Saudi Labor Law sets strict rules for how employment relationships end, from notice periods and severance calculations to the specific misconduct scenarios that allow immediate dismissal. This guide covers the key articles you need to know, walks through compliant termination procedures, and explains what foreign employers without a local entity can do to stay on the right side of Saudi employment law.
What is termination law in saudi arabia
Termination law in Saudi Arabia requires employers to provide written notice, document valid reasons for dismissal, and pay specific compensation when ending employment. Under Saudi Labor Law (Royal Decree M/51), employers who terminate without valid cause owe 15 days’ wages per year of service under Article 77, subject to a minimum of two months’ wages. Article 80 allows immediate termination without notice or benefits in cases of serious misconduct: fraud, assault, or excessive absenteeism (15 or more consecutive days, or 30 non-consecutive days in a year).
The Ministry of Human Resources and Social Development (HRSD) oversees enforcement. Whether you’re ending a contract for cause, handling a resignation, or navigating a mutual separation, the specific articles of Saudi Labor Law determine what you owe and what procedures you follow.
Types of employment contracts under saudi employment law
Before you can terminate compliantly, you’ll want to know which contract type governs the relationship. Saudi Labor Law treats fixed-term and indefinite contracts differently when it comes to notice, compensation, and renewal.
Fixed-term contracts
A fixed-term contract specifies an end date. When that date arrives, the contract expires automatically with no notice required from either party.
If you terminate early without valid cause, you’ll typically owe compensation for the remaining contract period. For non-Saudi employees, fixed-term contracts are the default. If renewed three times consecutively, or if the total duration of the original contract and its renewals reaches four years (whichever happens first), the contract converts to indefinite status.
Indefinite contracts
An indefinite contract has no set end date. Either party can terminate it, but proper notice is required.
Saudi nationals are often employed under indefinite contracts, which offer more job security but also create different obligations at termination.
| Feature | Fixed-term contract | Indefinite contract |
|---|---|---|
| End date | Specified in contract | None |
| Automatic expiration | Yes, at contract end | No |
| Notice required | Only for early termination | Yes, always |
| Early termination cost | Remaining wages owed | Notice period pay |
| Common for | Expatriate workers | Saudi nationals |
Lawful grounds for terminating an employee in saudi arabia
Article 74 of Saudi Labor Law outlines the legitimate, no-fault reasons for ending employment. In these scenarios, neither party is at fault, and additional compensation beyond standard end-of-service benefits typically isn’t triggered.
Mutual agreement
Both parties can agree to end the contract at any time. The employee’s consent must be in writing. Verbal agreements won’t hold up if a dispute arises later.
Expiration of a fixed-term contract
When a fixed-term contract reaches its specified end date, the employment relationship concludes naturally. No notice or additional compensation is required unless the contract states otherwise.
Termination with valid cause
You can end a contract due to documented performance issues, policy violations, or business restructuring. Article 77 requires that the termination be justified and documented. Without proper records, what you consider “valid cause” may not hold up in a labor dispute.
Employee resignation
When an employee voluntarily resigns, different notice periods apply. Employees typically owe 30 days’ notice for indefinite contracts, compared to the 60 days required from employers. Resignation also affects end-of-service benefit calculations, which we’ll cover later.
When employers can terminate without compensation under article 80
Article 80 is the provision employers most often reference when dismissing staff for misconduct. It allows termination without notice, severance, or end-of-service benefits, but only in specific, documented circumstances.
Submitting fraudulent documents
If an employee provided fake credentials, falsified identity documents, or misrepresented qualifications during hiring, you can terminate immediately without compensation.
Failing to perform essential duties
An employee who neglects core job responsibilities can be dismissed under Article 80, but only after receiving written warnings. Without documentation, this ground won’t hold.
Violating workplace safety rules
Employees who disregard posted safety instructions can be terminated, provided they received written notice of the rules beforehand.
Repeated absenteeism
Saudi Labor Law sets specific thresholds:
- 15 or more consecutive days of absence without valid reason
- 30 or more non-consecutive days within a single year
Before terminating for absenteeism, you’re required to issue written warnings. The first warning comes after 10 days of consecutive absence or 20 non-consecutive days.
