As Saudi Arabia moves forward with the adjustment of its labour framework to align with Vision 2030, the question of how to efficiently handle the termination of employment contracts has become a necessity for employers and employees alike.
The changes unveiled lately and planned to take effect in 2025 put a great deal of emphasis on the principles of fairness, compliance, and openness, not only throughout the contract cycle but also in the personnel processes, i.e., from onboarding to offboarding. In this blog, we summarise important rules, notice periods, compensation, and compliance steps to take note of in the Kingdom of Saudi Arabia in terms of the latest laws and practices.
Understanding Contract Types and Renewal Rules
Saudi labour law categorises contracts based on whether the terms are fixed or indefinite.
- Fixed-term contracts officially terminate upon reaching the agreed-upon expiration date. If work under a fixed-term contract continues beyond the expiration date or the work continues without a new contract, the Labour Law, in accordance with Article 55 of the Saudi Labour Law, agrees that a fixed-term contract will be regarded as renewed indefinitely.
- A fixed-term contract will immediately convert to an indefinite contract if it is renewed three times or if the total duration of the term and renewals spans four years, provided that the parties continue to work together.
Both criteria provide clarity while attempting to minimise disputes regarding the legal status of the employment relationship. The Article 37 requirement for non-Saudi workers also provides additional clarity on the renewal and conversion provisions, reinforcing the mobility of the labour force and work permitted, as well as security of employment.
Valid Reasons and Procedures for Contract Termination
In Saudi Arabia, contract termination is primarily governed by Articles 74, 75, 77, and 80 of the Labour Law.
- Under Article 74, work contracts may be ended by mutual consent (in writing), at the end of the term, or by the worker reaching retirement age (currently 60 years, though this can be lower in some sectors). Employers must provide a written document evidencing an employee’s agreement to (breaking) or mutual termination of a contract.
- Article 75 entitles either party to terminate an indefinite contract for legitimate reasons with at least 60 days’ notice for monthly wage workers and at least 30 days’ notice for other wage workers. The notice must include the reasons for the termination – this is important to protect both the employer and employee from arbitrary dismissal.
- Article 77 addresses compensation. If the indefinite contract is terminated without cause or in violation of the law, the injured party shall be entitled to compensation, which is equivalent to two months’ salary or the remainder of the fixed term in the case of fixed-term contracts. This provision safeguards against unfair dismissals and protects workers.
- Article 80 specifies a list of nine legal grounds for sacking without notice or severance, among which are highly improper behaviour, forgery of records, or repeated absenteeism. Nonetheless, a company must provide the worker with a chance to clarify their position before initiating any termination.
Highlight: The Ministry of Human Resources and Social Development has made it easier with an online employee-initiated termination service to ensure all parties are abiding by the law and communicating everything accurately.
Notice Periods, Resignation and Grace Periods
The new reforms create a more specific, structured, and transparent process relating to resigning and notice periods.
- For employees on indefinite contracts, a 30-day notice must be given.
- Employers are required to provide 60 days’ notice for an employee on a definite contract (or longer if stated in their contract).
- Resigning employee notices may be withdrawn within 7 days if the employer has not accepted them. An employer’s silence on a resignation means acceptance after 30 days.
A groundbreaking update in 2025 granted a 60-day grace period through Qiwa before designating an individual as “abandoning work”. This provision intends to allow the employees to transfer, re-sign contracts, or depart Saudi Arabia prior to being designated absent from work. This measure was meant to mitigate premature penalties, unfair dismissal, and bureaucratic disputes.
Compensation and End-of-Service Entitlements
Under Saudi law, all employers are required to make an end-of-service award to any worker whose contract has expired or who is legitimately terminated.
The award is calculated as follows:
- For the first 5 years of service: ½ a month’s wage for each year of service.
- For each year of service after 5 years: 1 month’s wage for each year of service.
- If a worker is terminated from service “without just cause,” in which case the award is calculated as such: 15 days’ wages for each year of service (for indefinite-term contracts) or remaining wages (minimum 2 months) for fixed-term contracts.
Employers must use the official End of Service benefits calculator to confirm accuracy. End-of-service benefits are very important for financial security, and they contribute greatly to workforce satisfaction, especially in light of the growing private sector in the Kingdom of Saudi Arabia (labour market participation was 67.1% in Q2 2025, with an unemployment rate of 3.2%).
Special Scenarios: Retirement, Mutual Agreement, and Article 80
- Termination due to Age: The legal retirement age is 60, at which time a worker’s employment contract will end, unless otherwise set out in the contract. Both the employer and the worker can mutually agree on different terms for an earlier or later retirement.
- Termination by Agreement: If both the employee and employer agree to end the employment, it must be done in writing and signed by both, ensuring that the employee is not pressured and that the agreement is clear for the future.
- Article 80 outlines nine egregious behaviours (for example, deception or wilful neglect) that allow an employer to terminate without compensation or notice. When an employer terminates an employee under Article 80, they must still give the worker a chance to contest the reason, ensuring the fairness of the process.
How can 6 Pence Help
Navigating the complexities of termination and severance processes in Saudi contracts can sometimes be challenging, especially with new reforms, frequent changes to notification requirements, and stricter audits. 6 Pence works with employers and HR teams to:
- Draft a compliant contract and termination policy
- Calculate appropriate end-of-service payouts
- Facilitate digital registration of contracts and compliance with Qiwa requirements
- Support effective offboarding, risk management, and legal compliance
Armed with extensive experience in Saudi labour law and operational people management, 6 Pence makes the flow from hiring through to closure smooth, equitable, and compliant, shielding both your talent and your business from regulatory risk.
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