Comprehensive Guide to Saudi Arabia Payroll Outsourcing
If you are planning to expand your business to Saudi Arabia, you need to understand the payroll regulations. Additionally, the compliance requirements of the country. Payroll outsourcing is a popular option for many foreign companies that want to save time, money and hassle when setting up and manage payroll in Saudi Arabia. Employers who hire employees in Saudi Arabia need to be aware of how all this process work.
In this article, we will explain the benefits of payroll outsourcing. In addition, we will discuss the taxation rules, and the different payroll options for companies in Saudi Arabia.
Taxation rules
Saudi Arabia does not impose personal income tax on employees in Saudi Arabia, regardless of their nationality or residency status. However, there are other taxes and social security contributions that employers and employees in Saudi Arabia need to pay. For example:
Zakat
This is a religious tax that applies to Saudi and GCC nationals who own businesses or assets in Saudi Arabia. The zakat rate is 2.5% of the net worth of the business or asset.
Corporate income tax
This is a tax that applies to non-Saudi and non-GCC companies that operate in Saudi Arabia.
Withholding tax
This is a tax that applies to payments made by Saudi companies to non-resident entities or individuals. Such as dividends, royalties, interest, technical fees, etc. Furthermore, the withholding tax rates vary from 5% to 20%. It depends on the type of payment and the recipient’s country of residence.
Social security
This is a mandatory contribution that employers and employees in Saudi Arabia need to pay to the General Organization for Social Insurance (GOSI). The social security rates are 22% for employers and 10% for employees in Saudi Arabia, based on the monthly salary. The social security covers benefits such as pensions, disability, death, occupational injuries, etc.
These are the regulations for those who are applying to labor visa in Saudi Arabia or those who have one.
This option involves hiring a third-party service provider to handle the payroll functions. Such as, calculating salaries, deductions, taxes, zakat, social security contributions, and issuing pay slips. Outsourcing can save time and resources for the company, as well as ensure compliance with the local laws and regulations.
In-house
This option involves setting up a professional payroll department within the company, or assigning the payroll tasks to an existing department. In addition, for example, finance or human resources. In-house payroll can give the company more control and flexibility over the payroll process, as well as reduce the risk of data breaches or errors.
Hybrid
This option involves a combination of outsourcing and in-house payroll. Here the company outsources some of the payroll functions to a third-party service provider. Furthermore, this option retains some of the functions in-house. Hybrid payroll can offer the best of both worlds. Why? Because it can balance the benefits and drawbacks of outsourcing and in-house payroll.
How to Set Up a Payroll in Saudi Arabia
Regardless of which option the company chooses for its payroll management, there are some steps that need to be taken to set up a payroll in Saudi Arabia:
Register with the General Authority of Zakat and Tax (GAZT)
The GAZT is the Saudi government agency in charge of administering income tax and zakat. The company must register with the GAZT within 30 days of beginning commercial operations in Saudi Arabia or employing its first employee. The GAZT will issue the firm a tax identification number (TIN). This files tax returns and pay taxes.
Register with the General Organization for Social Insurance (GOSI)
The GOSI is the Saudi government agency in charge of handling social security contributions. Within 10 days of employing its first employee, the firm must register with the GOSI. Additionally, the GOSI will issue the firm a social security number (SSN). This will be useful to file social security returns and make contributions.
Join the Wages Protection mechanism (WPS)
The WPS is a mechanism that assures employees in Saudi Arabia receive their paychecks on time. Also, in full by transferring funds electronically from their employers’ accounts to their bank accounts. Within 60 days of employing its first employee, the firm must register with WPS through its bank. Moreover, the bank will provide the firm a WPS number to transfer payment to the employees.
Gather employee information
The firm must gather pertinent information from its employees in Saudi Arabia. Such as personal information, bank account information, employment contract information, tax status, social security status, and so on. Finally, this information must be kept up to date and correct at all times by the firm.
