Human Resources and Social Development (MHRSD). The Iqama allows legal work and residence, with processing times ranging from weeks to months and fees typically borne by the employer.

Pathways to permanent residency include Premium Residency (permanent or renewable, with benefits like property ownership) and Skilled Professional Residency for highly skilled workers. Dependents can be sponsored if the main Iqama holder meets salary and documentation requirements, but they generally cannot work unless they obtain their own visa.

Employers must ensure visa and Iqama validity, renew on time, and comply with labor laws, while employees must maintain valid documentation, work legally, and report changes. Non-compliance can lead to fines, penalties, or deportation, emphasizing the importance of staying informed and compliant with Saudi immigration regulations.