Navigating Saudi Arabia's labour market reforms for investors and employers
Saudi Arabia Focus
In an era of transformative economic strategies, the Kingdom of Saudi Arabia (KSA) is steadfastly advancing towards achieving its Vision 2030 objectives.
Law Update: Issue 367 - Saudi Arabia & Competition Focus
Mohsin KhanPartner,Employment and Incentives
Hamza AjajTrainee Lawyer,Employment and Incentives
The recent updates to KSA’s labor employment framework aim to enhance the country’s appeal to foreign investors and make its private sector more attractive to both top domestic and international talent.
In an era of transformative economic strategies, the Kingdom of Saudi Arabia (KSA) is steadfastly advancing towards achieving its Vision 2030 objectives. This ambitious plan is designed to diversify the economy and enhance the Kingdom's appeal to foreign investors by refreshing and reforming various aspects of the economy as well as wider society.
A significant part of these reforms is the changes introduced to KSA’s labour market and employment framework. Over recent years, the Ministry of Human Resources and Social Development (MHRSD) has introduced various requirements with a view to improving the conditions of the labour market in order to both attract foreign investors to enter the KSA market and to make the private sector more attractive to Saudi nationals as well as the best international talent.
In this article, we look at some of the compliance requirements introduced by the MHRSD relating to the general landscape of the labour market that employers and investors will need to comply with to ensure they operate compliantly in KSA.
The MHRSD has implemented a key regulation requiring all employers in KSA to electronically authenticate employment contracts through the online Qiwa portal through which a number of the MHRSD’s services are accessed. This initiative serves to standardize the issuance of employment contracts such that all employees will have at least basic standard terms and conditions of employment. It ensures that all employment relationships governed by the Saudi Labour Law are duly recorded and that employees are aware of their essential employment duties, rights and entitlements. This measure is consistent with KSA's commitment to the digitization of employment services and also an important step in protecting both employer and employee rights under the legal framework.
Failure to comply with the electronic contract authentication requirement could result in the employer’s MHRSD account being suspended. Moreover, employers must ensure that the terms of the Qiwa contract are aligned with any internal contracts that the employer continues to issue to minimize the risk of discrepancy and dispute.
Labour market reforms will play an important part in achieving economic diversification and development goals
The MHRSD mandates that all employers must have their Internal Work Regulations (IWRs) approved via the Qiwa platform. The purpose of this requirement is to ensure that employers adopt lawful and consistent employment regulations and procedures and that employees are aware of the potential penalties that could be imposed in the event of any misconduct. By standardizing the IWRs, the MHRSD seeks to create a consistent level of employment regulations across the private sector while safeguarding workers' rights. The IWRs outline the general rights and obligations of workers in the workplace, thereby seeking to foster a transparent and equitable work environment. Employers can seek to make amendments to the MHRSD’s standard form IWRs, subject to any such amendments being approved by a law firm.
Non-compliance with the requirement to register IWRs may result in penalties or the employer’s MHRSD account being suspended.
The Saudisation policy, a cornerstone of KSA national labour policy under Vision 2030, aims to reduce unemployment among Saudi nationals by mandating the employment of a specific quota of local workforce. This policy has evolved over the last decade to include the Nitaqat system (which applies Saudisation quotas on employers based on their commercial activities and total headcount) as well as various Ministerial Resolutions issued by the MHRSD targeting the nationalisation of specific activities and roles in targeted sectors such as sales, marketing, legal, procurement and project management, among many others. The strategic intent is to create employment opportunities, enhance local expertise, foster competitive skills, and mobilise the Saudi population towards contributing to the national development goals.
Compliance with applicable Saudisation requirements is crucial to employers’ smooth operations in KSA. Employers must factor in Saudisation requirements as part of their workforce planning strategies. Failure to comply with applicable Saudisation requirements could result in monetary fines as well as suspension of some MHRSD services to the employer.
Recent Ministerial Resolutions introduced by the MHRSD underscore the government's focus on elevating the quality and effectiveness of training programs for Saudi nationals within the private sector. These resolutions require entities to annually disclose detailed training data and engage in cooperative training initiatives designed to prepare students for the labour market. Compliance with these training mandates is crucial to avoid penalties, highlighting the government's commitment to skill development and employment readiness among the Saudi population.
The MHRSD has implemented an annual self-evaluation requirement for entities to assess their adherence to the MHRSD’s various regulations and requirements, including those mentioned above. This self-assessment, which is mandatory for employers with over 50 employees, requires employers to submit evidence demonstrating compliance with the MHRSD’s various requirements. This process underscores the importance of a proactive approach to compliance, ensuring that entities contribute positively to the labour market's evolution in line with Vision 2030.
The Saudi government's initiatives to reform the labour market will play an important part in achieving the economic diversification and development goals outlined in Vision 2030. For foreign investors and businesses operating within the Kingdom, understanding and complying with these employment regulatory requirements is essential. It not only ensures legal compliance but also aligns business operations with the Kingdom's strategic objectives.
Al Tamimi & Company’s Employment team has lawyers based in Saudi Arabia who advise on the full range of employment-related matters and issues, including in respect of the MHRSD’s compliance requirements. We are committed to guiding our clients through this evolving regulatory landscape, ensuring that they are well-positioned to benefit from the opportunities presented by Saudi Arabia's dynamic and evolving economy.
For further information,please contact Mohsin Khan and Hamza Ajaj.
Published in April 2024
