Payroll Outsourcing Saudi Arabia :- A brief overview
HLB KSA Payroll Team
For a layman, payroll is all about getting your wages paid on a specific date of every month. But it is much more than that. It is a huge responsibility that involves a lot of dedication, knowledge, and resources. Ensuring that all the employees within an organization get paid the correct salary on time with deductions/ allowances if any while complying with all the payroll rules and regulations, is mandatory.
The payroll process will not be the same for all countries; each country has its own tax laws, minimum salary requirements, pension plans, gratuity schemes, leave policies, and many more. Earlier, we covered through a detailed blog, on the payroll process in UAE. Here, our experts in KSA payroll will enlighten you on the payroll process in KSA, through a set of FAQs.
- What is the frequency of making salary payments to employees in KSA?
The law stipulates in Article 90 that the intervals for making salary payments to employees should be monthly or weekly depending on the type of contract.Workers paid on a daily basis shall be paid at least once a week. Workers paid on a monthly basis shall be paid once a month. If the work is done by the piece and requires a period of more than two weeks, the worker shall receive a payment each week commensurate with the completed portion of the work. The balance of the wage shall be paid in full during the week following the delivery of the work. In cases other than the above, the worker’s wages shall be paid at least once a week.
- Which are the statutory pay components included in employee salary?
The KSA labor law does not define the components that should make up an employee’s salary; there are no defined statutory components.
- Which are the common pay components that are normally payable to employees?
Fixed components may include Basic salary, House rent allowance, transport allowance, and other allowances. The variable components may include Overtime, Sales commission, Bonus, Incentives, Relocation allowances, Mobile allowances, etc.
- What is the minimum salary payable in KSA?
There is no minimum salary payable in KSA.
- How is overtime calculated?
Overtime is any extra hours worked by an employee beyond the normal working hours. Article 107 states that the employee shall be entitled to a remuneration equal to his normal working hours plus an extra of at least 50% of such remuneration. All working hours performed during holidays and Eid’s shall be considered as overtime hours
- How is gratuity accrued?
As per article 84 of Saudi Labor Law, the Gratuity calculation is accrued on the following basis.
- If the service period is below five years at half a month salary per year.
- If the service period is more than five years at a full month salary per year.
- When is gratuity paid to an employee?
Gratuity is paid at the end of employment. The end-of-service award shall be calculated on the basis of the last wage and the worker shall be entitled to an end-of-service award for the portions of the year in proportion to the time spent on the job. The gratuity paid is not affected by the type of contract, but by the type of separation. There is no EoSB entitlement if an employee is terminated under Article 80 of Saudi Labor LawFor a comprehensive understanding of KSA gratuity accrual and settlement, please refer to our article on KSA gratuity policy and settlement.
- What are the statutory deductions that are made to employees in the KSA?
In the KSA, payroll is not subject to income tax, and hence there are no mandated tax deductions. However, KSA nationals are subject to mandatory national pensions plans contributions.
- How is KSA pension (Social Insurance) calculated? Which employees qualify for KSA pension contribution?
GOSI, or the General Organization for Social Insurance, is a major government entity in the Kingdom of Saudi Arabia (KSA) that implements the country’s Social Insurance Law.
GOSI percentage for Saudi nationals is 21.50%. Please find the below break up;
- Unemployment Contribution = 0.75%
- Retirement Contribution = 9%
- Compensation and Disability Plan = 2%
- Total Employer’s Contribution = 11.75%
- Unemployment Contribution = 0.75%
- Retirement Contribution = 9%
- Total Employee’s Contribution = 9.75%
The employer is responsible for paying a 2% GOSI contribution for Expat staff. However, there is no GOSI contribution to be paid by an expatriate employee in Saudi Arabia.
SAR 45,000/- is the maximum basic sum utilized in GOSI calculations.
The amount paid effectively adds towards the retirement benefits of the National employees, and for expatriates, it adds towards work-related injuries fund which is limited to a certain amount. They are split into 3 categories:
- Saudi Nationals (private & public sector) – 21.50% of the maximum monthly applicable earnings (9% each for the employee and employer for pension, 0.75% each for unemployment contribution and 2% for occupational hazard which the employer pays)
- GCC Nationals (excluding Saudis) – between 17-22% in total depending on the nationality
- Expatriates – 2% unemployment contribution paid by the employer
- What is WPS in Saudi Arabia?
The Wage Protection System (WPS) in Saudi Arabia became mandatory for all Saudi companies operating in the private sector. The objective of the WPS is to minimize any delay and issues in the payment of salaries.Under the WPS, companies are required to submit wage information to the Ministry of Labor via the e-service program. The WPS ensures that employee rights are protected and that salaries are paid according to agreed terms of employment contracts.
- Are Employees eligible for Air Ticket Benefits in KSA?
