Hiring Employees in Saudi Arabia: Requirements, Contracts, and Payroll

Saudi Arabia's labor law underwent its most significant overhaul in a decade in February 2025, changing notice periods, parental leave, and probation rules in ways that render older reference material unreliable.

Employers must also plan around Saudization from the outset, since a company's ratio of Saudi to foreign employees determines how readily it can secure and renew work visas.

This guide covers what employers need to know to hire compliantly in Saudi Arabia, from contracts and pay through leave, termination, and the end-of-service gratuity that applies to every employee.

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Overview

Saudi employment is governed by the Labor Law, most recently amended in February 2025. The amendments touched nearly every area an employer must plan around, including probation, notice periods, resignation, parental leave, and overtime pay. Guidance written before that date should therefore be treated with caution.

Saudization, known as Nitaqat, is the other defining feature of hiring in the Kingdom. Employers are classified according to the share of Saudi nationals in their workforce, and that classification affects visa quotas and the ease of hiring foreign staff. It shapes hiring strategy well before any individual offer is made.

Employment contracts and wage payments are registered and monitored through government platforms, so Saudi hiring tends to be more procedural than in markets with lighter labour administration. Employers should expect less room for informal arrangements than they may be accustomed to elsewhere.

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Employment Contracts

Saudi law requires a written employment contract. Contracts may be drafted in a foreign language alongside Arabic, but the Arabic version prevails in the event of a dispute, so it is worthwhile to have the Arabic terms reviewed before signing.

Foreign employees are engaged on a fixed term basis by default, since their right to work is tied to their residency permit. Where a contract with a non-Saudi employee does not specify a term, it is treated as running for one year and renews automatically as long as employment continues.

A contract should set out job title, salary and allowances, working hours, leave entitlements, contract duration, and notice terms. Probation may run up to 90 days and can be extended once, by written agreement, to a combined maximum of 180 days. An employee cannot be placed on probation twice with the same employer for the same role.

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Working Hours and Overtime

Standard hours are capped at eight per day or 48 per week. During Ramadan, the hours of Muslim employees are reduced to six per day or 36 per week, regardless of role or seniority. Employees are entitled to a rest break of at least 30 minutes after every five consecutive hours worked.

Friday is the standard weekly rest day, though employers may designate a different day where scheduling requires it, provided every employee still receives one full rest day each week.

Overtime is paid at 150 percent of the employee's ordinary hourly wage. Since the 2025 amendments, employers may offer compensatory time off instead, but only with the employee's consent. Overtime pay cannot be substituted unilaterally.

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Minimum Wage

Saudi Arabia has no single minimum wage that applies to every worker. The wage floor differs by nationality.

Saudi nationals generally must earn at least SAR 4,000 a month to count as a full headcount under Nitaqat. This is not framed in law as a minimum wage, but paying less undermines an employer's Saudization standing, so it functions as one in practice. Certain regulated professions carry higher sector specific thresholds, and employers hiring Saudi nationals into those fields should confirm the applicable figure before finalizing an offer.

Foreign employees have no statutory minimum wage. Pay is set entirely by contract, though once a salary is registered, it becomes legally binding and is actively monitored against actual payments.

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Payroll and Taxes

Saudi Arabia does not levy personal income tax on employment income, so there is no individual tax withholding to run through payroll. This is among the more distinctive features of hiring in the Kingdom and often surprises employers new to the market.

Wage payments are monitored to confirm they are made on time and match the registered contract amount. Persistent late payment or discrepancies can bring penalties and affect an employer's Saudization standing, so payroll accuracy carries compliance weight beyond the individual employee relationship.

Businesses themselves remain subject to corporate tax or Zakat, depending on ownership structure, along with value added tax. These are business level obligations distinct from payroll withholding, and correct treatment depends heavily on entity structure, so employers should confirm their position with a tax advisor.

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Social Security Contributions

Social insurance is administered by GOSI, and obligations differ sharply by nationality.

Saudi nationals are covered for pension, occupational hazards, and unemployment insurance. A reform effective from July 2024 created two parallel contribution schedules that now run side by side.

Employees with a GOSI history before July 2024 remain on the existing schedule, fixed at 11.75 percent employer and 9.75 percent employee, for a combined 21.5 percent. Employees entering the workforce from July 2024 onward fall under a new schedule that started lower and is rising in annual steps through 2028. As of 2026, the combined rate sits at approximately 22.5 to 23.5 percent, split roughly evenly between employer and employee.

⚠️ Because two schedules now apply, employers should confirm which one fits each Saudi employee rather than assume a flat rate across the workforce.

Foreign employees are covered only for occupational hazards, funded entirely by the employer at 2 percent. They do not participate in pension or unemployment insurance and do not accrue GOSI retirement benefits.

