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New Amendments to the Saudi Labour Law with a View of Reducing the Expatriates Working Unofficially

Guiding Principle

The number of expatriates working in Saudi Arabia is currently exceeding 33% of the inhabitants. Pushed by the large unemployment rates amongst the citizens, the Saudi government is adopting new strategies to reduce the number of expatriates in the Kingdom of Saudi Arabia.

A. Employing Expatriates in the Arab States of the Gulf

Mainly reliance on expatriates at labour market is a widespread phenomenon in all the Arab states of the Gulf[1] (GCC). Such phenomenon is a result of the exponential growth of the GCC states in a short period of time driven by the oil revenues.

Over the last decades, recruiting expatriates in the GCC has reached a point that their number has exceeded the number of the citizens in some of its states. In the UAE[2] for example, expats form about 90% of the inhabitants[3], while their ratio in Kuwait[4] is about 60%[5].

B. Sensing the Threat of the Presence of Expatriates

Beside having a high number of expatriates, the unemployment rate amongst the citizens is increasing dramatically, reaching its highest in the UAE by 20.8% amongst the citizens.

Considering this demographic imbalance, and under the pressure created from the dissatisfaction of its unemployed citizens, the local government adopts from time to time several strategies to reduce the number of expats.

C. The Need for Expatriates in the GCC

In most cases strategies for reducing the number of expats are not really successful due to the fact that the existence of expatriates is a main factor in the mentioned growth of the GCC.

Local employers constitute a reverse pressure on the governments in this regard due to the fact that the GCC suffers from shortage in the qualified local laborers. Moreover, the wage average of the citizens is in general much higher than those of the expats laborers, in particular for those who are working in a craft business.

D. The Situation in Saudi Arabia

In Saudi Arabia[6], there is no difference compared to other GCC countries. The expats in the largest state within the GCC in terms of area, population and influence, forms about 33% of the inhabitants of the Kingdom[7], while the unemployment rate amongst the citizens is reaching to 12.2%[8] ranking it at 31 worldwide.

In line with the above clarification, Saudi Arabia has adopted several strategies to achieve a reduction in hiring expatriates.

I. The Saudization

In an attempt to reduce the unemployment rate among the citizens, the Saudi government applied a system for the localization of jobs under the name of “The Saudization“. The basic principal of the system was the requirement to appoint certain percentage of the total workforce at all the establishments from the citizens. Generally the percentage was fixed by 30%.

However, due to several reasons, the system did not achieve the desired objectives and in most cases the 30% has not been reached.

II. Nitaqat

The Saudi government has endeavoured to find other solutions. A new system under the name “Nitaqat” for localizing the jobs in the Kingdom was implemented to replace the system of Saudization.

Nitaqat divides the labour market into 41 activities and each activity into 5 sizes (Giant, Large, Medium, Small and Very Small) to have in total 205 categories.

Nitaqat further classifies these establishments into ranges (Excellent, Green, Yellow and Red) based on the ratio of the citizens working in the establishment.

Nitaqat’s purpose is to appoint Saudi citizens representing a competitive advantage for employers in the Kingdom as this enhance their position to reach a higher rank “Nitaq” to enjoy its privileges.

III. The Rewards to the Excellent and Green Ranges and the Disadvantages of the Red and Yellow Ranges

Establishments located in the Excellent or in the Green ranges are eligible to issue work visas for the development of new business.

Furthermore, such establishments will have the ability to contract with non-Saudi laborers from other establishments of the Red and the Yellow ranges in the Saudi market.

This will result in granting the establishments that have achieved high rates of localization the opportunity to appoint non-Saudi laborers with no need to issue new work visas, which helps to rationalize the recruitment and employment of additional non-Saudi labor.

In contrast, the establishments located in the Red or in the Yellow range will be forced to speed the localization of the jobs within the establishments to upgrade their range to the Green or the Excellent range to maintain the expats they have.

Otherwise, the establishments located in Red and Yellow ranges will be denied from obtaining new or alternative visas, lose control over the non-Saudi labourers in the establishment as they will have the freedom of contract with a new employer and will not be allowed to obtain new work visas to appoint new-non-Saudis labourers to set up a new subsidiary or branch.

E. New Amendments to the Saudi Labour Law

On March 18th, 2013, the Saudi Council of Ministers chaired by H.R.H Crown Prince Salman bin Abdul-Aziz, has approved the amendments suggested by the Ministry of Labour and raised a draft for the Royal Decree to be promulgated by King Abdullah bin Abdul-Aziz in this regard.