Disclosing confidential information
Sharing trade secrets, proprietary data, or business-sensitive information without authorisation is grounds for immediate dismissal.
Committing gross misconduct
Assault on colleagues or management, theft, fraud, or intoxication at the workplace all qualify. These situations allow immediate termination without the warning requirements that apply to performance issues.
Document everything. Even when Article 80 clearly applies, labor courts will examine whether you followed proper procedures. Keep written warnings, incident reports, and witness statements on file.
What employers owe for unlawful termination under article 77
When termination doesn’t meet lawful grounds, the employee is entitled to compensation. The amount depends on the contract type and what’s specified in the employment agreement.
- Fixed-term contracts: You owe the employee their wages for the remaining contract duration, or two months’ wages, whichever is greater.
- Indefinite contracts: Compensation equals 15 days’ wages for each year of service, with a minimum of two months’ total wages.
If your employment contract specifies a different compensation amount, that figure applies instead.
Notice period requirements in saudi arabia
Proper notice protects both parties and gives employees time to find new work. The requirements differ based on contract type and who initiates the termination.
Notice for indefinite contracts
For indefinite contracts, the notice period depends on who’s ending the relationship:
- Employer-initiated termination: At least 60 days’ written notice
- Employee resignation: At least 30 days’ written notice
Your employment contract can specify longer periods, and those terms take precedence.
Notice for fixed-term contracts
Fixed-term contracts don’t require notice at natural expiration. The end date serves as notice. If you’re terminating early, you’ll either provide notice as specified in the contract or pay the employee in lieu of notice.
Payment in lieu of notice means paying the employee their full wages for the notice period instead of having them work through it.
End-of-service benefits and gratuity calculations
End-of-service benefits (EOSB), also called gratuity, are mandatory severance payments under Saudi employment law. Every employee who completes at least two years of service is entitled to EOSB upon termination, regardless of who initiates the separation.
How to calculate EOSB
The calculation uses the employee’s final wage (including allowances) and years of service:
- First five years: Half a month’s salary for each year
- Years beyond five: One full month’s salary for each year
For example, an employee with eight years of service earning SAR 15,000 monthly would receive:
- Years 1–5: 5 × (15,000 ÷ 2) = SAR 37,500
- Years 6–8: 3 × 15,000 = SAR 45,000
- Total EOSB: SAR 82,500
When EOSB is reduced or forfeited
EOSB isn’t always paid in full. The amount changes based on how the employment ends:
- Resignation before two years: No EOSB owed
- Resignation between two and five years: One-third of the calculated amount
- Resignation between five and ten years: Two-thirds of the calculated amount
- Resignation after ten years: Full EOSB
- Termination under Article 80: EOSB forfeited entirely
When you terminate an employee rather than them resigning, they’re entitled to full EOSB unless Article 80 applies.
Special termination scenarios in saudi arabia
Not every termination fits neatly into the standard categories. Here’s how to handle some common edge cases.
Termination during probation
Saudi Labor Law allows probation periods of up to 90 days, extendable to 180 days with written agreement. Under Article 53, either party can terminate during probation without notice or compensation, unless the employment contract explicitly states otherwise.
Termination after implicit renewal
When a fixed-term contract continues past its end date without explicit renewal, it may convert to an indefinite contract. This changes your termination obligations significantly: you’d now owe 60 days’ notice instead of simply letting the contract expire.
Handling employee resignations
When an employee resigns, you’re still responsible for:
- Pro-rated EOSB based on years of service
- Payment for unused annual leave
- Any pending salary or allowances
- Final settlement within two weeks of the last working day
Saudization and workforce compliance
The Nitaqat program requires companies to maintain minimum percentages of Saudi national employees. If your Saudization ratio falls below required thresholds, you may need to restructure your workforce, which can include terminating expatriate workers.
These terminations still require proper notice and EOSB payments. Nitaqat compliance doesn’t override individual employment rights.
