Wages in Saudi Arabia: Achieve Compliance, Avoid Violations

Wage management in the Kingdom of Saudi Arabia is not just a simple accounting process; it's a complex web of regulations and intricate details that requires a deep understanding to ensure legal compliance and avoid severe risks.

So, what should you do to understand the laws governing wages in Saudi Arabia? Should you delve into the Saudi Labor Law and wander through its articles to find what you need? Or do you need an expert to explain what the law's articles mean? And which article applies to your situation? None of the above! Just read this article.

This article delves into the complex regulations governing wages and compensation in the Saudi Labor Law, focusing on payment mechanisms, permissible deductions, minimum wage, and penalties for non-compliance. We will provide you with a comprehensive guide for HR and finance professionals to ensure full compliance with Saudi wage laws and avoid legal and financial risks.

When and How to Pay Wages? Essential Rules You Can't Do Without!

Paying wages on time and in the correct manner is a fundamental obligation of the employer. The Saudi Labor Law is very clear on this matter:

• Official Currency: All workers' wages and other entitlements must be paid in the official currency of the Kingdom of Saudi Arabia. There is no room for payment in foreign currencies except by special agreement and in accordance with regulations.
  
  
  

• Payment Frequencies:

  • Daily-paid workers: Their wages must be paid at least once a week.

  • Monthly-paid workers: Their wages are paid once a month.

  • Piecework or Production-based work (for more than two weeks): The worker must receive a weekly payment proportionate to the work completed, and the remaining wage must be paid in full within one week of work delivery.

Other cases: Wages are paid at least once a week.

Mandatory Bank Deposit: One of the key compliance requirements is obliging establishments to deposit workers' wages directly into their bank accounts through approved banks within the Kingdom. This ensures that payments are made on their due dates and provides a clear audit trail, reducing disputes over wage receipt.

Minimum Wage: Is It Fixed for Everyone?

The Saudi Labor Law allows for the determination of a minimum wage. The Council of Ministers may, when necessary and upon a proposal from the Minister of Human Resources and Social Development, set a minimum wage. This means that the minimum wage may change or be set for specific sectors based on market studies and needs. Employers must follow ministerial decisions in this regard to ensure compliance with any minimum limits that may be imposed.

Wage Deductions: What Is Permissible and What Is Prohibited?

Here lie many challenges and risks! The law strictly regulates deductions from workers' wages. No amount may be deducted for private rights without the worker's explicit written consent, except in specific and legally defined circumstances.

Permissible Deductions (with conditions):

• Repayment of employer loans: Provided that the deduction does not exceed 10% of the wage.

• Social insurance contributions: And any other due and legally mandated contributions.

• Worker contributions to savings funds and loans due to those funds.

• Installments for housing programs or other benefits provided by the employer.

• Disciplinary fines and amounts deducted for damages caused by the worker due to their fault or violation of instructions.

• Amounts subject to judicial rulings: Provided that the monthly deduction does not exceed one-quarter of the due wage, unless the ruling states otherwise. Alimony debts are prioritized first, then food, clothing, and housing debts before other debts.

Maximum Deduction Limits:

In all cases, the total percentage of amounts deducted from the worker's due wage cannot exceed half (50%). This means that the worker must receive at least half of their net wage. The only exception is if the Labor Disputes Settlement Authority (now the Labor Court) proves the possibility of increasing the deduction, or if the worker needs more than half of their wage (in which case, the worker is not given more than three-quarters of their wage).

What Awaits You in Case of Unjustified Deductions and Delayed Wage Payments?

• If an employer deducts any amount from a worker's wage for a reason not stipulated in the law or without the worker's written consent, or if there is an unjustified delay in paying wages on their due date, the worker (or their representative, or the head of the competent labor office) can submit a request to the Labor Court.

• At that time, the court will oblige the employer to return the deducted amount or pay the delayed wages. The court also has the right to impose a fine not exceeding double the amount deducted or illegally delayed. These financial penalties emphasize the Ministry's seriousness in protecting workers' rights.

• Furthermore, the worker has the right to leave work without notice while retaining all their statutory rights if the employer fails to fulfill their essential contractual or statutory obligations towards the worker, in accordance with the Saudi Labor Law.

• Also, violation 27 of the official Employer Compliance Guide from the Ministry of Human Resources and Social Development in the Kingdom states that failure to pay workers' wages on their due dates, or the employer withholding a worker's wage or part of it without a judicial basis, exposes the violating employer to a fine of 3000 riyals, which multiplies with the number of affected workers.

What If the Wage Is Not Specified in the Contract?

• If the employment contract or the internal work regulation does not specify the wage, the wage is estimated based on the prevailing wage for the same type of work within the establishment, if such a standard exists. If not, the wage is determined according to professional custom. If these methods fail, the Labor Court is authorized to estimate the wage based on principles of justice.

Special Provisions: Wage Payment for Detained or Imprisoned Workers

• If a worker is detained or imprisoned for reasons directly related to their work, the employer is obligated to continue paying 50% of the worker's wage throughout the detention period, up to a maximum of 180 days. If the worker is later acquitted, the employer must return the full amount initially deducted from their wage. This provision ensures a source of income for the worker during the detention period and protects them from financial harm if their innocence is proven.

Practical Tips for HR to Ensure Compliance in Wage Management

Wage management is not just an administrative task; it is a legal and ethical responsibility that requires precision and continuous vigilance. Here are some best practices to ensure compliance and avoid violations:

• Robust and Automated Payroll Systems: Invest in Human Resources Management Systems (HRMS) and payroll systems that comply with Saudi regulations and laws. These systems can automate wage calculations, deductions, and ensure bank deposits on specified dates, reducing human errors.

• Transparency and Clear Communication: Ensure that all wage and deduction policies are clear and understandable to all employees. These policies should be part of the establishment's internal work regulation, which must be approved by the Ministry and prominently displayed.

• Regular Internal Audits: Conduct periodic internal audits of payroll and deduction processes to ensure full compliance with laws. This helps identify and correct any potential issues before they escalate into legal disputes.

• Continuous Update of Legal Knowledge: Labor laws are constantly changing. HR teams must stay continuously informed of the latest developments in labor laws and prevailing legal regulations in the Kingdom. Organizing regular training programs for HR staff on labor laws and the latest legal developments is crucial.

• Seek Specialized Legal Advice: In complex cases or when in doubt, do not hesitate to engage legal consultants specializing in Saudi labor laws to ensure accurate and up-to-date guidance.

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Conclusion

Wage management in the Kingdom of Saudi Arabia is a vital process that requires precision and strict adherence to legal regulations. The detailed nature of the regulations governing payment frequencies, mandatory bank deposits, and strict rules regarding permissible deductions highlights a strong regulatory focus on protecting workers' financial rights and ensuring transparency in compensation practices.

Compliance with these laws is not just a legal obligation; it is an investment in the stability and reputation of the company. By adopting best practices, leveraging technology, and staying informed of legislative changes, HR and finance departments in Saudi companies can ensure a fair work environment, avoid legal and financial risks, and contribute to building a prosperous labor market aligned with Saudi Vision 2030.