Payroll in Saudi Arabia

Managing payroll in Saudi Arabia is more than just paying salaries. Companies must handle GOSI contributions, employee benefits, end-of-service gratuity, and income tax compliance. Each component requires precision and strict adherence to Saudi Labor Law to avoid penalties and maintain employee satisfaction.

This guide provides a comprehensive overview of payroll processes in Saudi Arabia, covering salary calculations, GOSI contributions, leave entitlements, and how an Employer of Record (EOR) like Globaine can simplify payroll management and ensure compliance.

Key Components of Payroll in Saudi Arabia

To effectively manage payroll in Saudi Arabia, companies must address the following key areas:

Overtime Payments
Mandatory Contributions (GOSI for Saudi Nationals and Expatriates)
Leave Entitlements and Holiday Pay
Salary Distribution and Payment Methods
End-of-Service Gratuity (ESG) Calculation
Payroll Outsourcing

Each of these elements has specific rules, processes, and deadlines outlined by Saudi Labor Law.

1. Overtime Payments in Saudi Arabia

Under Article 107 of the Saudi Labor Law, employees are entitled to overtime pay if they work beyond the standard 48-hour workweek.

Overtime Payment Rates:

Extra hours on weekdays: 150% of the hourly wage
Hours on weekends and holidays: 200% of the hourly wage

Hourly Salary Calculation:

Hourly Rate = Monthly Salary ÷ 30 (days) ÷ 8 (hours per day)

Maximum Overtime Limits:

Maximum of 2 hours/day, except in cases of emergency.

💡 Pro Tip: Use payroll software or partner with an EOR in Saudi Arabia to automate overtime calculations and ensure compliance.

2. GOSI Contributions for Saudi Nationals and Expatriates

GOSI (General Organization for Social Insurance) is the key social security system in Saudi Arabia. Contributions are required for both Saudi nationals and expatriates, but the rules differ.

GOSI Contributions for Saudi Nationals

Component	Employer Contribution	Employee Contribution	Total Contribution
Pension Insurance	9% of monthly wage	9% of monthly wage	18% of monthly wage
Unemployment Insurance (Saned)	1% of monthly wage	1% of monthly wage	2% of monthly wage
Occupational Hazard Insurance	2% of monthly wage	None (employer-only)	2% of monthly wage

Total GOSI Contribution for Saudi Nationals = 22% (12% employer + 10% employee)

GOSI Contributions for Expatriates

Component	Employer Contribution	Employee Contribution	Total Contribution
Pension Insurance	Not applicable	Not applicable	0%
Unemployment Insurance (Saned)	Not applicable	Not applicable	0%
Occupational Hazard Insurance	2% of monthly wage	None (employer-only)	2% of monthly wage

Total GOSI Contribution for Expatriates = 2% (Employer only)

3. Leave Entitlements in Saudi Arabia

Under Articles 109 to 118 and Article 160 of the Saudi Labor Law, employees are entitled to various types of leave. These leave entitlements include annual leave, sick leave, maternity leave, and bereavement leave.

Type of Leave	Entitlement	Conditions
Annual Leave	21 days (30 days after 5 years)	Employee must have completed 12 months of service
Sick Leave	120 days (30 full pay, 60 half pay, 30 unpaid)	Employee must provide medical proof
Maternity Leave	10 weeks (fully paid)	Available to female employees before and after childbirth
Paternity Leave	3 days	Available to male employees at the time of childbirth
Marriage Leave	5 days	Granted upon the marriage of an employee
Bereavement Leave	5 days	Upon death of a spouse or close family member

💡 Pro Tip: Employers must keep a record of employee leave entitlements and ensure timely payroll adjustments for paid, half-paid, or unpaid leaves.

4. Salary Distribution and Payment Methods

Companies in Saudi Arabia must adhere to strict rules on salary payments and follow the Wage Protection System (WPS), which mandates timely and transparent payment of wages to employees’ bank accounts.

Steps to Distribute Salaries:

Step	Action
Data Collection	Collect HR inputs (new hires, terminations, salary changes, bonuses)
Payroll Calculation	Use payroll software to generate a master report
HR Review	HR approves payroll data
Salary Transfer	Generate WPS-compatible files and transfer salaries through bank payments

💡 Pro Tip: Use payroll software or a local EOR like Globaine to ensure compliance with the WPS.

5. End-of-Service Gratuity (ESG) Calculation

End-of-Service Gratuity (ESG) is a statutory payment made to employees upon the end of their employment as per Article 84 of the Saudi Labor Law.

ESG Calculation:

First 5 years: Half-month salary for each year worked.
After 5 years: Full-month salary for each year worked.

💡 Example: If an employee with a monthly wage of SAR 10,000 works for 7 years, ESG will be calculated as:

For the first 5 years: 5 x (10,000 ÷ 2) = SAR 25,000
For the remaining 2 years: 2 x 10,000 = SAR 20,000
Total ESG Payment = SAR 45,000

6. Should You Outsource Payroll in Saudi Arabia?

Many companies now outsource payroll to EOR providers like Globaine to reduce administrative burdens and ensure compliance with local labor laws.

Benefits of Outsourcing Payroll to an EOR:

Benefit	Description
Compliance	Adhere to GOSI, WPS, and Saudi Labor Law requirements
Accuracy	Reduce the chance of miscalculations
Time-Saving	Free up HR teams for strategic tasks
Data Security	Protect sensitive employee payroll information

💡 Pro Tip: Partnering with Globaine ensures error-free payroll and full compliance with Saudi Labor Law.

How Globaine EOR Saudi Arabia Can Help

Globaine EOR provides comprehensive Employer of Record (EOR) services, ensuring smooth payroll management, compliance, and efficiency.

Our Services Include:

Payroll Compliance: Ensure timely compliance with GOSI, leave entitlements, and ESG payments.
Accurate Payroll Calculations: Manage gross-to-net calculations, overtime, and deductions.
WPS Compliance: Ensure employees are paid on time and through WPS-compatible bank transfers.
Leave Management: Track and manage employee leave and entitlement records.