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Saudi employment contracts define the legal framework that governs the relationship between an employee and an employer. They establish the rights and obligations of both parties, specify contract types, terms, and conditions, and regulate the beginning, continuation, and termination of employment. Understanding these contracts is essential to ensure compliance, prevent disputes, and protect both parties in Saudi Arabia’s evolving labor market.
What Is a Saudi Employment Contract and Its Key Elements?
According to Article 50 of the Saudi Labor Law, an employment contract is defined as:
“A contract concluded between an employer and an employee, under which the latter undertakes to work under the management or supervision of the employer in exchange for remuneration.”
Based on this definition, a Saudi employment contract typically consists of the following elements:
1. The Parties
An employment contract is entered into between two parties:
- Employee: A natural person who provides effort under the supervision and management of the employer in exchange for compensation.
- Employer: A natural or legal person, such as a company or organization, employing one or more workers. The employer is represented by a legally authorized person, such as a general manager or HR officer.
2. Work
Work refers to the effort performed across any human activity; industrial, technical, commercial, agricultural, intellectual, or physical. Work under the contract must be:
- Lawful: Any illegal work renders the contract void.
- Executable: The work must be realistically achievable without exceeding the employee’s capabilities, and the employee must perform it personally unless otherwise authorized.
- Defined or definable: Either explicitly stated in the contract or interpreted according to industry norms if not detailed.
The employer must provide the agreed-upon work to ensure continuity of the employment relationship and professional development. Under Article 60, employees cannot be assigned work fundamentally different from what was agreed without their written consent, except in urgent cases or for temporary periods not exceeding 30 days.
Some jobs are exempt from the general labor law, such as family members in private establishments, domestic workers, athletes, agricultural laborers, and non-Saudis performing short-term tasks (not exceeding two months).
3. Compensation
Compensation is the monetary or in-kind payment the employee receives for performing their duties. It can be agreed upon as daily, weekly, monthly, or production-based. Compensation ensures financial stability for the employee and balances legal obligations with the employer.
Saudi law recognizes two main types of wages:
- Basic wage: The fundamental pay agreed upon in the contract, including regular allowances. It forms the basis for calculating other entitlements.
- Actual wage: Includes the basic wage plus all additional payments such as allowances, commissions, bonuses, and in-kind benefits.
Employers must pay wages on the legally prescribed dates, with no unjustified delays or deductions, as wages are essential for the employee’s livelihood. Wage deductions are prohibited without a court order (Article 61), and employees are entitled to full pay during annual, sick, or official leaves.
4. Subordination
Subordination means the employee performs work under the direction of the employer, whether supervision is direct or indirect. Employees are subject to disciplinary measures for failing to meet contract obligations. Subordination does not diminish the employee’s status but organizes the relationship to preserve rights and balance authority and responsibility.
Article 39 stipulates that employees must work exclusively for their employer and not for themselves or others. Subordination takes several forms:
- Legal: Following employer instructions and internal regulations.
- Economic: Dependence on wages ensures financial and social stability.
- Administrative: Performing duties within the organizational structure.
- Technical: Ensuring quality performance through continuous oversight, especially in small organizations or roles requiring direct supervision.
