Velocity Global’s International PEO (Professional Employer Organization) solution helps your company streamline expansion into Saudi Arabia. As an alternative to the costly and time-consuming entity establishment process, our International PEO service helps you quickly and legally do business in Saudi Arabia.
When you choose our Saudi Arabia PEO solution, we become your Employer of Record. As a result, we hire, onboard, and provide payroll and HR services to your employees in Saudi Arabia. Our services cover the full range of your needs, from supporting one employee for a short-term project to supporting an entire team for an extended period. No matter the size and scope of your operation, we cover all the details surrounding compliance and risk mitigation–while you retain full control of day-to-day employee oversight.
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Hiring Considerations in Saudi Arabia
Benefits of hiring in Saudi Arabia:
- Saudi Arabia is the largest economy in the Arab world and the Middle East, and one of the world’s top twenty economies. Because of its prominence as a global oil exporter, Saudi Arabia’s economic infrastructure is well-developed for international business. The Saudi business world speaks English, which is required in schools as a second language.
- The World Economic Forum (WEF) ranks Saudi Arabia’s workforce 25th out of 141 countries in terms of overall skills and 13th in terms of digital skills. Speaking to the country’s general economic stability, Saudi Arabia also ranks 15th overall in terms of the soundness of its banks.
- The World Bank’s 2020 Doing Business report mentioned Saudi Arabia as the most-improved country in terms of ease of doing business internationally.
- Saudi Arabia invests internally to create a business-friendly environment. In 2016, the country unveiled Saudi Vision 2030, which focuses on developing Saudi Arabia’s health, education, infrastructure, and tourism sectors. Through Saudi Vision 2030, the country aims to attract increased global investments and become an international hub connecting Afro-Eurasia.
Challenges when expanding into Saudi Arabia:
- The Saudi Arabian government enforces a policy called Saudization, which promotes the hiring of Saudi nationals over Saudi-based expatriates from other countries. Consequently, US companies encounter challenges when trying to obtain visas for non-Saudi citizens operating in the country. Some companies have left the country altogether due to these work visa restrictions.
- Companies operating in Saudi Arabia are at higher risk of IP (intellectual property) theft. The United States Trade Representative included Saudi Arabia on its 2019 “Priority Watch List” for countries with high occurrence of IP theft. As the Saudi Arabian government enforces stricter standards to combat IP theft, companies must hire third-party experts or coordinate their legal and IT teams to ensure compliance.
- Saudi Arabia is governed by both civil law and Islamic Shariah law, creating dual systems for foreign companies to comply with. Companies must devote significant legal and operational resources to ensure their activity adheres to not only Saudi Arabian legislation but also Sharia standards.
Cultural nuances and must-knows for doing business in Saudi Arabia:
- Dress formally for meetings and avoid casual language, mannerisms, and attitude. Use full titles when communicating with Saudi Arabian business colleagues. Saudi Arabian business culture emphasizes formality and respect.
- Pay attention to hierarchy when interacting with Saudi Arabian colleagues. The Saudi Arabian culture values seniority and deference to elders. Top executives have decision-making authority–address them accordingly.
- Work typically begins on Saturday and ends Wednesday. Unlike in Western countries, Saudi Arabia designates Thursday and Friday as days of rest.
- Expect your Saudi Arabian colleagues to set up a series of meetings to get to know you before closing deals. The Saudi Arabian business world is relationship-driven. Because of the time required to establish trust and forge a personal connection, business transactions move slower in Saudi Arabia.
- Be prepared for personal conversation and prayer breaks during meetings. Meetings in Saudi Arabia do not adhere to a strict business agenda.
Employment Contracts in Saudi Arabia
Minimum wages and salaries:
- Saudi Arabian law requires employers to pay public sector workers 3,000 riyals (about $800 USD) per month.
- There is no minimum wage for private sector or foreign workers.
