Saudi Arabia's Labor Law Reforms: A Comprehensive Overview

Saudi Arabia has implemented significant reforms to its labor law and social insurance system, aiming to enhance market transparency, fairness, and protection for both employers and employees. These changes reflect the Kingdom's commitment to modernizing its workforce regulations in line with global standards.

Pension Contribution Adjustments

Over the next four years, pension contribution rates for Saudi employees will gradually increase by 0.5% annually, raising both employer and employee deductions from 9% to 11%. This strategic adjustment ensures the sustainability of retirement funds while providing employees with more substantial pension benefits upon retirement.

Retirement Age Revision

The new pension reforms include a phased increase in the official retirement age from 58 to 65 years, acknowledging increased life expectancy and ensuring pension system viability. Employees must accumulate at least 30 years of service (360 months) to qualify for retirement benefits. Early retirement is permitted up to 10 years before the official retirement age, though with adjusted benefits.

The minimum pension is set at 4,000 SAR for those with 40 years of contributions (480 months). For shorter contribution periods, the minimum pension decreases proportionally but remains above 2,000 SAR. The pension calculation formula uses the highest salary during the last 180 months of contribution: average salary × 2.25% × contribution months ÷ 12. Early retirement results in a 3% reduction per year.

Probation Period Regulations

The new labor law caps the probation period at 180 days, allowing sufficient time for mutual assessment between employers and employees. This extended period helps reduce turnover and improves workplace stability.

Leave and Benefits Enhancements

Employers may now offer compensatory time off instead of overtime pay, with employee consent. Additional improvements include three days of paid bereavement leave for sibling deaths and extended maternity leave from 10 to 12 weeks.

Standardization of Expatriate Employment

Non-Saudi employees must have written, fixed-term contracts. Without specified duration, contracts default to one year. Automatic renewal provisions provide additional job security for foreign workers upon contract expiration.

Enhanced Protection for Female Employees

Female employees now receive 12 weeks of fully paid maternity leave, including six weeks postpartum, with an optional one-month unpaid extension. These provisions support women's workforce participation while ensuring adequate recovery time.

Streamlined Contract Termination

The amendments simplify resignation procedures, allowing employees to terminate contracts before expiration. Resignation becomes effective upon employer acceptance or after 30 days without response.

Increased Employer Responsibilities

New employer obligations include prohibitions against forced labor and unauthorized wage deductions, alongside requirements to respect worker dignity and religious beliefs while managing exercise of rights without disrupting operations.

Saudi Arabia Labor Law Reforms 2024: Key Changes for Employers