Saudi Labor Law – Termination of Contract and Resignation

Working in the Middle East grants people from all over the world a hub of opportunities. It is through the right kind of human resource consulting that many businesses have obtained talented resources from worldwide to work in Saudi Arabia as well. However, an expat cannot independently acquire a work visa in the Kingdom of Saudi Arabia unless a local Saudi or a foreign company that is legally registered in the country sponsors him.

Many HR outsourcing companies in Saudi Arabia provide HR solutions to help employers recruit expat workers. It is common for foreign registered companies in Saudi Arabia to consult with HR outsourcing companies to enable those acquiring highly talented resources in KSA.

Also read: Advantages of HR Outsourcing

As there are rules and steps following the Saudi labor laws for hiring an employee, there are certain factors that an employer and the employee both, need to keep in consideration while applying for employment termination as well.

Termination of Contract and Resignation in Saudi Labor Law

Here are a few things that both parties employer and employee shall learn and understand before signing up for an employment contract.

Type of Contract

There are commonly two types of employment contracts in Saudi Arabia – open-ended contracts and fixed contracts. An open-ended contract is where the term of employment is not defined at the time of hiring. These types of contracts are also known as ‘permanent’, ‘indefinite’, or ‘retained’ contracts as there is no fixed tenure of employment agreed upon between the parties. Such kind of contract is often renewed and revised.

Contrary to this, a fixed contract is the type of contract in which the service tenure is defined and agreed between the employer and employee. In a fixed contract, the employee is automatically terminated from the service on the agreed date.

Notice Period

  • Open-ended Contract – The notice period for an open-ended contract is 60 days according the Article 75 of Saudi Labor Law. Whether it is the employer or the employee, whoever wants to terminate the service contract, must give a notice of 60 days.
  • Fixed Contract – The employer with a fixed contract does not necessarily provide a notice to the employee as the date for termination of service is decided at the time of the contract being signed. However, a notice period of 30 days is defined as per Saudi Labor Law in case the employee wishes to end the service before the decided date.

Resignation or Termination Notice

The notice or the resignation letter shall be in writing and must specify the reasons for the termination of the contract. The reason for the termination of the contract must be valid and shall not cause any harm to either of the parties. If the employer terminates the employee earlier than the decided date, this may be noted as a breach of contract.

Also read: Procedures for Employing Expats in KSA

Salary Disbursement

If the employee is terminated before the agreed date without a valid reason, the employer is liable to pay their salary for two months at least.

Retirement

According to Article 83 of Saudi Labor Law, the age of retirement for male employees is 60 years, and for female employees is 55 years. However, it is up to the employee if they wish to work after retirement, with an agreement between them and the employer they can continue the services.

End of Service Settlement

According to Article 84 of Saudi Labor Law, the employer must pay the employee an end-of-service award if the employee has worked in a company for five or more years. The end-of-service award is calculated by accumulating half of the salary of each month for the first five years and completing one month’s salary each month for the following years. The base salary to be considered is the last salary the employee draws.

An employer cannot terminate the employee based on illness and other health-related issues. According to Saudi Labor Law, in such a case, the employee reserves the right to obtain sick leaves combined with annual leaves to secure employment.

Whether you are an employee or an employer, the Saudi labor laws have clauses for the guidance of both parties. However, it is also a good option to consult reliable and experienced HR consultancy for HR solutions and clearer guidance on employee termination to prevent penalties.

Also read: Do’s and Don’ts for a HR Outsourcing

Searching for a Company With the Right HR Solutions for Assistance in Employee Termination?

Payroll Middle East specializes in all kinds of HR solutions providing your business with the optimum Human Resource Consulting. Our remarkable portfolio is proof of the excellence that we have poured into different businesses in the Middle East region. We have a team of diligent experts in HR consultancy, making Payroll Middle East one of the best HR outsourcing companies in Saudi Arabia.

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