SAUDI ARABIA – COMPENSATION & BENEFITS - SIMPLE GUIDE


BASIC FACTS ABOUT SAUDI ARABIA – C&B MANAGEMENT

Working Week in Saudi: The working week in Saudi Arabia is Sunday to Thursday from 9am to 6pm. Friday is the only official weekend day and Saturday is often a working day for the construction and service industries.

Date Format in Saudi: Dates are usually written in day, month & year format.
                                         (Ex: 23/09/2018, 23 Sep 2018)

Income Tax in Saudi: No income taxes are imposed at a local, state, or provincial level in Saudi Arabia. The Islamic Zakat tax is imposed on native Saudi citizens, and charged at a rate of 2.5% on capital assets.

Social Security in Saudi: Saudi Arabia’s social security system provides benefits for insurance, old age, injury and disability, and to survivors in the event of an employee’s death.
Female workers are entitled to 10 weeks of paid maternity leave, which may be extended for a further unpaid month. Contribution rates are as follows:
·         Employees contribute to social security at a rate of 10% (9% social insurance, 1% unemployment insurance).
·         Employers contribute at a rate of 12% (9% social insurance, 2% occupational hazard insurance, 1% unemployment insurance).

*Foreign workers are not entitled to statutory social security benefits and should make their own arrangements with an insurance organisation operating in Saudi Arabia.
New Employees in Saudi Arabia: Once an employment contract has been signed, new employees in Saudi Arabia must be registered with GOSI (General Organisation for Social Insurance), and inducted on to company payroll. Registration can take place online through the dedicated GOSI portal.

*Probation periods for new employees in Saudi Arabia are required by law to last no longer than 30 days - but can be extended up to 180 days in certain circumstances.

Exit Employees in Saudi Arabia: Employees who leave their positions in Saudi Arabia may also be de-registered from GOSI using the online portal. During notice periods, employees must receive up to 8 full-paid work hours per week, or alternatively, receive one full day per week to find new employment.
*Employers must be able to demonstrate justification for terminating employees. Valid reasons include misconduct, absence, or probationary issues.


Payroll in Saudi Arabia – Mandatory Deductions: Employers in Saudi Arabia have certain obligations during the payroll process, including withholding tax and social security contributions. While no income tax is generally due on employee wages in Saudi Arabia, social security contributions and nonresident withholding taxes (WHT) must be paid.
·         Social security contributions (GOSI) are charged at a rate of 10% to Saudi nationals.
·         WHT (Withholding Tax) is paid at a rate of 5-20%

*It is legally acceptable to issue employees with online payslips in Saudi Arabia, and payroll reports must be kept for a minimum of 7 years.

What is WHT?

Under the law & tax regulations of the Kingdom of Saudi Arabia (KSA) is an obligation for all clients to pay withholding tax (WHT) on all “Out of Kingdom” international payments to non-Saudi resident / registered parties / companies direct to the General Authority of Zakat & Tax (GAZT).

WHT will be deducted from payments made to the consultant/contractor in accordance with the law and tax regulations of KSA.

The client is required to declare and make payment of the relevant amount of WHT direct to the General Authority of Zakat and Tax (GAZT). The client is obliged to file and settle WHT monthly tax returns to GAZT within 10 days of the month-end in which the payment is made and is required to submit an annual WHT return at the fiscal year end. Failure by the client to withhold WHT or pay the WHT to GAZT timeously will result in the client being liable to pay ‘late submission fines’ in the WHT that was initially due.

The client whilst engaging with consultants/contractors should establish clear definitions of the payment terms within their contracts to ensure there is no dubiety when it comes to paying for services rendered in line with the WHT conditions. All service contracts with non-resident entities should be reviewed from a tax perspective before signing (ie, the wording and definition of the Scope of Services, the tax liability clause, etc).
If a supply contract includes a service portion, the value for the services should be stated clearly to avoid deemed taxable profit computation. The non-resident service provider maybe entitled to tax credits in their home countries against the WHT borne in KSA.
Method of Calculation & Deduction:
  • The client will deduct and retain the ‘Withholding Tax’ WHT element of all international payments due to the consultant / contractor.
  •    The client will pay the WHT payments directly to the GAZT and will supply the consultant/contractor with auditable document reports to confirm that the payments have been affected.
  • Where specifically directed and authorised by the consultant/contractor, the client will make stage and interim fee payments directly to the appointed sub-consultants which are licenses within KSA – consequently these payments will be free of KSA WHT regulations. All direct payments will be made in full compliance with KSA Tax, applicable regulations and Laws.
Worked Example of Payment to ‘Out of Kingdom’ (non-resident/registered) consultants/contractors:
Consultant Contract
Wage (SAR)

Contract Sum
900000
A
Variations to Work Scope
55000
B
Variations for Reimbursable Expenses like flights, etc.,
45000
C
Total Wage (A + B + C)
1000000
D
Withholding Tax @ 5%
50000
E
Consultant Payment (D - E)
950000
F



Employee Rights / Compensation & Benefits:

Employees are protected from working more than 8 hours per day or 48 hours per week in Saudi Arabia.
Employees must take a break for rest, prayer and food after working 5 hours consecutively. This break must be at least 30 minutes. Because one day of rest is required per week, companies are usually pushed to require that day correspond with the Friday holy day.
Contracts are a huge part of the employer - employee relationship in Saudi Arabia. All part time workers must have a contract that states an official termination date. Part time contracts are renewable only one time. Foreign workers are required to have a fixed term contract. Contracts remain in force even if the ownership of the company changes hands. Any back pay owed to employees is also prioritized by law in the case of a company bankruptcy.
Employees have rights upon dismissal provided that they serve the employer with 30 days' notice under a monthly payment contract. Employees receiving payment under other types of contracts must provide 15 days' notice, if a specific period is not given in the employment contract.

Compensation, Bonuses & Severance Pay:
Overtime in Saudi Arabia is payable at 100% of the normal hourly wage of the employee. There is also a 50% bonus that must be paid to the employee as well. Any work that is done on Friday or any public holiday is paid at the overtime rate.
Severance pay is mandated by law to be 15 days of wages for an employee's first 5 years of employment. Employees receive a full month of wages for every year after the fifth year.
Saudi nationals have more rights to certain levels of compensation upon termination than do expatriates. Compensation, severances and bonuses are also usually detailed specifically in the employment contract. Labor unions are not a huge force in the country, but the court system to handle cases of compensation is quite robust.

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