Types of Employment Contracts in Saudi Arabia
The Saudi labor system offers flexibility through multiple contract types, varying in duration and terms:
- Open-Ended (Indefinite) Contracts
Exclusively for Saudi employees, these contracts have no fixed end date. Either party may terminate with legal notice. End-of-service benefits are calculated using a “one-third, two-thirds” formula based on service length, and entitlement begins after two years if the employee resigns voluntarily. - Fixed-Term Contracts
Agreed upon for a defined period to complete specific tasks. The contract ends automatically at the agreed date, but may include renewal clauses. For Saudi employees, fixed-term contracts convert to indefinite contracts if renewed three times consecutively or if the cumulative duration reaches four years (Articles 55–56). Contracts with non-Saudis are always fixed-term and automatically renew for one year if work continues beyond the initial term. - Temporary Contracts
Designed for short-term needs, typically not exceeding 90 days, such as peak periods or urgent tasks. Extensions are allowed once for up to three months with mutual consent. Temporary contracts follow general labor rules regarding duties, discipline, working hours, overtime, and occupational safety (Article 6). - Casual (Occasional) Contracts
For tasks outside the organization’s normal activities, also limited to 90 days. Provides short-term employment opportunities without long-term obligations. - Task-Specific Contracts
Contracts for completing a clearly defined task or assignment. The relationship ends automatically upon task completion, without further notice (Article 57). Ideal for specialized or temporary expertise. - Seasonal Contracts
Linked to specific seasonal work, such as Hajj or Umrah services. Seasonal contracts address temporary staffing needs and may apply to both Saudis and non-Saudis under limited-duration visas. - Part-Time Contracts
Employees work fewer than half of the standard daily hours. Useful for temporary or supplemental staffing, with all labor rights applied proportionally. - Training and Qualification Contracts
Designed to prepare individuals for a profession within a real work environment, combining theoretical learning with practical experience. Rights and obligations are defined by Articles 46–48. - Flexible Work Contracts
Hourly-based work for Saudis with no entitlement to traditional benefits. Maximum work hours are 160 per month, with additional hours compensated as agreed. Multiple contracts are allowed provided schedules do not conflict. Non-compulsory benefits such as medical insurance or end-of-service pay do not apply. - Maritime Employment Contracts
Governs employment aboard ships, specifying the sailor’s duties, wages, travel, and return logistics. Contracts are documented in triplicate and registered on the vessel.
Key Contract Clauses
Article 52 mandates a unified employment contract template issued by the Ministry of Human Resources and Social Development, covering:
- Party details: Names, IDs, company registration, legal representative, and contact information.
- Job description: Title, duties, responsibilities, and location.
- Contract duration: Start and end dates, or indefinite with notice requirements.
- Compensation and benefits: Basic and additional wages, allowances, health insurance, bonuses, and overtime rules.
- Working hours, breaks, and leave: Daily and weekly schedules, annual and official leave.
- Rights and obligations: Employee duties, confidentiality, adherence to policies, employer obligations, safe environment, timely pay, and training.
Additional clauses may include:
- Probation period: Up to 180 days for testing employee capability (Article 53).
- Non-compete agreements: Clearly defined duration, geographic scope, and prohibited activities (Article 83).
- Confidentiality: Protection of business information with defined duration and scope.
- Dispute resolution: Agreed-upon methods such as arbitration or labor courts.
How Saudi Labor Contracts Handle Resignations and Termination
The Saudi Labor Law regulates the termination of employment contracts through clear provisions designed to protect both parties, balance rights, and prevent abuse. The law provides different mechanisms for termination depending on the type of contract and the circumstances of the employee and employer, ensuring stability and organization in labor relations (Articles 74–83). Termination occurs in the following cases:
- Expiration of a Fixed-Term Contract
If the contract is fixed-term, it automatically ends when its term expires unless both parties agree to renew it. For contracts based on a specific task, the contract ends upon completion and acceptance of the assigned work. - Mutual Agreement
A contract may end by mutual consent, provided the employee’s agreement is documented in writing to safeguard their rights. - Reaching Retirement Age
Contracts terminate when the employee reaches retirement age as per the Social Insurance Law, unless both parties agree to continue employment beyond that age. Fixed-term contracts extending past retirement end at the contract’s expiration. - Force Majeure or Cessation of Business
Contracts terminate in the event of force majeure that makes performance impossible (e.g., natural disasters) or if the employer permanently closes the business or discontinues the activity the employee performs. The contract may also be terminated or alternative arrangements agreed upon, such as transferring the employee to another department. - Court Order Due to Bankruptcy
Amendments effective 19/2/2025 added paragraph 7 to Article 74, stipulating that contracts end when a final court decision dissolves the employee’s contract under bankruptcy proceedings, ensuring no contracts remain unresolved during company liquidation. - Resignation
Resignation was explicitly included as a termination method in the recent amendments. Article 2 defines it as “the employee’s written declaration of their desire to terminate a fixed-term contract freely and without coercion or conditions, subject to employer acceptance.”