The underlined sentences were added to the text of Article 39 of the Saudi Labour Law[9] (“SA-LL”) to read as follows:

  1. It is not permitted – without following the regulatory rules and procedures – that the employer let his employee work for others. The employee is not permitted to work for another employer, and the employer is not permitted to appoint the employee of someone else. The Ministry of Labour shall inspect the facilities, and investigate the violation that are tuned by its inspectors, and then forward them to the Ministry of Interior to apply penalties thereon.
  2. The employer is not permitted to let his employee work for his own account and the employee is not permitted to work for his own account. The Ministry of Interior shall arrest, deport and enforce the penalties on the violators from those who are working for their own account, from the streets. The Ministry shall arrest those who are absent from work (fleeing), their employers and those who are covering them, transferring them and each one has a rule in the violation and apply the penalties thereon.

As part of the amendments Art. 233 SA-LL has been cancelled, which provides that:

Anyone who violates the provision of Art. 39 of this law shall be punished by a fine no less than S.R. 5,000 and no more than S.R. 20,000 for each employee. The employee shall be deported on the account of the employer he found to be working for.

Art.233 SA-LL was replaced with a separate regulation under the title “Rules of Dealing with the Expatriates Violating the Regulations”, issued on the same day including more detailed penalties for violating the local regulations.

The current amendments come in line with the above clarified strategies aiming to reduce the number of the expatriates in the Kingdom. These amendments have targeted those who are working in violation to the SA-LL, which prohibits the expatriates from working for another employer without following the statutory procedures, noting that such procedures requires the approval of the current employer. The amendments have been issued for preventing other employers from employing such expatriates in violating to the statutory procedures.

Now, the Ministry of Labour is granted the right to inspect the facilities and investigate the violation that are tuned by its inspectors, and will be forwarded to the Ministry of Interior directly. The Ministry of Interior is currently actively inspecting expatriates on the streets in line with the above authorization.

April, 2013 Hany Kenawi
Meyer-Reumann & Partners, Saudi Arabia Office

 


[1] The Cooperation Council for the Arab States of the Gulf, also known as the Gulf Cooperation Council (GCC), is a political and economic union of the Arab states bordering the Persian Gulf and located on or near the Arabian Peninsula, namely Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and United Arab Emirates. For more information, kindly revert to the following webpage: http://en.wikipedia.org/wiki/Cooperation_Council_for_the_Arab_States_of_the_Gulf

[2] The United Arab Emirates, or the UAE, is an Arab country in the southeast of the Arabian Peninsula. The UAE is a federation of seven emirates (equivalent to principalities), each governed by hereditary emir, who choose one of their members to be the president of the federation. The constituent emirates are Abu Dhabi, Ajman, Dubai, Fujairah, Ras al-Khaimah, Sharjah and Umm al-Quwain. For more information, kindly revert to the following webpage: http://en.wikipedia.org/wiki/United_Arab_Emirates

[3] The population of UAE on July, 2010 has reached 8.2 million inhabitants, of whom 749,000 are Emiratis and the rest expatriates. Source: the Emirati National Bureau of Statistics. Website: http://www.uaestatistics.gov.ae/EnglishHome/tabid/96/Default.aspx

[4] The State of Kuwait is a sovereign Arab state situated in the north-east of the Arabian Peninsula in Western Asia. The country covers an area of 17,820 square kilometres (6,880 square miles). For more information, kindly revert to the following webpage: http://en.wikipedia.org/wiki/Kuwait

[5] The population of Kuwait on June 30, 2007 has reached 3,328.136 inhabitants, of whom 1,03.598 are Kuwaitis and the rest expatriates. Source: the Kuwaiti Central Department of Statistics. Website: http://www.csb.gov.kw/Default_EN.aspx

[6] The Kingdom of Saudi Arabia, is the largest Arab state in the Western Asia by land area (approximately 2,250.000 km2) constituting the bulk of the Arabian Peninsula, and the second largest in the Arab world. For more information, kindly revert to the following webpage: http://en.wikipedia.org/wiki/Saudi_Arabia

[7] The population of Saudi Arabia on 2012 has reached 29,195.895 inhabitants, of whom 19,838.448 are Saudis and the rest expatriates. Source: the Saudi Central Department of Statistics and Information (CDSI). website: http://www.cdsi.gov.sa/

[8] Source: A survey conducted by the CDSI on 2012.

[9] The Saudi Arabian Labour Statute (Law), promulgated by the Royal Decree No. M/51 dated 23.08.1426 A.H. corresponding to 27.09.2005 G, published in the official gazette “Um el Qurah” No. 4068 DATED 25.09.1426 A.H. corresponding to 28.10.2005, in force as of 29.03.1427 A.H. corresponding to 27.04.2006 G as amended (Abbrev. “SA-LL”).

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