Payments
Calculate salaries and deductions
Based on their employment contract, the firm must calculate each employee’s gross compensation and subtract any appropriate taxes, zakat, social security contributions, or other deductions from their net salary. Nonetheless, for these computations, the firm must adhere to the GAZT and GOSI norms and prices.
Payslips
Each month, the firm must send payslips to each employee, including their gross compensation, net salary, deductions, allowances, bonuses, and so on. Paystubs must be clear and thorough, and must adhere to local rules and regulations.
Pay transfers
Every month, the corporation must send each employee’s net pay to their bank account using WPS. The firm must guarantee that salaries are paid on schedule and in full, with no delays or mistakes.
Entitlement/Termination Terms
The entitlement and termination terms for employees in Saudi Arabia are in the hands of the Labor Law. Some of the main entitlements and terms are:
Probation period
The probation period for employees in Saudi Arabia cannot exceed 90 days, and can only be extended once for another 90 days. However, the employer can terminate the employee without notice or compensation during the probation period, unless the termination is based on discrimination or arbitrary reasons.
Working hours
The normal working hours for employees cannot exceed eight hours per day or 48 hours per week, except for certain sectors or activities that are exempted by the Labor Law. Additionally, the working hours can be increased to nine hours per day or 54 hours per week during Ramadan.
Overtime
The overtime hours for employees cannot exceed 12 hours per week. That must be taken into compensation by an additional 50% of the normal wage. The employer can also grant the employee a compensatory leave instead of overtime pay. However, only as long as the employee agrees to it in writing.
Annual leave
The annual leave for employees is 21 days per year. This can increase to 30 days after five years of service. The employer must pay the employee their full wage and allowances before they go on annual leave.
More leaves and termination
Sick leave
The sick leave for employees is 180 days annually. This can be taken in four consecutive or separate periods. The employer must pay the employee their full wage for the first 30 days of sick leave. They payment translates to 75% of their wage for the next 60 days, and no wage for the remaining 90 days.
Maternity leave
The maternity leave for female employees is 10 weeks. This can extend to another four weeks in case of illness or complications. The employer must pay the female employee their full wage during maternity leave. However, it only applies if they have worked for at least one year before going on maternity leave.
Hajj leave
The hajj leave for Muslim employees is 10 days, which can be taken once during their service. It only applies if the employer has been working for 2 years.
Termination
Employment contracts can be terminated via mutual agreement, term expiration, resignation, retirement, death, disability, or dismissal. If an employee commits a major misbehavior or violation of contract, such as dishonesty, negligence, absenteeism, insubordination, etc., the employer has the right to fire them without warning or compensation. If the employee has a good cause. Such as violation of contract, harassment, assault, etc., they can quit from their work contract without notice or pay. In other circumstances, before terminating an employment contract, the employer or employee must provide at least 60 days’ notice (or 30 days for indefinite contracts).
These terms only apply for employees in the country that already have a Saudi Arabia company visa. They need to have been working for a certain amount of time for a Saudi business.
Payroll Processing Company in Saudi Arabia
If you are looking for a reliable and professional Saudi Arabia Payroll Processing Outsourcing, you can contact us. We are a leading payroll outsourcing company that provides comprehensive payroll solutions for companies and individuals in Saudi Arabia. In addition, other Middle Eastern countries as well. We have a team of professional payroll experts who can handle all your payroll needs. For example:
Collection and verification of employee information
Calculation of salaries and deductions
Issuance of pay slips
Transfer of salaries
Filing and payment of taxes and social security contributions
Compliance with local laws and regulations
Reporting and analysis
We offer flexible payroll packages that suit your budget and requirements. Also, we use advanced payroll software and technology that ensure accuracy and security of your payroll data. Furthermore, we guarantee timely and hassle-free payroll processing that will save you time and money. Nonetheless, our plans will allow you to focus on your core business activities.
In sum, contact us today for consultation on our payroll services for Saudi Arabia.
Alex joined Connect Group as a Document Controller couple of years back.
He is in charge of all controlled documents for the company,
making sure everyone is on the same page when they need to be.
