Saudi Arabia’s Vision 2030 is a ‘blueprint for an ambitious nation’. With three key pillars, it aims to stimulate the economy, diversify revenue streams, and transform Saudi into a thriving global hub.
The long-term goals are centered around innovation, youth development, and expansion in digital services to ultimately create a strong and thriving country, where young top talent is at the heart of it. Since the 2030 vision announcement, Saudi has successfully introduced several reforms which aim to attract foreign investment, create new jobs and bolster the private sector.
Most recently, Saudi targeted regional HQs in a bid to encourage companies to move their headquarters here. There have also been numerous changes to labor laws which are set to modernize the economy, regulate the workforce, and attract more foreign workers to the country. Here, we’re going to take a deeper look at recent labor law changes and what this means for employers and entrepreneurs.
The labor and employment law changes came into effect in March 2021 impacting both employees and employers alike. Firstly, Saudi effectively modernized the Kafala system; an employment process for migrant workers used in the Gulf Cooperation Council (GCC) region for over 70 years.
For Saudi-based entrepreneurs, the key changes include a new addition to the Labor Law which supports the rights of both employers and employees, creating a more competitive and fair workforce society. 10 million expat workers will now enjoy more mobility; including the ability to switch jobs, leave the country without needing the permission of their employer, request sponsorship transfers from one company to another, and can now acquire residency visas that are not connected to said employer.
The key updates
- More freedom for private sector workers
- No prior approval needed for private sector workers to leave the country
- Private sector workers can apply for new positions, without consent from current employers
- Changes to entry and entry visa requirements for foreign workers
- Digitized contracts, private sector workers can apply for government service roles
These revamped laws apply to all expat workers, with a small number of exceptions, detailed below. The primary objective is to improve the contractual relationship between workers and employers and to empower both parties and their shared interests, according to the Ministry of Human Resources and Social Development.
Having an attractive job market for foreign workers creates positive change for Saudi employers. These reforms mean an increase in talented professionals seeking opportunities in The Kingdom, while also allowing employees freedom to explore different employment opportunities. An increase in professional workers, leads to the private sector naturally becoming more competitive which in turn promotes economic growth.
Employers can also expect fewer headaches when it comes to paperwork, as the move will reduce the number of likely disputes between employers and expat workers when it comes to exit visa and transfer requests. It also firms up the contractual relationship between employer and employees while keeping basic employer rights in place. For example, employees can only benefit from these updates if they have completed one year of work with their employer and must have a contract in place.
Potential challenges for SMEs
The overhaul of the system does not come without challenges. Abdulghani Al-Ansari, chairman of information technology firm Bayt Al-Edarah said “SMEs might have difficulties adjusting to the new reforms, in which employers must now digitally document new employees going forward.” The big challenge, he says, is “developing the human resources in SMEs, which are finding it difficult to absorb the concepts and mechanisms of the initiative easily.”
An adaptable HR team
- Employers aim for an adaptable HR team which is passionate about creating a fair working environment for your employees
- Register all employees with the Ministry of Labour and Social Development (MLSD) and the General Organization for Social Insurance (GOSI)
- Training for HR teams to understand the labour law updates
- Create a process to ensure all employees have digitized contracts in accordance with the new laws
Not all workers are affected
It’s worth noting that there are some exceptions to all this.
The Ministry of Human Resources and Social Development announced five professions in which the changes do not apply, which include private home drivers, home guards, domestic workers, shepherds, and gardeners. There are also further exceptional circumstances in which employees can transfer without prior approval, such as if the employee is not paid for three consecutive months, is a victim of human trafficking, or if an employer’s residency permit expires, or if they refused to renew their work permit or residency visa.
By modernizing the system, Saudi immediately becomes more attractive to foreign workers, resulting in entrepreneurs having a pool of highly-skilled talent to recruit from. The flow of talent throughout Saudi will also increase, new recruits are no longer tied to a company after a certain period and the Saudi workforce will become more competitive. These changes create a workforce that is more diverse, competitive, and open to new opportunities, which benefits employees, employers, and the national economy as a whole.