The Saudi MHRSD launches labour reforms for private sector workers – update

What is the change?

On 14 March, Saudi labour reforms aimed at increasing employee mobility will take effect. These had been announced by the Ministry of Human Resources and Social Development (the Saudi labour ministry) in November 2020 with continued updates and clarification issued in the interim.

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

Second, employees will now be able to themselves apply for and obtain exit/re-entry permits and the final exit permit. Without these, an employee could not leave the country for travel or after end of employment, respectively. Previously, both these permits were the prerogative of the employer.

The changes do, however, mean that employers may need to revisit their strategies around retention and recruitment, and review the wider operational impact and accordingly amend their policies and employment terms. This is especially true considering most employers relied on these government ‘hard controls. Going forwards, employers will have to rely more on ‘soft controls’, such as terms and clauses that form part of the employment contract.

It should be noted that alongside these reforms there are broader related changes related to compliance, processes and government systems and portals. In most instances, there is a requirement to ensure ‘readiness’ for the reforms, otherwise employers can find themselves facing a litany of compliance-related impacts.

These reforms form part of the National Transformation Program that is aimed at reforming the Saudi labour market in line with Vision 2030, and so further reforms are to be expected. It should be anticipated that there may be further clarifications or changes to the reforms prior to, and post-roll-out.

What does the change mean?

The reforms increase employee mobility by removing employer consent for a number of processes, and sit alongside ancillary reforms, in particular the digitization of employment contracts. The key announced reforms are explained in summary below:

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 Saudi Arabia without consent of their current employer. This is subject to a number of conditions.
2. Exit and re-entry: Employees will be able to apply for exit and re-entry permits to travel outside Saudi Arabia 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, residence and work permit validity, organizational labour law compliance and Saudization (as measured through the Nitaqat system).

Implications

The aim of these reforms that increase employee mobility is to create a more competitive labour market which aligns with international norms. Indeed, one immediate outcome is that the purported advantage of hiring foreign labour is somewhat reduced, creating a more level playing field between local/Gulf nationals and expatriates, with the latter now granted freedom to change employer.

Recruitment is positively impacted, with firms operating in the Kingdom of Saudi Arabia being able to hire in-country talent, obviating some of the costs and challenges associated with recruiting from overseas.

At the same time, employers are liable to see increased exposure of their foreign talent to being recruited by others and may need to put into place relevant mitigation strategies, including talent retention as well as ensuring their employment terms are compliant, enforceable and align with talent retention. Market practice and norms are expected to evolve throughout the year and so benchmarking will be a continued exercise in the first instance. The failure to ensure compliance for firms that rely on their personnel, can lead to business continuity risks.