Employers are required to provide return air tickets to the worker’s home country at the end of the relation between the two parties. The right of the air ticket with annual leave is determined by the contract signed by the employee with the employer, Saudi labor law is silent about this. However, many companies provide air tickets to employees annually and some of the companies extend this payout to employees’ dependents as well.
- What is the leave policy defined under the labor law?
A. Annual Leave
According to article 109 of the KSA labor law, a worker shall be entitled to a prepaid annual leave of not less than twenty-one days, to be increased to a period of not less than thirty days if the worker spends five consecutive years in the service of the employer. A worker shall enjoy his leave in the year it is due. He may not forgo it or receive cash in lieu during his period of service. The employer may set the dates of such leave according to work requirements or may grant them in rotation to ensure the smooth progress of work. The employer shall notify the worker the date of his leave insufficient time of not less than thirty days.
B. Sick leave
A worker whose illness has been proven shall be eligible for a paid sick leave for the first thirty days, three-quarters of the wage for the next sixty days, and without pay for the following thirty days, during a single year, whether such leaves are continuous or intermittent. A single year shall mean the year which begins from the date of the first sick leave.
- First 30 days: 100%
- 31 to 90 days: 75%
- 91 days to 120 days: unpaid
C. Maternity leave
Female workers shall be entitled to fully paid maternity leave for a period of 10 weeks to be divided at the female worker’s discretion. Such period may start four weeks prior to the expected date of delivery. A woman may not, under any circumstances, work during the six weeks immediately following delivery. She shall be entitled to extend the leave for an additional two months as unpaid leave. In the event of giving birth to a sick child or a child with special needs whose health condition requires a constant companion, a female worker shall be entitled to a one month leave with full pay starting at the end of the maternity leave and she shall be entitled to extend the leave for an additional month as unpaid leave.
D. Hajj Leave
A worker shall be entitled to a paid leave of not less than 10 days and not more than 15 days, including Eid Al-Adha holiday, to perform Hajj only once during his service if he has not performed it before. To be eligible for this leave, the worker must have spent at least two consecutive years of service with the employer.
E. Paternity Leave
Employees are eligible for 3 Days of paid leave up on the the birth of a child.
F. Marriage leave
As per Article 113, For a marriage, an employee is entitled to 5 days of paid leave.
G. Compassionate Leave
Compassionate leave is provided and given for five days for the death of a spouse or one of his ascendants and descendants.
H. Iddah Leave
In the case of a Muslim woman whose spouse has died, the Iddah leave is provided for the full mourning period of four months and 10 days. In the case of a non-Muslim woman, the leave is given for fifteen days.
Please read our article on KSA leaves policy here for a comprehensive understanding.
- Is employee Medical Insurance mandatory in KSA?
It is mandatory that an employer provide medical insurance to the employee during the duration of employment
- Which are the currencies that can be used while making salary payments in KSA?
The only accepted currency used in making salary payments is the KSA national currency i.e. SAR and the payments should be made within the boundaries of the country.
- Is bonus or incentive payment mandatory in KSA?
Bonus and incentives payments are not mandatory in KSA. Many companies in the KSA have bonus or incentive schemes implemented to keep employee motivation and the structures vary from one company to the other based on their policy.
- What are the items included in End of Service Benefits calculation in KSA?
The employee is entitled to the following end of service benefits.
- End of service Gratuity
- Repatriation ticket if applicable
- Notice period pay if applicable
- Any unutilized leave (Vacation) pay
- Any other outstanding payment or deduction
- Air Ticket
- Annual Leave
- Sick leave
- Maternity Leave
- Paternity Leave
- Marriage Leave
- Compassionate Leave
- Medical Insurance
- Overtime pay if applicable.
Employee Benefits in summary:
Laws and policies are ever-changing. We always ensure that we stay up to date with the payroll legislations, not just in KSA, but the whole of GCC.
The process of payroll is a little complicated and time-consuming; hence it is always recommended to outsource your company’s payroll function. Outsourcing payroll will ensure the assistance of a team of trained payroll professionals and it frees up the time of the organization, helping them focus on other projects that add value to their business.
One should be extra vigilant while selecting their payroll provider, as payroll data is highly sensitive, and one should opt for a provider that can ensure high levels of data security.
As a leading payroll outsourcing company, HLB HAMT can help solve your payroll complexities through customized strategies. We take care of our clients’ entire payroll cycle that includes preparation of payroll reports, processing salary payment with WPS compliance, accrual management including Gratuity, pension funds, online portal for accessing payslips, and many more. Our leadership team spends the necessary hours in every project, ensuring our clients get refined consulting services to take your business forward.
To know more about our payroll process,Click here
Whilst every effort has been made to ensure the accuracy of this information, HLB HAMT will not accept any liability arising out of errors or omissions. Please note that this blog is not all-inclusive. Our guidance is designed only to give general information on the issues/topics covered. It is subjected to change and not intended to be a comprehensive summary of all laws which may be applicable to your situation, treat exhaustively the subjects covered, provide legal advice, or render a legal opinion.
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