- Saudi Arabia enforces a 90-day probationary employment period. At the end of this initial 90-day period, both parties can agree to enter into another 90-day probationary period. Saudi Arabian law requires written consent from both parties for this extension. The maximum probation period is 180 days.
- Bonuses are detailed in contracts between employer and employee but are not mandated or overseen by government legislation.
Termination and severance considerations:
- Saudi Arabia’s labor law states that an employer must have valid cause to dismiss an employee, as long as the employee has undergone a probationary period.
- Employers are required to pay employees a service payment upon termination. The Labour Court determines the service payment amount.
- Employers can dismiss employees with fixed-term contracts in three ways:
- Choosing to not renew the employee’s contract at the end of its duration
- Converting the employee’s contract to an indefinite-term employee contract
- Dismissing the employee following an event that violates the contract’s terms, provided those terms align with Saudi Arabian Labour Law or public policy
- Employers must provide written reason to dismiss employees with indefinite employment contracts. For employees paid monthly, the employer must notify the employee at least 60 days prior to termination. For all other employees, the employer must notify the employee at least 30 days prior to termination.
- To terminate the employee immediately, the employer must offer payment equal to wages the employee would have received during the notice period.
- Indefinite employment contracts only apply to Saudi nationals. The Labour Law states that expatriate employees are fixed-term employees, with their work permit expiration date serving as the end date of their contract.
Paid Time Off & Benefits
- Employers must offer female employees at least four weeks of maternity leave before the child is born and six weeks after. Under no circumstances are female employees allowed to work during the six weeks following birth.
- Employers are required to pay female workers wages during maternity leave. The exact wages depend on how long the female worker has been employed and whether she has taken separate maternity leave within the same year.
- Employers must offer male employees one day of paternity leave when a child is born. However, many companies provide male employees additional time for paternity leave.
- Employees in Saudi Arabia are guaranteed 21 days off annually, as long as they have worked for the company for at least one year.
- Employees who have worked for a company for six years earn at least 30 days off annually.
- Employees are entitled to 30 days of sick leave, provided the employee has a medical report proving the leave is necessary.
- Employers must pay employees 100% of their wages for their first 30 days of sick leave and 75% for their next 60 days of sick leave. Following 90 days of sick leave, employers have no obligation to pay employees. However, employers cannot terminate employees because of illness until the employees have fully used their sick leave entitlements.
Other leave situations:
- Employers must grant employees paid leave in the following situations:
- The death of a spouse, parent, or child
- Emergencies out of the employee’s control, such as an unexpected illness or an accident involving a family member
Average workweek hours:
- Saudi Arabian law mandates that employees work no more than 48 hours per week over six days, though senior employees and managers are exempt from these limits.
- Employees should not work more than 10 hours in a day or 60 hours in a six-day week. Friday is as a rest day for all workers.
- During Ramadan, employees must not work more than six hours per day and 36 hours per week.
- Employees who work overtime are entitled to 150% pay for every overtime hour.
- Overtime hours include any hours worked on Friday or public holidays.
- Employees cannot exceed 481 hours of overtime work per year.
WHT (Withholding Tax)
* WHT differs depending on where the employer is based. Employers in countries Saudi Arabia has entered into tax treaties with are often entitled to WHT relief on dividends, interest, and royalties. Companies should carefully review their country’s tax treaty with Saudi Arabia to ensure they are withholding the correct amounts.
Choose Velocity Global
Expanding into Saudi Arabia presents your business with enormous opportunity and many considerations. Partnering with a global expansion expert like Velocity Global ensures your company can quickly and compliantly establish a legal presence in Saudi Arabia. We take care of all the details of your Saudi Arabia expansion so you can focus on running your business. We help you bypass the lengthy and costly process of setting up a legal foreign entity. Our International PEO (Professional Employer Organization) solution saves your firm up to 60% on setup costs while helping you begin operations in Saudi Arabia 90% faster.
Ready to take advantage of all that expansion into Saudi Arabia has to offer? Reach out to Velocity Global today.
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