SAUDI ARABIA Law and Practice Contributed by: Dana Halwani and Leanne Farsi, Derayah LLPC
• social, religious and customary rules; • public policy; • impossibility or frustration of purpose; • the employer’s by-laws and work rules; and • real business considerations. However, anything that appears arbitrary or dis - criminatory will not be accepted by the Labour Courts. Compensation When a fixed-term contract is terminated pre - maturely without cause, Article 77 of the Labour Regulation requires the courts to award compen - sation to the end of the contract (however long this may be), with a minimum of two months’ salary. The right to compensation applies not only when the employment contract is termi - nated early by the employer, but also when the employee terminates early without good cause. When an indefinite-term contract is terminated without cause, the employee receives 15 days’ salary for each year of service, or pro rata for an incomplete year, with a minimum of two months’ salary, unless compensation for unlawful termi - nation is set out in the employment contract. The compensation is in addition to the end-of- service benefits (ESBs) that are payable in any event. Under Article 84 of the Labour Regulation, when an employment contract comes to an end, as a general rule the employee is entitled to: • one-half of one month’s wages for each of the first five years of employment (or pro-rated part thereof); and • a full month’s wages for each year of employ - ment thereafter (or pro-rated part thereof).
Where an employee has resigned for reasons other than force majeure, the ESB is calculated as follows: • one-third of the Article 84 ESB for two to five years of employment; • two-thirds of the Article 84 ESB for six to ten years of employment; and • the full Article 84 ESB for employment of more than ten years. A waiver of the right to ESB is ineffective under Saudi Arabian law. The ESB is calculated with reference to the employee’s gross remuneration, which includes housing and transport allow - ances, regular bonuses, etc. Where housing and transport are provided to the employee, the actual value or fair market value of such benefits is taken as the basis of the calculation. 4.5 Employee Representations There are no trade unions in Saudi Arabia; employees’ interests are represented by the HRSD. The Labour Regulation sets out rules governing the investigation of complaints by labour inspectors. 5. Tax Law 5.1 Taxes Applicable to Employees/ Employers There is no personal income tax in Saudi Arabia. The government imposes charges on expatriate employees, which are proportional to the term of the employee’s work licence period. The fees are as follows: • Expats equal to or fewer than the number of Saudi employees: (a) SAR2,100 for a three-month licence period;
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