Saudi Arabia’s labour market will undergo a dramatic change in 2025, owing to the reforms initiated under Vision 2030 and an increasing emphasis on transparent and digital recruitment processes. The country’s total workforce reached 18.2 million in Q2 of 2025, with expatriates representing approximately 77% of total employment and national participation in the private sector reaching 49.2%.

Given this evolving business environment, it is important for employers and employees conducting business in Saudi Arabia to understand the Saudi Labour Law and essential elements of the employment contract.

Understanding the Foundation of Saudi Labour Law

The Saudi labour law, managed by the MHRSD, is the governing regulation that governs all the employment stages from hiring to firing. Article 50 defines the worker’s contractual obligation as when the worker commits to perform work under the employer’s control in return for a payment.

Furthermore, Article 51 provides that an employment contract can exist without being in writing, as long as both the employer and employee can establish the terms of the agreement. This protects workers while allowing flexibility for contemporary employment arrangements.

In 2025, Saudi Arabia also introduced the Authenticated Employment Contract, a digitally verified contract using the Qiwa platform that now has the same enforceability as any court-backed contract. The change enables faster dispute resolution, increases transparency, and protects the employer and employee.

Key Elements of an Employment Contract in Saudi Arabia

For an employment contract to be valid and enforceable in Saudi Arabia, it must have the following features:

• Employer and Employee Information: Contracts should specify the full name, identifying information, nationality, and location of work.
• Job Description: The title, nature, and scope of work must be set out explicitly to avoid confusion.
• Data Employment Commences and Length: In fixed-term contracts, both a start and end date must be specified, while non-fixed (permanent) contracts are indefinite and will last until the parties terminate the contract by providing formal notice of termination.
• Salary/Wages and Allowances: Although they are not required in all contracts, Article 90 provides that salary/wages should have a clear breakdown of all aspects, including salaries, bonuses, commissions, or allowances.
• Hours of Work: Employees are permitted to work a maximum of 8 hours each day or 48 hours each week, excluding break time (Ministry of Human Resources).
• Probation: Is usually 90 days, extendable up to a maximum of 180 days with mutual agreement.
• Vacation entitlements: Employees are entitled to a minimum of 21 days’ annual leave, and this increases to 30 days after five years of service.
• Severance Pay: Workers can receive half a month’s pay for the first five years worked and then a full month’s pay for each subsequent year worked.

2025 Labour Reforms and Digital Transformation

In 2025, Saudi Arabia enacted a significant transformation of workers’ contracts through the Unified Employment Contract Law, which emphasizes standardized and clear agreements across all sectors.

With the new regime:

• Digital contracts validated using Qiwa are specified as legally binding without requiring additional court confirmation.
• Employers have until August 2026 to transition existing worker contracts into the digital system when it is fully implemented, according to the MHRSD phased implementation schedule.
• Regulations on formally acknowledging part-time work and remote jobs, the two most flexible work arrangements, have been implemented, which is evidence of the Kingdom’s adherence to international labour standards.
• Moreover, to align with the National Policy to Eliminate Forced Labour, the changes implemented ensure that hiring practices are transparent and fair, recruitment is conducted fairly, and there is no discrimination.

Importance of Clarity and Compliance

The Saudi authorities aim to strengthen contract transparency, which can limit labour disputes and promote workers’ health and safety. Employers must document all terms of the contract in Arabic, maintain electronic copies, and share any updates through Qiwa.

If you do not comply with these obligations, the authorities may investigate and impose penalties, as well as significant impacts on your Saudisation compliance score. It is noteworthy that in Q2 of 2025 alone, over 45% of Saudi employees worked more than 40 hours per week, consistent with a need and urge for transparency and documentation of overtime compensation and required time off.

Drafting clear employment contracts is not only a good practice in line with Saudi labour regulations, but it also builds trust and goodwill among employees and companies – two prevailing pillars needed by companies to attract global white-collar talent.

End-of-Service Awards and Legal Protection

Acknowledging the UAE breach of Article 84 of the Labour Law, all employees will have a right to an End-of-Service Award at the end of their contract or termination of various types of contract. Employers are to specify how the wage contributing to the determination of the Award is calculated, including whether commissions or incentive payments are included unless specifically excluded.

As part of reforms coming into place in 2025, these payments will now need to be triggered. Therefore, ensuring employees receive their award timely manner and to avoid further escalation of the dispute, payment is required in the Wage Protection System (WPS).

Non-Compete and Confidentiality Clauses

Employers may lawfully place confidentiality and non-compete clauses that protect the employer’s business interests so long as they are reasonable in terms of time, scope, and geography. For example, any restriction on an employee that prevents him or her from working for a competitor for more than two years could be unreasonable. Therefore, courts in Saudi Arabia try to balance protection with an employee’s freedom to work, making the agreement reasonable.

Why It Matters for Businesses and Workers

With the total labour force participation rate in Saudi Arabia going up to 67.1% in Q2 (2025), managing contracts has turned out to be an indispensable part of business operations in a fluctuating environment.

It is necessary for employers to keep putting money into digital HR platforms, train their employees regarding employee rights, and frequently check contract templates to be able to adapt to the changes in the rules.

Some suggestions from the government’s ongoing endeavour towards transparency, flexibility, and all-inclusive access suggest a clear agenda: to develop Saudi Arabia’s labour system to reflect global best practices while ensuring employee rights protection and preserving a competitive environment.

Conclusion

Saudi Arabia’s employment law vision in 2025 represents a progressive approach that weighs employee protection with flexibility for employers. Employment contracts can now be treated as enforceable electronically, allowing for greater speed, clarity, and fairness in engagement matters.

For employers and employees, knowing the essential components of these contracts is not merely a legal obligation, but an opportunity to build trust and ultimately create sustainable relationships in one of the fastest-growing economies in the world.

Also Read: 60-Day Grace Period in Saudi Arabia