Labor market regulation in Saudi Arabia

Saudi Arabia has begun large-scale foreign labor imports in the 1970s. Whereas the public sector now is largely Saudiized, attempts to nationalize the private labor market, although official policy since at least the early 1980s, have made little headway. Throughout booms and busts, dependency on foreign labor has remained high.

The Saudi labor law regulates the rights and responsibilities of employees, setting wide guidelines for mutual agreements between both parties. Recently, several amendments were made to the law to ensure its continued suitability to the expanding Saudi economy and population, and in particular to ensure the protection of employee and employer rights in the work place.

Specific measures that have been introduced by the Ministry of Labor include:

Wage Protection System: A Wage Protection System (WPS) was introduced in 2013 to better regulate the labor practices of the private sector and prevent illegal practices. The system- currently covering companies who employ more than 500 workers – monitors the payment of wages to both Saudi and non- Saudi workers employed in the private sector, using bank-certified salary payment files verified through comparison with the employee tax database. Penalties for companies that do not submit punctual or correct salary files consist include the discontinuation of access to Ministry of Labor services.

Recruitment Channels: Regulations has been established for mega recruitment companies to operate in the Saudi market. These regulations protect both parties’ rights and ensure a healthy and productive relationship.

Labor Mobility: A long term aim of the Ministry of Labor is to increase the mobility of expatriate labor, as this will support a reduction in the wage gap between Saudi and expatriate labor. Currently the Wafeed mobility system allows expats from companies with poor Saudization ratios to apply to other companies without approval from existing employer. The Ministry of Labor is currently revising the legislation to allow expatriates to exchange employer after contract expiry without having to gain approval from their employer.

Working hour: Time and work duration regulations are currently under review, with the Ministry of Labor keen to reduce the gap between the public and private sector in terms of hours worked. A reduction in this gap should encourage more Saudis to join the private sector