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Best HR Practices in Saudi Arabia Featuring Palm HR

Updated: Aug 27, 2021

AstroLabs’ Saudi Market Entry Series was launched in February 2021 to guide our clients through the different dimensions of setting up a company in Saudi Arabia. Each episode covered topics ranging from corporate tax, the 16-Step Company setup process, to hiring top talent, and many more to come.

In Episode 5, Richard Schrems, Co-Founder and CEO of Palm HR, a B2B SaaS company based in Riyadh, Saudi Arabia discussed and shared with our audience the Best HR practices in Saudi Arabia. The webinar was hosted by Alex Nicholls, Business Development Lead at AstroLabs.

Palm HR is a fully automated HRMS (Human Resource Management System) which is an HR software that combines multiple processes and systems that ensure easy and efficient management of human resources, business processes, and data for businesses.

The software takes care of the entire employee lifecycle right from onboarding to off-boarding. The system has been built taking into account the government rules and regulations to ensure your company processes are in compliance with them.

Richard describes Palm HR as a “work experience platform” that’s on a mission to offer engaging and state-of-the-art HR services to SMEs in the Middle East.

Here’s the recap of the episode.

3 Main HR stakeholders in KSA

Saudi Arabia has 3 major government ministries or entities that are the HR stakeholders for any company operating in the Kingdom. They are:

Ministry of Human Resources & Social Development (HRSD) – The mission of this ministry is to increase the number of Saudi nationals in the workforce, especially promoting and encouraging women participation in the national workforce.

General Organization for Social Insurance (GOSI) – Every employee of your company must be registered with GOSI. GOSI handles social insurance, pensions, and unemployment insurance for Saudis nationals. It also dictates the percentages of social insurance to be paid by the Saudi national employee and employer, which is 10% and 12% respectively. The percentages differ for different GCC nationals.

Ministry of Interior (MOI, Jawazat) – This ministry regulates and manages citizenship and residency permits.

Government Portals for HR in Saudi Arabia

As of now, there are 6 government portals that you’ll be using when conducting business in KSA.

· MUDAD – Wage Protection System

· MUQEEM – Exit Re-entry and Final Exit Visas

· QIWA – Transfer of Sponsorship

· GOSI Online – Social Insurance

· Nitaqat – Saudization

· ABSHER – Ministry of Interior

Visa types in KSA

There are 4 types of visas for expats to visit and stay in Saudi Arabia.

· Residency Permit (IQAMA)

· Work Visit Visa

· Business Visa

· Tourist Visa

Residency Permit visa or IQAMA is needed if you need to have a bank account and rent a place as an individual in KSA.

For expats from the US and UK, the Work Visa is valid for 5 years with a stay of 6 months. That means, you need to leave the country once every 6 months. The validity of the Work Visa varies with citizenship. Tourist visas for citizens from the whitelisted countries can be issued on arrival, which is currently disabled due to Covid.

KSA Labor Laws you should be aware of:

The Labor Laws in Saudi Arabia span over 100 pages. Here we discuss the important ones that you must know when setting up your company in the Kingdom.

Fixed term and Unlimited term contracts

When hiring an employee in KSA, you should decide whether you hire them for a fixed term or unlimited term contract. You should also pre-determine important clauses such as notice period agreement between employer and employee. Fixed term contracts are more common and are mandatory for expats. Even if you hire an expat on an unlimited term contract, the contract will remain valid only until the validity of their residency permit.

Exit Re-entry Visa and Final Exit Visa

The agreed contract terms must clearly state which party (employer or employee) pays for the exit, re-entry, and final exit visa expenses.

Contract Duration and IQAMA Expiration

When hiring a Saudi national, you hire them for a two-year contract period. Therefore, it’s important to be sure about hiring them. If you decide to terminate the contract before the end of the two-year validity, you’ll be liable to pay them the salary for the entire contract duration.