He also create, design and maintain the architecture for document
processes and procedures and enforce the proper
chain of action and document identification.
Alex go through all confidential documents and make edits,
updates, and check for accuracy. Once this process is completed,
he will approve the documents and distribute it to the right team.
He also ensures proper labeling, numbering, and
accessibility of the documents to all team members.
Comprehensive Guide to Saudi Arabia Payroll Outsourcing
If you are planning to expand your business to Saudi Arabia, you need to understand the payroll regulations. Additionally, the compliance requirements of the country. Payroll outsourcing is a popular option for many foreign companies that want to save time, money and hassle when setting up and manage payroll in Saudi Arabia. Employers who hire employees in Saudi Arabia need to be aware of how all this process work.
In this article, we will explain the benefits of payroll outsourcing. In addition, we will discuss the taxation rules, and the different payroll options for companies in Saudi Arabia.
Taxation rules
Saudi Arabia does not impose personal income tax on employees in Saudi Arabia, regardless of their nationality or residency status. However, there are other taxes and social security contributions that employers and employees in Saudi Arabia need to pay. For example:
This is a religious tax that applies to Saudi and GCC nationals who own businesses or assets in Saudi Arabia. The zakat rate is 2.5% of the net worth of the business or asset.
This is a tax that applies to non-Saudi and non-GCC companies that operate in Saudi Arabia.
This is a tax that applies to payments made by Saudi companies to non-resident entities or individuals. Such as dividends, royalties, interest, technical fees, etc. Furthermore, the withholding tax rates vary from 5% to 20%. It depends on the type of payment and the recipient’s country of residence.
This is a mandatory contribution that employers and employees in Saudi Arabia need to pay to the General Organization for Social Insurance (GOSI). The social security rates are 22% for employers and 10% for employees in Saudi Arabia, based on the monthly salary. The social security covers benefits such as pensions, disability, death, occupational injuries, etc.
These are the regulations for those who are applying to labor visa in Saudi Arabia or those who have one.
Saudi Arabia Payroll Options for Companies
There are main options for companies to manage their payroll in Saudi Arabia:
This option involves hiring a third-party service provider to handle the payroll functions. Such as, calculating salaries, deductions, taxes, zakat, social security contributions, and issuing pay slips. Outsourcing can save time and resources for the company, as well as ensure compliance with the local laws and regulations.
This option involves setting up a professional payroll department within the company, or assigning the payroll tasks to an existing department. In addition, for example, finance or human resources. In-house payroll can give the company more control and flexibility over the payroll process, as well as reduce the risk of data breaches or errors.
This option involves a combination of outsourcing and in-house payroll. Here the company outsources some of the payroll functions to a third-party service provider. Furthermore, this option retains some of the functions in-house. Hybrid payroll can offer the best of both worlds. Why? Because it can balance the benefits and drawbacks of outsourcing and in-house payroll.
How to Set Up a Payroll in Saudi Arabia
Regardless of which option the company chooses for its payroll management, there are some steps that need to be taken to set up a payroll in Saudi Arabia:
The GAZT is the Saudi government agency in charge of administering income tax and zakat. The company must register with the GAZT within 30 days of beginning commercial operations in Saudi Arabia or employing its first employee. The GAZT will issue the firm a tax identification number (TIN). This files tax returns and pay taxes.
The GOSI is the Saudi government agency in charge of handling social security contributions. Within 10 days of employing its first employee, the firm must register with the GOSI. Additionally, the GOSI will issue the firm a social security number (SSN). This will be useful to file social security returns and make contributions.
The WPS is a mechanism that assures employees in Saudi Arabia receive their paychecks on time. Also, in full by transferring funds electronically from their employers’ accounts to their bank accounts. Within 60 days of employing its first employee, the firm must register with WPS through its bank. Moreover, the bank will provide the firm a WPS number to transfer payment to the employees.
The firm must gather pertinent information from its employees in Saudi Arabia. Such as personal information, bank account information, employment contract information, tax status, social security status, and so on. Finally, this information must be kept up to date and correct at all times by the firm.
