Introduction to Payroll in Saudi Arabia
Since you're looking to take advantage of the Middle East's business opportunities, consider establishing payroll in Saudi Arabia.
This Persian Gulf country ranks among the top 100 nations to start a company and is revered for the ease of doing business there. Its ultra-modern healthcare system, technological advancement, rich culture, and the government's privatization of specific sectors are primary reasons foreign investors are attracted to this country.
If you're considering starting a business or hiring employees in Saudi Arabia, you'll need to explore payroll processing, employee benefits, and payroll costs in Saudi Arabia. Working with Skuad, a renowned global payroll provider, may be the best option to run these processes smoothly.
Payroll Process in Saudi Arabia
The payroll process in Saudi Arabia can be tricky to understand and implement. This is why payroll experts prefer to split this process into pre-payroll, payroll, and post-payroll phases.
Before paying employees in Saudi Arabia, you must have an established organization compliant with the country's employment laws.
Setting up the Organization
Focus here on establishing and communicating clearly defined organizational policies.
You must register your business, apply for your tax identification number, and register for VAT (the Saudi value added tax on selected goods and services) if applicable. The next few items will help complete the pre-payroll phase.
Forming a structure for each of your work locations is essential if you intend to set up your business across various regions in the Kingdom, from Riyadh to Jeddah. Pay attention to any local needs and also make it easy for company members to collaborate seamlessly regardless of their location.
Since employees can exercise their rights to days off, establishing a leave policy is essential. It helps you create a system whereby there are still knowledgeable personnel around no matter who is absent for an extended period.
Before establishing payroll in Saudi Arabia, create measures that would allow employees to record a near-perfect attendance consistently.
Your attendance policy is also crucial to calculating payroll. Leveraging technology such as biometric devices to track attendance makes it easy to manage payroll and ensure that employees deserve their earnings.
In addition to incentives to encourage punctuality, establish disciplinary measures to discourage tardiness.
Comply with all Saudi laws and regulations regarding employee rights and benefits.
Be sure to address such things as minimum wage and social insurance, and consider additional perks that might be of value to the highly skilled workers you wish to retain.
It's best to structure your payment schedule according to your experience receiving funds from clients. For instance, set a cash disbursement date at least a few days after your clients usually pay you. Next, choose your preferred payment methods and communicate this information with your employees.
Before you begin your payroll calculations, gather your employee information. Having this information is essential, and it will come in handy when it's time to calculate payroll. Needed are:
- Employee’s legal name
- Position within the organization
- Current address
This process involves calculating your employee's total earnings before determining applicable deductions. Your attendance policy comes in handy here as the hours your employees spend working will determine how much they receive. After identifying the various voluntary and involuntary deductions, deduct them from the gross salary. You can disburse payments after calculating the net earnings.
After completing the payroll calculation, there are still a few steps left to avoid costly errors during the process.
You can use advice to your corporate bank to disburse salary payments, or take advantage of software that includes a direct deposit feature.
After paying employees, you want to make sure that you have the records to show that you performed this transaction. Thus, carry out payroll accounting to manage the company's accounts, balance the books, and have evidence that you disbursed employees' payments. This makes it easy to trace payments, retract certain earnings, and troubleshoot issues with delayed payments.
Payroll Reporting and Compliance
Reporting the payroll data is vital to compliance. It also helps you complete the payroll processing and deduction remission before the deadline for reporting. There are no tax return dates or taxes affiliated with a fiscal year for employees in this country.
Processing payroll can be a challenge for your in-house team. Contact the Skuad team for expert payroll assistance today.
Payroll Processing in Saudi Arabia
It is advisable to have specific processes and documents in place even before hiring your first employee. To process payroll without compliance issues, be certain to:
- Develop a payroll structure
- Plan your ideal payroll periods
- Open a new corporate bank account
- Register for social security and Tax Identification Number (TIN)
- Confirm eligibility and register for VAT through the General Authority of Zakat and Tax (GAZT)
- Send details of your workforce, business type and location, license documents, and personal data to the Saudi labor office
Employee contracts, as well as other major documents, are to be written or typed in Arabic. You may need to attach a translated copy of the agreement to the original when hiring a foreigner.
You may need to hire experts in accounting, taxation, and human resources to expertly carry out payroll processing in Saudi Arabia. Request a Skuad demo today to see how we can help you upgrade your payroll endeavors.
Payroll Management in Saudi Arabia
Non-compliance with payroll or labor laws in Saudi Arabia may come with harsh penalties. Proper payroll management can help you avoid this.
This process involves ordering every step involved in paying employees their earnings in a timely fashion and keeping their financial records securely. Due to the large volume of data with which you need to deal, keeping up with updated Saudi labor laws, and troubleshooting any issue related to employees receiving their wages, hiring a payroll provider in Saudi Arabia may be a viable approach.
Partner with Skuad to avert inconsistencies in your payroll calculations and maintain payroll compliance.
Payroll Compliance in Saudi Arabia
The Saudi government keeps making efforts to make the country a promising environment for employers and employees. Thus, they implement measures to protect employee rights and ensure they get their deserved payments and other benefits. To comply with payroll in Saudi Arabia, you must take the following vital steps:
- Collect your employees' data and make sure they are accurate
- Understand how pensions, insurance, and payroll taxes in Saudi Arabia work
- Communicate your payroll process to employees to manage their expectations
- Keep up with payroll compliance laws in Saudi Arabia
- Automate your payroll processes
- Process payroll and remit deductions and taxes to government agencies before the deadline.
