Managing Staff Costs in a Crisis Under Saudi Labor Law

When sales fall, a Saudi employer can bring staff costs down lawfully, but only with the tools the Labor Law provides. Start with the decisions that are yours alone: freeze hiring, control overtime, schedule annual leave with proper notice and use quiet weeks for training. Anything that changes an employee’s pay, hours, job or place of work needs the employee’s written agreement, documented on Qiwa for the contract, through Mudad for wages and with GOSI for the registered wage. A downturn on its own is not force majeure, so it does not end employment contracts, and the law gives no right to cut pay or impose unpaid leave unilaterally. Plan the steps in order, put every decision on paper and have a lawyer review any specific case before you act.

The ground rules: what you cannot change on your own

A few principles in the Labor Law decide which savings are open to you and which will turn into labor claims later.

• Wages belong to the contract. Article 61 requires the employer not to withhold a worker’s wage, or any part of it, without a judicial basis. Paying less than the agreed wage because business is slow falls inside that prohibition.
• Waivers do not hold. Article 8 voids any condition that contradicts the law, and any waiver or settlement of the worker’s rights under the law while the contract is in force, unless it is more beneficial to the worker.
• Contracts are written and documented. Article 51 requires the contract in two copies and its documentation under the relevant rules. In practice, the documented contract is the one on Qiwa.
• Arabic prevails. Article 9 requires Arabic in contracts, records and instructions to staff; if another language is used too, the Arabic text is the one that counts.
• Written consent is required by name to move a monthly-paid worker to daily, weekly, piece or hourly pay (Article 59), to transfer a worker to a place that requires a change of residence (Article 58), to assign work substantially different from the agreed job (Article 60) and to end a contract by mutual agreement (Article 74).

The result is a simple split. Hiring, overtime approval, leave scheduling, training and short emergency assignments are management decisions within the law. Everything else that touches the employment terms is a negotiation that only counts if the employee agrees in writing. For the method of finding savings across the whole business, see our cost reduction strategy guide; this article covers the staff side and its legal limits.

Start with the costs you control alone

Freeze hiring and replacements

The cheapest saving in a downturn is the employee you do not hire. A freeze removes recruitment fees, visa and work permit costs, onboarding time and the salaries themselves without touching anyone on the payroll. When someone leaves, ask whether the work can be redistributed, automated or bought in as a service before you backfill. Before you freeze Saudi hiring, check the effect on your Saudization classification on Qiwa, since a lower classification can restrict services such as new work visas.

Put overtime under control

Article 107 requires overtime to be paid at the hourly wage plus 50% of the basic wage, and all hours worked on official holidays and Eids count as overtime. Article 98 limits actual working time to 8 hours a day or 48 hours a week. Three steps help:

• Require written approval before overtime is worked, with a named approver per department.
• Rebuild shift patterns around the lower activity level so the work fits inside normal hours.
• With the employee’s agreement, Article 107 now allows paid compensatory leave days instead of overtime pay, under rules set by the regulations. This moves the cost to a quieter period rather than removing it.

Let fixed-term contracts run to their term

Article 74 lists the expiry of a fixed-term contract among the cases in which a contract ends, unless it has been renewed under the law. Review expiry dates early and decide each renewal deliberately. If a contract has been renewed several times or its renewal wording is unclear, ask a lawyer whether it is still fixed-term before relying on its expiry.

Annual leave: schedule it, do not cancel it or cash it

Article 109 gives every worker paid annual leave of at least 21 days a year, rising to at least 30 days after 5 continuous years with the same employer, paid in advance. The employer may set leave dates according to the needs of the work, or grant leave in rotation, provided the employee is notified at least 30 days before the leave date.

Three limits apply. Leave must be taken in the year it is earned and cannot be waived or exchanged for cash during service. It is paid, so scheduling it in a slow month saves the cost of covering absences later but does not reduce payroll. And unused leave does not disappear: under Article 111, a worker who leaves before using it is paid for those days, so large balances are a real liability.

1. Pull every employee’s leave balance and match it with payroll records.
2. Assign leave to the quiet weeks ahead, keeping enough people in each team to serve customers.
3. Send written notices well before the 30-day minimum and keep proof of receipt.
4. Start with the largest balances, which reduces the amount you would pay out at exit.