Article 74(3) confirms resignation as a legitimate right, and the newly added Article 79 outlines its rules: it must be written, voluntary, and free of coercion, protecting employees from forced or fabricated resignations. Employees may retract their resignation within seven days if the employer has not yet accepted it.
Employers must decide within 30 days, after which the resignation is deemed accepted. Employers may extend the decision up to 60 additional days if the employee is notified in writing before the initial 30-day period ends. Employees resigning under these conditions are entitled to all their labor rights under the law. - Termination by One Party in an Open-Ended Contract
Article 75 allows either party to terminate an open-ended contract with written notice:- If wages are paid monthly, employees must notify the employer at least 30 days before termination; employers must provide at least 60 days’ notice.
- If wages are not paid monthly, notice must still be given 30 days in advance.
Parties terminating without proper notice must compensate the other party with an amount equal to the wage for the notice period unless the contract specifies otherwise (Article 76).
The aggrieved party is entitled to 15 days’ wages per year of service if termination is unlawful, unless the contract specifies otherwise. Employees receiving a notice of termination are allowed a paid day per week or eight hours weekly to search for a new job.
- Termination of Training and Qualification Contracts
Either party may terminate a training or qualification contract by providing at least one week’s notice. No compensation is due unless expressly stated. If termination occurs due to the trainee’s inability to complete the program, the employer must substantiate this with periodic evaluation reports. - Termination of Fixed-Term Contracts Without Legitimate Cause
Fixed-term contracts are binding throughout their term and cannot be terminated prematurely except for lawful reasons stated in the Labor Law (resignation, breach of contractual obligations, etc.). Proper notice must be given 30 days in advance (Article 75). The aggrieved party may claim compensation for the remaining term, no less than two months’ wages unless otherwise stipulated (Article 77). - Employer-Initiated Termination
Employers may unilaterally terminate a contract without end-of-service benefits, notice, or compensation only in cases specified in Article 80. These include:- Assault on the employer, manager, or supervisor.
- Failure to perform essential contractual obligations or disobedience of lawful orders despite written warnings.
- Misconduct affecting integrity or honor.
- Unauthorized absences beyond permissible limits.
- Misuse of position for personal gain.
- Disclosure of industrial or trade secrets.
- Employee Leaving Work Unilaterally
Article 81 allows employees to leave work without notice or liability while retaining all statutory rights, including end-of-service benefits, only in exceptional cases such as:- Employer’s failure to meet essential contractual obligations.
- Fraud or misrepresentation by the employer.
- Assignment of fundamentally different work without consent.
- Physical danger or threats at the workplace.
- Illness or Death
Contracts do not terminate upon employer death unless the contract is personal to them. Employment ends with the employee’s death or permanent incapacity, certified by an authorized medical report. Employers cannot terminate employment due to illness before all sick leave is exhausted, and employees may combine annual leave with sick leave.
5 HR Tips for Compliance with Labor Law
- Collect National Address and Official Work Email for Each Employee from Day One
Maintain official contact records to document notices, decisions, and contract changes, preventing claims of non-receipt. - Digitally Document Contracts via Approved Platforms
Article 51 mandates two copies of the contract and electronic registration through platforms like Qiwa for standard and flexible contracts. - Strict Compliance with Wage Protection System (WPS)
Ensure timely and complete wage payments, properly documented, to avoid penalties. - Adhere to Saudization Requirements
Monitor workforce classification in Nitaqat, update employee records, and invest in training to maintain compliance. - Leverage Smart Recruitment Platforms like Talentera
Use Talentera for automated, legally compliant recruitment workflows, visa tracking, secure local data storage, and advanced compliance dashboards.
Conclusion
Understanding Saudi labor contracts and their updates is not just a legal requirement but a strategic investment. Familiarity with contract types, termination, and renewal procedures ensures a safe, fair work environment, builds strong employer-employee relationships, and enhances the efficiency of the Saudi labor market.
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