Payments
Based on their employment contract, the firm must calculate each employee’s gross compensation and subtract any appropriate taxes, zakat, social security contributions, or other deductions from their net salary. Nonetheless, for these computations, the firm must adhere to the GAZT and GOSI norms and prices.
Each month, the firm must send payslips to each employee, including their gross compensation, net salary, deductions, allowances, bonuses, and so on. Paystubs must be clear and thorough, and must adhere to local rules and regulations.
Every month, the corporation must send each employee’s net pay to their bank account using WPS. The firm must guarantee that salaries are paid on schedule and in full, with no delays or mistakes.
Entitlement/Termination Terms
The entitlement and termination terms for employees in Saudi Arabia are in the hands of the Labor Law. Some of the main entitlements and terms are:
The probation period for employees in Saudi Arabia cannot exceed 90 days, and can only be extended once for another 90 days. However, the employer can terminate the employee without notice or compensation during the probation period, unless the termination is based on discrimination or arbitrary reasons.
The normal working hours for employees cannot exceed eight hours per day or 48 hours per week, except for certain sectors or activities that are exempted by the Labor Law. Additionally, the working hours can be increased to nine hours per day or 54 hours per week during Ramadan.
The overtime hours for employees cannot exceed 12 hours per week. That must be taken into compensation by an additional 50% of the normal wage. The employer can also grant the employee a compensatory leave instead of overtime pay. However, only as long as the employee agrees to it in writing.
The annual leave for employees is 21 days per year. This can increase to 30 days after five years of service. The employer must pay the employee their full wage and allowances before they go on annual leave.
More leaves and termination
The sick leave for employees is 180 days annually. This can be taken in four consecutive or separate periods. The employer must pay the employee their full wage for the first 30 days of sick leave. They payment translates to 75% of their wage for the next 60 days, and no wage for the remaining 90 days.
The maternity leave for female employees is 10 weeks. This can extend to another four weeks in case of illness or complications. The employer must pay the female employee their full wage during maternity leave. However, it only applies if they have worked for at least one year before going on maternity leave.
The hajj leave for Muslim employees is 10 days, which can be taken once during their service. It only applies if the employer has been working for 2 years.
Employment contracts can be terminated via mutual agreement, term expiration, resignation, retirement, death, disability, or dismissal. If an employee commits a major misbehavior or violation of contract, such as dishonesty, negligence, absenteeism, insubordination, etc., the employer has the right to fire them without warning or compensation. If the employee has a good cause. Such as violation of contract, harassment, assault, etc., they can quit from their work contract without notice or pay. In other circumstances, before terminating an employment contract, the employer or employee must provide at least 60 days’ notice (or 30 days for indefinite contracts).
These terms only apply for employees in the country that already have a Saudi Arabia company visa. They need to have been working for a certain amount of time for a Saudi business.
Payroll Processing Company in Saudi Arabia
If you are looking for a reliable and professional Saudi Arabia Payroll Processing Outsourcing, you can contact us. We are a leading payroll outsourcing company that provides comprehensive payroll solutions for companies and individuals in Saudi Arabia. In addition, other Middle Eastern countries as well. We have a team of professional payroll experts who can handle all your payroll needs. For example:
We offer flexible payroll packages that suit your budget and requirements. Also, we use advanced payroll software and technology that ensure accuracy and security of your payroll data. Furthermore, we guarantee timely and hassle-free payroll processing that will save you time and money. Nonetheless, our plans will allow you to focus on your core business activities.
In sum, contact us today for consultation on our payroll services for Saudi Arabia.
Alexander M
Alex joined Connect Group as a Document Controller couple of years back. He is in charge of all controlled documents for the company, making sure everyone is on the same page when they need to be. He also create, design and maintain the architecture for document processes and procedures and enforce the proper chain of action and document identification. Alex go through all confidential documents and make edits, updates, and check for accuracy. Once this process is completed, he will approve the documents and distribute it to the right team. He also ensures proper labeling, numbering, and accessibility of the documents to all team members.
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