Payroll in Saudi Arabia

Hiring employees in Saudi Arabia entails completing various formalities, including setting up payroll.

Below, our specialists explain the main aspects to consider when setting up a company and handling payroll in Saudi Arabia.

What are the main payroll compliance requirements in Saudi Arabia?

Here are the main compliance requirements to consider when hiring employees in Saudi Arabia and setting up the payroll:

• the payment of GOSI (social security contributions) at the correct rates applicable to employers and employees;
• registration with the Wage Protection System, which implies the payment of salaries into employees’ personal bank accounts and the submission of the payment data into the Mudad system, which is managed by the Ministry of Human Resources and Social Development;
• maintenance of employment and social security records.

It is important to note that the minimum maintenance period for social security records in Saudi Arabia is 5 years, while for employment records, it is 6 years.  Also, all documents must be drafted in Arabic.

What are the payroll obligations of Saudi employers?

In Saudi Arabia, employers are required to withhold taxes and pay social security contributions as part of the payroll process on a monthly basis. Wages paid to employees are exempt from income tax, but social security taxes and withholding taxes for non-residents must be paid.

What are the social security contributions to be paid in Saudi Arabia?

Saudi Arabia has a robust social security system that offers retirement, disability, and survivor benefits to its citizens who are employed and self-employed. Also, payroll taxes are quite low when it comes to the part paid by employees.

From the point of view of payroll in Saudi Arabia, here is how social security contributions are distributed:

• social security contributions amount up to 10% of the gross wage for employees;
• Saudi companies must pay social security contributions ranging from 12% to 13.5%;
• foreign nationals must also pay social security contributions if they are employed here.

Here is a breakdown of social security payments for employees in Saudi Arabia:

• 9% must go to the social insurance fund;
• 1% will be directed to the unemployment fund.

For employers:

• 9% are paid for social insurance purposes;
• 1% for unemployment purposes;
• 2% must be paid as occupational hazard.

Most local businesses use the services of payroll companies in Saudi Arabia in order to streamline the process as much as possible.

Are there any differences in the payroll for foreign employees in Saudi Arabia?

Yes, the most important one is that foreign employees do not contribute to the retirement system in Saudi Arabia. They are only covered by the GOSI system in terms of occupational hazards. For this purpose, there is a 2% monthly payment made by the employer under which injuries and disabilities are covered.

Another difference is the end-of-service gratuity to which foreign workers are not entitled. Instead, at the end of their employment, they will receive a lump sum for the years they worked in the Saudi company.

Does Saudi Arabia have a minimum monthly wage?

Yes, the minimum monthly wage in Saudi Arabia is SAR 4,000. This rule applies to national workers in the private sector only. This means that foreigners are not subject to this regulation.

What is the payroll cycle, and what is the salary structure in Saudi Arabia?

The payroll cycle in Saudi Arabia is weekly or monthly, in accordance with the type of contract signed.

In respect to the structure of the salary, here are the most important aspects to note:

• employees are entitled to a basic salary, which is also used as a base for the end-of-service gratuity and social security contributions;
• workers can also obtain other benefits, such as: housing, transportation, and dependents’ maintenance, which must be clearly stated in the labor agreement and itemized accordingly in the payroll and payslip;
• salary payments must be made in Saudi accounts only and in SAR as a currency.

Other arrangements can also be made in terms of salary currency in the case of foreign employees.

How do I set up the payroll for a Saudi company?

As soon as an employment contract is signed, the employee must be registered with the payroll system in Saudi Arabia. Employees from other countries must register with the General Organization for Social Insurance (GOSI) in addition to being registered when applying for a visa. Each entity has a specific GOSI number, and the registration process is conducted using an online portal. On the first day of work, Saudi employees must be included as part of the onboarding procedure.

In Saudi Arabia, issuing employees with online payslips is acceptable by law, and payroll records must be maintained for at least 7 years.

Can I use specialized payroll services in Saudi Arabia?

Yes, there are plenty of payroll companies in Saudi Arabia, and the services offered by them are quite extensive, but most importantly, are provided in accordance with the type of entity, number of employees, and needs of the soliciting business.

Using an outsourced service, like that provided by our Saudi accountants, which implies drafting payslips and paying the personnel on their behalf, is one alternative for non-resident companies to handle the payroll for employees (local and foreign).

If you need payrollservices in Saudi Arabia, do not hesitate to contact us. We can also help you with starting a company in Saudi Arabia.