Test. Plan. Train. Repeat.
ME PoV Fall 2016 issue
Nationalization of the Saudi workforce in 2017
The year 2016 could well be remembered as the year the Kingdom of Saudi Arabia’s long-term ambition to localize its workforce really gathered momentum. More structure, definition and intent are now giving this 30 year-old vision solid grounding.
In June 2011 the Nitaqat initiative was first announced. Nitaqat (“band” or “zones”) sets targets for all KSA registered entities to meet in terms of the number of Saudi National employees they are mandated to employ (see chart below.) The percentage of Saudi Nationals to be employed varies by industry sector and size of entity. Companies are also ranked and placed in color bands/zones according to how they are performing in terms of Saudi national hiring. Companies rated as Platinum, High Green and Medium Green are performing well and more importantly are compliant with Nitaqat, while companies rated as Red, Yellow and Low Green do not have enough Saudi national employees, are non-compliant and are subject to a number of penalties imposed by the Ministry of Labor.
Within the last 6-9 months the Kingdom has implemented a number of policies all with the common goal to protect the local Saudi workforce. Collectively these initiatives place a strong obligation on all Saudi Arabian employers to hire, retain and develop their local Saudi talent.
In 2016 alone, the following policies were announced and are expected to be fully implemented by the end of the year, with penalties applied for employers who fail to comply:
- March 2016: Nationalization of the telecommunications sector comes into effect, making certain roles (e.g. all sales and maintenance roles pertaining to telecommunications) available to Saudi nationals only.
- April 2016: Regulations issued that provide guidance on the requirement for Saudi employers to provide training to their local Saudi workforce.
- May 2016: Expatriate engineers will be required to pass a competency-based assessment before being granted a Saudi work and residency (Iqama) permits. They will also be required to demonstrate at least three years’ relevant experience, thereby indirectly restricting junior roles to Saudi nationals only.
- July 2016: The Ministry of Labor announced that adjustments will be made to the existing Nitaqat model, with additional factors contributing to a company’s overall Nitaqat rating. This weighted Nitaqat initiative is expected to be introduced by the end of 2016. In addition to the total number of Saudi nationals employed by a company, Nitaqat ratings will also depend on the following factors; the number of Saudi females employed, the salary amounts paid to Saudi Nationals, the number of Saudi Nationals in senior roles and the length of service of the Saudi employees.
- August 2016: Labor market testing (via Taqaat online portal) before the hiring of foreign nationals becomes obligatory.
It is the most recent of these initiatives that is perhaps the most interesting and warrants closer examination when ascertaining what further obligations Saudi employers will be required to comply with.
Labor market testing
Employers within the Kingdom who are looking to hire foreign national employees must first perform a labor market test to demonstrate to the Ministry of Labor in KSA that no suitable local Saudi national candidate is available to take a particular position.
An online portal called Taqaat has been launched to facilitate this requirement. Taqaat will act as an online database where Saudi employers must advertize all forthcoming roles within their organization. Employers will be obliged to keep records of all the positions advertized, and of the Saudi national applicants who were considered for those positions. Where a local Saudi applicant is deemed unsuitable for a position, the employer will be required to provide justification for the decision.
Employers will only be able to proceed with an application for a new expatriate hire after it has been established that the role in question cannot be filled by a local Saudi national. This requirement is not designed to impact foreign nationals already present and working in Saudi Arabia who seek to transfer to a new employer within the kingdom.
The formal introduction of a labor market test, along with the aforementioned other measures, has placed many Saudi Arabian-based companies under pressure to adapt and conform quickly to an evolving compliance landscape.
For example, the announcement in March 2016 that the telecommunications sector was to become completely Saudized by September of this year, required employers in this sector to quickly find and recruit Saudi nationals to fill roles that had previously been held by expatriates. This exercise has proved challenging for several organizations, who have had to consider how they can meet the requirements of the authorities while maintaining continuity of business.
Saudi Arabian Labor Law (23/8/1426H) requires any company with 50 or more employees to provide annual training to at least 12 percent of its Saudi national workforce and plan succession paths for Saudi employees to eventually replace their foreign counterparts. The amendments to the Labor Law that came into force in October 2015, and more recent implementing regulations issued in April 2016, have provided additional guidance to employers operating within the Kingdom with respect to their obligations in this regard. It is anticipated that this rule, although technically already in force, will be enforced with greater rigor from the start of the Islamic New Year (expected 2 October 2016.)
The detail on the type of training to be provided–the content and the duration of any schemes implemented–has so far been left at the employer’s discretion with the following guidelines:
- Standards - The standard of training must comply with the recognized standards of any relevant body such as the Saudi Council of Engineers or Saudi Arabian Monetary Agency.
- Diverse programming – Training must include all strata of an organization, from the administration through to senior management.
- Assessment – Competency-based testing must be carried out to gauge employee performance as well as their future needs.
- Attainment - Certification should be issued detailing the training course(s) taken and the level of competency attained.
Coupled with this duty to formulate a training regimen within the workplace, employers will also have a duty to report annually to the Ministry of Labor (MoL) on the effectiveness of any training program and/or succession planning initiatives. The MoL will review the training methods implemented and the certifications issued. The MoL will also consider the effectiveness of the programs used. The effectiveness of any program will be evaluated essentially in terms of whether it facilitates the continual development of Saudi national employees in the workplace.
Further Saudization initiatives are also expected to come into effect early in the New Year (Gregorian.) Industry sectors that are expected to be impacted include the automotive and information technology (IT) sectors. The exact form of the changes is unknown but is likely to involve certain departments (within the companies that operate in these sectors) becoming completely Saudized akin to the sales departments within telecommunications companies (see above.)
Article 37 of the Labor Law stipulates that all non-Saudi employees must be engaged on fixed-term contracts. To this end, it is also expected that in due course the renewal of these fixed term employment contracts for expatriates will only be granted on the proviso that no suitable Saudi national has been trained to the requisite level needed to replace the expatriate employee. This type of eligibility assessment for the renewal of a work permit could become more prevalent in the coming months.
Companies within the Kingdom that do adapt to the increasing demands to nationalize the workforce are aware that further protectionist measures will be introduced in the near future. With this in mind the drive and focus for many employers in the Kingdom is likely to shift away from recruitment, and further towards research, development and investment in training the existing local Saudi workforce with the reasonable expectation that a foreign national employee may have to be replaced by a Saudi national in the future.
by Amir Mayo, Senior Manager, Global Employer Services, Tax, Deloitte, Middle East