Saudization and Employment Law in Saudi Arabia: What Business Owners Should Know

Saudi Arabia

This article provides a comprehensive guide for foreign businesses navigating labor law compliance and Saudization requirements in Saudi Arabia. As part of the Kingdom’s Vision 2030, the Saudization policy (Nitaqat Program) mandates private sector employers to hire a specific percentage of Saudi nationals based on their industry and company size. The article explains how businesses are classified under Nitaqat, the operational role of digital platforms like Qiwa and GOSI, and the legal obligations when hiring Saudi or expatriate employees. It covers essential aspects such as employment contracts, working hours, end-of-service benefits, and sector-specific Saudization quotas. The article also outlines potential penalties for non-compliance and shares best practices for maintaining compliance, enhancing recruitment strategy, and improving corporate reputation. With clear explanations and practical tips, this article equips businesses with the knowledge to establish compliant and sustainable operations in Saudi Arabia.  

Introduction 

As businesses expand into the Kingdom of Saudi Arabia, one of the most important legal and operational responsibilities they encounter is compliance with Saudi labor law and the national employment policy known as Saudization. Saudi Arabia has implemented a series of labor reforms designed to empower the local workforce, regulate employer practices, and reduce dependency on expatriate labor. 

Whether you’re launching a startup or managing a multinational branch, understanding your obligations under Saudization, the Nitaqat program, and related employment laws is essential to stay compliant, attract talent, and build a sustainable business in the Kingdom. 

This blog is a part of our Setting Up a Business in Saudi Arabia Blogpost.

What is Saudization?

Saudization, officially referred to as the Nitaqat Program, is a government policy that requires businesses to hire a minimum quota of Saudi nationals based on company size, sector, and activity. 

The policy was introduced to: 

  • Increase the employment rate of Saudi citizens. 
  • Reduce reliance on foreign workers. 
  • Promote local talent development and economic inclusion. 

The percentage of Saudis required depends on your company’s classification under the Nitaqat system, which grades firms from Red (non-compliant) to Platinum (highly compliant). 

The Nitaqat Program Explained

The Nitaqat Program classifies companies into several bands based on: 

  • Number of employees 
  • Economic sector or business activity 
  • Percentage of Saudi nationals employed 

The bands are: 

Example: 

A retail company with 50 employees may need at least 20% of its workforce to be Saudi nationals to remain in the Green band. For tech consulting firms or industrial businesses, the percentage may differ. 

Your Nitaqat status directly affects your ability to: 

  • Issue new work visas 
  • Transfer sponsorships 
  • Renew existing Iqamas (residency permits) 
  • Participate in tenders or government contracts 

Key Institutions for Employment in Saudi Arabia

A. Ministry of Human Resources and Social Development (MHRSD) 

The primary labor authority is responsible for policy, dispute resolution, Saudization enforcement, and worker rights. 

B. Qiwa Platform 

A unified digital portal under MHRSD used to: 

    • Manage work contracts and employee records. 
    • Request work permits and visas. 
    • Monitor Saudization percentage in real time. 

C. GOSI (General Organization for Social Insurance) 

Manages social insurance contributions for Saudi and non-Saudi employees: 

    • Employers pay 12% of the Saudi employee’s salary. 
    • Employees contribute 10%. 
    • Expat workers are covered under occupational hazard insurance only. 

D. Muqeem and Absher 

Platforms used for issuing and renewing Iqamas (residence permits) and managing immigration and civil status services. 

Hiring Saudis vs. Hiring Expats

Hiring Saudi nationals offers regulatory and commercial benefits, including: 

  • Higher Nitaqat scores. 
  • Fewer restrictions on visa issuance. 
  • Compliance incentives such as priority in government services. 

Common benefits for Saudi employees: 

  • Weekly work hours: Max 48 (often reduced during Ramadan). 
  • Entitlement to paid vacation, public holidays, and end-of-service benefits. 
  • Social security and GOSI enrollment. 
  • Employment contract protection under Labor Law. 