End of Service Benefits and Gratuity (ESOB)

Any employee exceeding one-year period with your company is eligible for ESOB to be paid at the end of their contract period or termination. Gratuity in KSA is calculated as follows:

· For the first year - No gratuity payable if the employee leaves the organization before completion of a year of service

· During the period from 1 to 5 years - Half month salary for each of the five years

· For the period after 5 years - One month salary for every year after 5 years

In case of termination of contract by the employer or by mutual agreement between both parties, the employee is eligible to get the full gratuity benefit.

When employee decides to terminate the contract, they are eligible to get only partial gratuity payment. However, if the period of service extends beyond 10 years, full gratuity is paid even if the contract is terminated by the employee.

Probation Periods

The standard probation period when you hire a new employee is 90 days. However, it can be extended for up to 180 days with mutual agreement between the employer and the employee. This means during the probation period, either party can terminate the contract with one day’s notice. If you’re not 100% sure about hiring someone, it’s always better to have a longer probation period.

Notice Periods

The minimum notice period is 60 days.

Article 77 - An important article to understand before creating your employee contracts is article 77 in the labor law. It states that if either of the parties want to terminate the contract prematurely, they should give each other a 60-day notice.

Minimum Salary Requirements

Nitaqat system or Saudization is the Kingdom’s policy to ensure every company in the country has adequate number of Saudi nationals working for them based on various factors such as industry, size of the company, and so on. These are minimum salary requirements with respect to the Nitaqat system.

· A Saudi with a minimum salary of SAR 4,000 will count as a full employee in Nitaqat

· A Saudi with a minimum salary of SAR 3,000 will count as a half employee in Nitaqat

· A Saudi with salary less than SAR 3,000 will not count as an employee in Nitaqat

· No official minimum wage for Expat employees

Fines for miscalculations and errors are quite high in KSA, so make sure to always double check the numbers and figures on all your contracts and systems.

Health Insurance

Health insurance is mandatory for every employees. However, when deciding health insurance for your employees, there are 3 biggest players in KSA – BUPA, Medgulf, and Tawuniya. Refrain from signing up with ultra-luxurious hospitals as they can sharply increase your insurance budget. You can also use online insurance platforms/brokers such as Tameeni to fetch quotes from the leading insurance providers in Saudi Arabia.

Holidays and Leaves

There are 3 public holidays in Saudi Arabia — Eid Al Fitr, Eid Al Adha, and Saudi National Day. The month of Ramadan is a half-holiday period with work hours reduced from 8 to 6 hours a day.

There are 4 types of leaves in KSA:

· Annual Leave – Every employee is eligible for 21 days of annual leave every year. This increases to 30 days after 5 years of their stay with your company.

· Sick Leave – Employees can take up t0 30 days of sick leave a year without salary deductions. Percentage deductions on salary will be applicable if the 30-day period is exceeded.

· Unpaid Leave – These leaves should be tracked for accurate wage calculations.

· Special Leave – Maternity, Haj and Umrah Pilgrimage, Exam Leaves are some of the special leaves that the Kingdom grants to its workforce.

Saudi Arabia is undergoing massive transformation. Here are a few changes that you should expect in the near future pertaining to HR policies in the country.

· Frequent changes in regulations

· Employee contracts to be standardized

· Minimum salary requirements for expats is likely to be introduced

How can Palm HR help you

· It helps you stay compliant with KSA laws, rules, and regulations

· It automates end-to-end HR operations

· It keeps your teams engaged and employees motivated and happy!

Palm HR has an offer going on for SMEs until 31st March 2021. If you sign up before the end of March and you have less than 9 employees in your company, you get one-year subscription to their system for free. You can check out all their plans here.

For any questions regarding Palm HR, you can write to Richard at [email protected] and if you have any questions concerning the company setup process in Saudi Arabia, write to us [email protected].

We hope you found this recap useful. We do a recap of every episode of our Saudi Market Entry Series. You’ll find the recaps of previous episodes here.

In the next episode in the series, we take a deep dive into Withholding tax in KSA. You can register for the event here. It will air on March 23rd, 2021. We hope to see you there!

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