The Saudi labour reforms for private sector workers are now live

The Saudi labour reforms are aimed at increasing employee mobility which took
effect on 14 March 2021.

The first component of these reforms is that employees are now, subject to conditions, able to transfer their employment in-country. Previously, an employee could not transfer their employment without their employer’s consent.

Secondly, employees are now able to apply for and obtain exit/re-entry permits and the final exit permit by themselves without permission from their employers. Without these permits, an employee could not previously leave the country for travel or after end of employment, respectively.

Through these reforms the government has increased focus on employer compliance. In addition, it is effectively penalizing employers who fail to authenticate employment contracts, comply with Wages Protection Systems, maintain Saudization or maintain up-to-date residency visas, amongst other issues.

The changes mean that employers should ensure they are compliant in the areas identified and may need to revisit their strategies around retention and recruitment. Employers must also review the wider operational impact and accordingly amend their policies and employment terms.

What does the change mean?

The reforms, explained below, increase employee mobility by removing employer consent for a number of processes.

1. Transfers of sponsorship: The reforms, for the first time, allow employees to transfer their employment to another employer after they have spent 12 months working in the Kingdom of Saudi Arabia (KSA) without the consent of their current employer. 
2. Exit and re-entry: Employees will be able to apply for exit and re-entry permits to travel outside of KSA without having to obtain their employer’s approval.
3. Final exit: Employees will be able to obtain their final exit visas to leave the country after the end of the employment contract without having to obtain permission from their employer. 

The reforms also detail key areas where employers need to ensure compliance,
including on contract authentication, salary payments, residency and
work permit validity, organizational labour law compliance and Saudization (as
measured through the Nitaqat system).

Implications

The aim of these reforms is to increase employee mobility in order to create a more competitive labour market which aligns with international norms. One immediate outcome is that the purported advantage of hiring foreign labour is somewhat reduced, as employers have to rely on incentivising expat employees to remain in employment rather than relying on the previous rules that prevented an expat employee leaving before the end of their employment contract.

Recruitment will be positively impacted, with firms operating in KSA being able to hire in-country talent, eliminating some of the costs and challenges associated with recruiting from overseas. 

At the same time, employers are likely to see an increased exposure to their foreign talent to being recruited by others and may need to put in place a relevant mitigation strategy. This strategy will need to include talent retention, as well as adopt the necessary steps to ensure their employment. Market practice and norms are expected to evolve throughout the year. Failure to ensure compliance will lead to business continuity risks.