Training, temporary assignments and remote work

Use quiet time for training

Cross-training lets a smaller team cover more roles when activity returns and reduces dependence on overtime and temporary staff. For Saudi employees, check whether the Human Resources Development Fund (Hadaf) runs a program that fits.

Temporary assignments stay within narrow limits

• Article 60 bars assigning work substantially different from the agreed job without the worker’s written consent, except in cases of necessity caused by emergency circumstances, and then for no more than 30 days a year.
• Article 58 bars a transfer without written consent to a place that requires a change of residence. In cases of necessity, the employer may assign work in a different place for up to 30 days a year without consent, but bears the worker’s travel and accommodation costs.
• Article 38 bars employing a worker in an occupation other than the one in their work permit, so a non-Saudi employee cannot be moved to another occupation until it has been changed formally.

Under Article 81, a worker assigned substantially different work without consent, contrary to Article 60, may leave without notice and keep all statutory rights. Anything beyond a short emergency assignment should be agreed in writing.

Remote and flexible work

The text of the Labor Law has no separate chapter on remote work, so treat a move to remote or hybrid work as a change to the place and pattern of work: agree it in writing, set hours, equipment, data protection and expenses, and check the ministry’s current guidance. Remote work can cut office costs, but contractual allowances do not fall away automatically; as amended, Article 61 obliges the employer to provide suitable housing and transport, or a suitable cash allowance instead.

Moving a full-time employee to part-time changes hours and pay, so it needs the employee’s agreement. Article 119 adds that full-time workers affected by a collective and temporary reduction of their normal hours for economic, technical or structural reasons do not become part-time workers. It says nothing that would allow pay to be cut on that basis.

Changes by written agreement, documented on Qiwa and Mudad

When the measures above are not enough, the remaining options depend on the employee’s agreement: a temporary change in hours with a matching change in pay, a different role or location, or unpaid leave the employee asks for. Done properly, an agreed change can keep a team together. Done badly, it becomes the main exhibit in a labor claim.

Reach a genuine agreement

• Explain the company’s position honestly, with what the accounts show, and say what management itself is doing.
• Offer options, not a single take-it-or-leave-it document, and give people time to consider.
• Make changes temporary where possible, with an end date, a review date and a return to the original terms.
• Accept a refusal: an employee who says no keeps their existing terms.

Put it in writing

The agreement should be in Arabic, with a translation if needed, and state exactly what changes, from when, until when and when it will be reviewed. It should say how end-of-service, leave pay and the GOSI registered wage are handled: Article 84 calculates the end-of-service award on the last wage, so a temporary pay change can affect it. It should confirm that the employee’s other rights under the law are unaffected, consistent with Article 8. Have a lawyer review the template, and any case that does not fit it.

Document it where the authorities look

Update the contract on Qiwa, make sure the wage file submitted through Mudad shows the agreed wage, and keep the wage registered with GOSI equal to the real wage. A mismatch between these three records invites questions in any inspection or dispute. A reliable payroll processing routine keeps them in step every month.

Unpaid leave only at the employee’s request

Article 116 allows a worker, with the employer’s approval, to take unpaid leave for a period both agree, and treats the contract as suspended for any part beyond 20 days unless they agree otherwise. The initiative sits with the employee; an employer cannot send staff home without pay and call it leave.

Keep paying wages on time

Article 90 requires wages to be paid into workers’ bank accounts, monthly for monthly-paid staff. Under Article 94, a worker can claim unlawful deductions or late wages, and a fine of up to double the amount can be imposed. When cash is tight, payroll comes first; our guide to cash flow management in a crisis shows how to plan for it.

Force majeure under Article 74: when a contract ends and when it does not

Article 74 lists the cases in which an employment contract ends. They include agreement of both parties with the worker’s written consent, expiry of a fixed term, the will of one party in an indefinite contract under Article 75, resignation, retirement age, force majeure in paragraph 5, permanent closure of the establishment, ending the activity in which the worker is employed unless agreed otherwise, a final court decision in bankruptcy proceedings and any case provided by another law.