Payroll Components in Saudi Arabia
The Saudi Riyal (SAR) is the country's official currency, while the minimum wage a worker earns per month is 4,000 SAR. The minimum monthly salary in Saudi Arabia increased from 3,000 SAR to 4,000 SAR on April 25, 2021. Private companies are not subjected to this wage scale.
In the Saudi workspace, workers get their pay either weekly or monthly. Usually, employees work 8 hours a day or 48 hours a week except during Ramadan, a holy month of fasting, where they can work for 6 hours a day and 36 hours a week, respectively.
The official weekend in Saudi Arabia is Friday and Saturday for government workers and many private establishments.
Any employee who works more than the standard daily or weekly working hours is to be paid for overtime. Employees working overtime will earn an additional 50% of their usual pay in addition to the basic hourly earnings.
The government of Saudi Arabia provides financial and non-monetary aid for older citizens, the physically challenged, orphans, widows, and other citizens in need. Although employees are not taxed on their income, they are obliged to contribute to social security along with their employers.
Employees in Saudi Arabia can take up to four months of sick leave in a calendar year.
Sick leave is usually paid, but the compensation reduces as the number of days increases. To be granted a paid sick leave, you need a doctor's report, test results, or any relevant medical certificate. These are the number of days for sick leave and what percentage employees can expect to receive from the month's salary:
- 100%: 0-30 days off
- 30%: 31-90 days off
- 0%: 91-120 days off
Female employees have the right to 10 weeks of paid maternity leave which commences four weeks before their expected delivery date. However, this maternity leave depends on how long they have been with the company.
If the employee has worked for a year, they will get 50% of their salary. Meanwhile, an employee of three years may receive 100%.
Paternity leave in Saudi Arabia is for one day only, the day after having their baby.
There are about six national holidays celebrated across Saudi Arabia, some of which can be up to 12 days long. Most public holiday dates are speculative and are confirmed after moon-sighting permutations. Here are the Saudi holidays you need to know:
- Islamic New Year
- Eid Al Adha
- Day of Arafah
- Eid Al Fitr
- Yawm-Al-Taasis (Foundation day)
- Al-Yawm-Al-Watani (Saudi National Day)
Employees don't pay payroll tax in Saudi Arabia on personal income, especially when they make their sole living in the country. However, resident employees are required by law to remit a social security deduction of 10%. This is in addition to a 2% deduction on pension and unemployment insurance.
On the other hand, employers pay taxes, and the amount or percentage depends on the business you're running.
- Social security (GOSI): 12% for residents or 2% for non-residents
- Pension contributions and unemployment insurance (SANID): 18%
- Occupational hazard insurance: 2%
- Corporate income: 20%
The Kingdom of Saudi Arabia has currently established tax treaties with over 20 countries, including the United Kingdom and the United Arab Emirates. These tax treaties helps avoid tax fraud and double taxation of Saudi Arabian citizens.
The standard VAT paid in Saudi Arabia is 15.00%
Employers typically hire workers on a contractual arrangement due to its flexibility and ease of employment law compliance. The three forms of employment contracts in Saudi Arabia are temporary, indefinite, and fixed-term employment.
- Temporary employment. It lasts for 90 days and is for certain working hours per day or week.
- Fixed-term employment. There's usually a stipulated period for these appointments, and the job automatically ends at the predetermined date. It can be renewed up to three times and is converted to indefinite employment if the employee continues working after the contract expiration date.
- Indefinite employment. A tentative appointment has no expiration date and can only end at the request of either party.
According to the employment law of Saudi Arabia, employers must make sure that their workforce must consist of at least 75% Saudi nationals.
Either party can terminate the agreement in writing, provided they state the reasons. The party that initiates the cancellation must provide 30 days of notice for monthly contracts or 15 days for any other type of contract.
According to Saudi employment law, an employer must compensate for canceling an employment contract without reasonable cause.
An employee may receive severance pay of 50% of a month's salary for the first five years of work. Meanwhile, they will receive 100% of a month's salary for every year they worked after the first five. There are cases where the employer can withdraw severance pay, such as assault, breach of contract, forgery, and battery.
Partner with Skuad today to start your hiring process seamlessly and stay compliant with employment regulations.
Along with its flexible tax policy, investment in innovation, and political stability, the availability of skilled labor also favors payroll in Saudi Arabia. Working hand-in-hand with a payroll provider in Saudi Arabia like Skuad makes you 100% compliant with employment laws here.
There are many more benefits of partnering with us.
Did you know you can save thousands of dollars yearly on each employee you hire through us? Working with Skuad can help you realize an ROI of more than 27% for each individual you employ in Saudi Arabia.
Adjust to life in Saudi Arabia at your own pace. This country's cultural difference, climate, and language can make it quite challenging to settle down quickly, especially for foreign companies. Skuad is a payroll company renowned for helping foreign companies adjust to new surroundings in over160 countries, including Saudi Arabia.
Contact a Skuad agent to discover how to manage your most crucial resources—your workforce—while you take your time to settle down in this business-friendly country.
Individuals working in Saudi Arabia earn their wages in the local currency. Currently, the USD-SAR exchange rate is at $1=3.75 SAR.