How foreign employers can navigate saudi termination compliance
If your company doesn’t have a legal entity in Saudi Arabia, you can’t directly employ workers there. Attempting to do so creates significant legal exposure, including potential fines, back taxes, and visa violations.
Foreign employers typically have two options. First, you can establish a local entity, which takes months and requires ongoing compliance with Saudi corporate and labor law. Second, you can partner with an Employer of Record (EOR), which becomes the legal employer on your behalf and handles contracts, payroll, terminations, and compliance.
When you work with an EOR, the EOR manages all termination communications and procedures. This is particularly important in Saudi Arabia, where improper termination handling can result in labor court cases and Ministry of Labor complaints.
Steps to execute a legally compliant termination
Following a structured process protects your company and ensures employees receive what they’re owed.
1. Document the grounds for termination
Before initiating termination, gather all relevant evidence: written warnings, performance reviews, attendance records, and policy violation reports.
2. Issue written notice to the employee
Your termination notice includes the employee’s name and position, the termination date, the specific reason for termination, reference to the applicable Saudi Labor Law article, and information about final settlement and EOSB.
3. Calculate final settlement and EOSB
Your final payment calculation includes end-of-service benefits, payment for unused annual leave, any pending salary, bonuses, or allowances, and repatriation costs for expatriate employees (if applicable).
4. Process final payments
Saudi Labor Law requires final settlement within one week of the termination date for employer-initiated terminations. For resignations, payment is due within two weeks.
5. Complete IQAMA and exit procedures
For expatriate workers, you’ll either transfer their iqama (residency permit) to a new sponsor or cancel it and arrange an exit visa. The iqama cancellation process goes through the Qiwa platform.
6. Obtain a signed release
A signed acknowledgment from the employee confirming receipt of all dues protects against future labor disputes.
Common termination mistakes to avoid
Terminating without documented cause
Verbal warnings don’t count. If you terminate for performance issues or policy violations without written documentation, you’ll likely lose any labor dispute.
Failing to provide proper notice
Skipping the notice period triggers immediate payment obligations. You’ll owe the employee their full wages for the notice period, plus potential Article 77 compensation.
Miscalculating end-of-service benefits
Common errors include using base salary instead of final wage (which includes allowances), miscounting years of service, or applying the wrong formula for resignation versus termination.
Ignoring contract termination clauses
Some employment contracts contain specific termination terms that differ from statutory defaults: longer notice periods, higher severance amounts, or additional conditions. Always review the contract before initiating termination.
Communicating termination improperly
When working with an EOR, you don’t communicate termination directly to the employee. The EOR manages all employee communications to ensure legal compliance and proper documentation.
Simplify saudi arabia compliance with RemotePass
Managing terminations in Saudi Arabia requires navigating specific labor law articles, calculating EOSB correctly, handling iqama procedures, and maintaining proper documentation throughout.
RemotePass EOR acts as the legal employer for your Saudi-based team, handling the entire termination process, from documentation and notice to EOSB calculations and exit procedures. You maintain day-to-day management of your team while RemotePass ensures every termination complies with Saudi employment law. Book a RemotePass demo to see how it works.
FAQs about termination law in saudi arabia
Can an employee return to saudi arabia after employment termination?
Yes, employees can typically return to Saudi Arabia for future employment with a new sponsor. The main exceptions are active travel bans or unresolved labor disputes.
What happens to an expatriate worker’s IQAMA after termination?
The employer is responsible for either transferring the iqama to a new sponsor or cancelling it and arranging an exit visa through the Qiwa platform.
Can an employer in saudi arabia terminate an employee immediately without notice?
Yes, but only under Article 80 circumstances. Immediate termination without notice or compensation is permitted for specific acts of misconduct: fraud, gross negligence, assault, repeated absenteeism, or disclosure of confidential information.
How long does an employee have to file a labor dispute in saudi arabia?
Employees typically have 12 months from the date of termination or the disputed event to file a complaint with the labor office.
Does saudi termination law differ for saudi nationals versus expatriate workers?
The core termination rules under Saudi Labor Law apply equally to both. However, expatriate workers face additional considerations: iqama cancellation, exit visa procedures, and potential repatriation costs.