The law does not define force majeure, and it lists closure and ending an activity as separate cases. Nothing in the list treats a fall in sales or profit as a reason for a contract to end. The Ministry of Human Resources and Social Development explained the term in an explanatory memorandum on its website: force majeure is an event no one can foresee or avert, and to dissolve a contract it must make performance absolutely and permanently impossible until the end of the contract, not merely difficult. The Civil Transactions Law draws the same line for contracts in general; our article on force majeure under Saudi law explains it.

A lost contract, a weak season or rising costs make the business harder to run, but they do not make the employee’s work impossible. A downturn alone therefore does not end employment contracts, and treating it as force majeure exposes the company to compensation claims.

Much of what is written online about “force majeure under Article 74” refers to Article 41 of the executive regulations, added during the pandemic. The ministry’s memorandum ties it to situations in which the state takes measures requiring reduced hours or precautions, and says it applies only while that situation lasts: once the cause ends, the parties return to where they stood. It is not a general tool for a downturn; ask a lawyer whether any special rule applies to you today.

Note also Article 87: a worker who leaves work as a result of force majeure beyond their will is entitled to the full end-of-service award.

If a role cannot be kept: notice, end of service and SANED

Ending employment is the last option, not a cost-cutting tool, and every case needs legal review first. The law sets out what is owed:

• By agreement: the worker’s consent must be in writing (Article 74).
• Notice: Article 75 allows either party to end an indefinite contract for a legitimate reason with written notice. For a monthly-paid worker, the employer gives at least 60 days and the worker at least 30 days; where the wage is not paid monthly, either party gives at least 30 days. Whether a reason is legitimate is for the labor courts to decide.
• Pay in lieu: under Article 76, a party that does not observe the notice period pays the worker’s wage for that period.
• Job search: during the employer’s notice, Article 78 lets the worker be absent one full day a week, or 8 hours a week, with pay, to look for work.
• Unlawful termination: unless the contract sets an amount, Article 77 gives 15 days’ wage for each year of service in an indefinite contract, or the wage for the remaining term in a fixed-term one, and never less than two months’ wage.
• End of service: Article 84 sets half a month’s wage for each of the first 5 years and a month’s wage for each later year, on the last wage. Article 85 sets a reduced share when the worker resigns.
• Settlement: Article 88 requires dues to be settled within a week of the end of the relationship, or within two weeks when the worker ended the contract. Unused leave is paid under Article 111.

Unemployment insurance (SANED) for Saudi employees

GOSI describes SANED as insurance protection for Saudi contributors who become unemployed, when the conditions in the law and its regulations are met. Those conditions include Saudi nationality and qualifying contribution periods, and they exclude a person dismissed for a reason attributable to them or who left work of their own will. GOSI offers an online eligibility check by national ID number. Point affected employees to GOSI and do not promise a benefit. Never present an employer’s decision as a resignation: it is legally risky, and a resignation falls outside SANED. Check the effect on your Saudization classification before any Saudi role is affected.

The cost of getting it wrong

Labor disputes begin with an amicable settlement attempt through the ministry and can then go to the labor courts, where an employer can face back pay, notice pay, compensation under Article 77 and fines for late or deducted wages under Article 94. Article 81 also lets a worker leave without notice, keeping all statutory rights, when the employer fails its essential contractual or statutory obligations, such as paying the agreed wage. Add a lower Saudization classification, records that do not match across Qiwa, Mudad and GOSI, and the loss of your best people when trust breaks down.

Common mistakes

• Announcing a pay cut by email and treating silence as acceptance.
• Asking staff to sign blank, undated or backdated agreements.
• Sending staff home without pay and calling it leave.
• Calling a downturn force majeure to end contracts.
• Reassigning people beyond Articles 58 and 60, or outside their work permit occupation.
• Changing pay without updating Qiwa, Mudad and GOSI.

Where outside help fits

Most of these mistakes come from rushed work by a stretched HR team. HR outsourcing can take over the administration: leave plans, notices, contract updates on Qiwa, Mudad files and GOSI records. Innovant is not a legal practice; for the legal review of specific cases, Innovant coordinates with partner lawyers.

Frequently asked questions

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