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Contributions for both groups are calculated on basic salary plus housing allowance, up to a monthly ceiling of SAR 45,000.

Leave Entitlements

Annual leave runs at a minimum of 21 days a year, rising to 30 days once an employee completes five consecutive years with the same employer. Leave should generally be taken within the year it accrues rather than exchanged for pay.

Sick leave covers up to 120 days within a rolling twelve month period, structured in three tiers. A medical certificate is required, and an employer may not dismiss an employee for taking sick leave within these limits.

Maternity leave now runs 12 weeks at full pay, an increase from the previous 10 weeks. At least six weeks must fall immediately after childbirth, and the remaining six may be taken at the employee's discretion, including up to four weeks before delivery. Eligibility conditions are still settling following the reform, so it is worthwhile to confirm current guidance before applying this entitlement in practice.

Paternity leave grants fathers three paid days, to be taken within seven days of the birth. This is a new and clearly defined entitlement, since the law previously did not specify a window for its use.

Employees are also entitled to paid leave on the death of a spouse, parent, or child, extended in 2025 to three days for the death of a sibling, as well as paid leave for marriage. Muslim employees are typically entitled to leave to perform Hajj once during their service with a given employer.

Public holidays are limited to Founding Day, Eid al Fitr, Eid al Adha and Arafat Day, and Saudi National Day. Exact durations are announced annually and may shift slightly, so employers should confirm the calendar each year rather than assume a fixed pattern.

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Employee Benefits

Employers are generally expected to provide housing and transportation, or a cash allowance in place of each, as part of the compensation package. Employers of foreign nationals must also arrange mandatory health insurance as a condition of sponsoring a work visa.

Beyond these baseline requirements, many employers in competitive sectors add private medical coverage above the statutory minimum, life and accident insurance, annual flight allowances for foreign staff, and education allowances for dependents. These additions reflect market practice rather than legal requirements, but they matter for attracting talent weighing offers against other Gulf markets.

Termination Requirements

Termination in Saudi Arabia is more procedural than in many jurisdictions, and the rules changed meaningfully in February 2025.

For indefinite contracts, notice periods are now asymmetric. An employee resigning must give 30 days' notice, while an employer terminating must give 60. This reverses the earlier position, so older templates and policies should be updated accordingly.

The law also sets specific grounds for dismissal without notice or gratuity, generally tied to serious misconduct such as fraud or repeated unexcused absence. These grounds are narrow, and a dismissal falling outside them exposes the employer to a claim for unlawful termination. Performance or conduct issues should be documented carefully, and local legal advice is worth seeking before relying on this route.

Nearly every employee, Saudi or foreign, is entitled to an end-of-service gratuity on separation, based on final wage. The formula provides half a month's wage per year for the first five years, and a full month's wage per year thereafter, prorated for partial years. Where the employee resigns rather than being terminated, the gratuity is reduced on a sliding scale, and this reduction does not apply where the employer ends the contract or a fixed term simply expires.

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Hiring Through an Employer of Record (EOR)

Given how procedural Saudi employment compliance can be, many employers choose to enter the market through an Employer of Record rather than establish a legal entity immediately. An Employer of Record becomes the registered employer for compliance purposes, handling contracts, payroll, social insurance, and statutory leave, while the client company continues directing the employee's day to day work.

This route tends to suit employers testing the market, hiring a small initial team, or wishing to move faster than entity incorporation timelines allow. It is less suited to employers planning a large, long-term Saudi workforce, since Saudization credit accrues to the entity that employs the workforce directly.

If you are weighing an EOR against establishing your own entity in Saudi Arabia, Knit offers flexible solutions to help you choose the right setup for your business. Book a consultation today.

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If you want to explore other markets, check out our hiring guides.

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Frequently Asked Questions

Does Saudi Arabia have a minimum wage for foreign employees?

No. Pay is set by the employment contract. Saudi nationals are subject to an effective floor of SAR 4,000 a month tied to Nitaqat, with higher thresholds in some regulated professions.

How long is the probation period in Saudi Arabia?

Up to 90 days by default, extendable once to a combined maximum of 180 days. An employee cannot be placed on probation twice with the same employer for the same role.

What notice period applies to termination?

For indefinite contracts, an employee gives 30 days' notice to resign, and an employer gives 60 days' notice to terminate.

Is personal income tax withheld from salaries?

No. Saudi Arabia does not tax employment income. Employers should still budget for GOSI contributions and, where applicable, corporate tax or Zakat at the business level.

What is Saudization and why does it matter for hiring?

Saudization measures the proportion of Saudi nationals an employer engages relative to its sector and size. It affects a company's ability to obtain and renew visas for foreign employees, so it shapes hiring strategy from the outset.

Are foreign employees entitled to end-of-service gratuity?

Yes. The entitlement applies to Saudi and foreign employees alike, calculated the same way based on final wage and length of service.

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