Hiring Expatriates: 

  • Must obtain a work permit and Iqama. 
  • Required to have valid employment contracts, typically hosted on Qiwa. 
  • Employers bear the cost of visas, Iqama fees, health insurance, and repatriation. 

Keep in mind that excessive reliance on expatriates can reduce your Nitaqat score and make it difficult to hire more foreign workers in the future. 

Employment Contracts and Regulations

Under Saudi Labor Law: 

  • All employees must have written employment contracts, preferably in Arabic or bilingual (Arabic-English). 
  • Contracts must specify the duration (fixed or unlimited), salary, allowances, working hours, probation period, and notice terms. 
  • Contracts should be registered on Qiwa, and deviations may result in penalties or legal disputes. 

Probation and Termination: 

  • The probation period can be up to 90 days (extendable to 180 days with employee consent). 
  • Termination must follow due process and be justified. Arbitrary dismissal can lead to labor court claims and compensation. 

Working Hours: 

  • 8 hours/day or 48 hours/week (reduced to 6 hours/day during Ramadan for Muslim employees). 
  • Friday is the official weekend, though some businesses adopt a Friday-Saturday weekend. 

End-of-Service Benefits (ESB)

Employers are required to provide End-of-Service Benefits to all employees upon: 

  • Resignation (after two years of service or more). 
  • Dismissal (unless for cause). 
  • Contract completion (for fixed-term contracts). 

The ESB is calculated based on the employee’s final wage and duration of service: 

  • Half a month’s salary for each of the first five years. 
  • One month’s salary for each year thereafter. 

Calculators for ESB are available on the MHRSD and Qiwa platforms to assist employers and employees alike. 

Saudization in Specialized Sectors

In recent years, the Saudi government has introduced sector-specific Saudization policies, such as: 

  • Legal, accounting, and engineering professions – minimum quotas for Saudi professionals. 
  • Customer service and call centers – 100% Saudization. 
  • Health sector – mandatory ratios for pharmacists and lab technicians. 
  • Retail and wholesale – quotas by sub-sector (e.g., jewellery, optics, building materials). 

Companies must plan hiring and HR strategies accordingly, especially when operating in highly localized industries. 

Penalties for Non-Compliance

Companies that fail to comply with labor regulations or Saudization quotas may face: 

  • Suspension of services such as new visa issuances or Iqama renewals. 
  • Fines ranging from SAR 1,000 to SAR 100,000 depending on the violation. 
  • Downgrading of Nitaqat status. 
  • Labor lawsuits, particularly in the event of wrongful dismissal or withheld benefits. 

Repeat offenses can also lead to blacklisting, making it harder to operate or expand in the Kingdom. 

Best Practices for Employment Compliance

  • Hire a qualified PRO or HR consultant to handle labor filings. 
  • Use the Qiwa portal actively to manage contracts and Saudization metrics. 
  • Document all employment agreements, terminations, and disciplinary actions in writing. 
  • Stay updated on changes, Saudi labor policy is dynamic and sector-specific reforms are frequent. 
  • Invest in training and upskilling of Saudi nationals to improve retention and meet quotas organically. 

Final Thoughts 

Compliance with Saudi Arabia’s labor laws and Saudization mandates isn’t just a legal obligation, it’s a strategic imperative for long-term success. By investing in local talent, formalizing contracts, and maintaining transparent labor practices, foreign businesses can unlock incentives, avoid penalties, and build trust within the Saudi market. 

At ATB Corporate, we support foreign and local companies in navigating the full employment lifecycle, from labor registration and Saudization strategy to drafting contracts and managing disputes. 

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Amy is a legal consultant at ATB Corporate, with a unique blend of skills for corporate, commercial and litigation matters. She is a law graduate and certified in Intellectual Property from the World Intellectual Property Organization.