The Saudi Employment Blueprint: Key Differences Between Fixed and Non-Fixed Contracts

Employment in Saudi Arabia is steered by contracts that delineate the scope and tenure between the employer and the employee. Acting as a cornerstone, these contracts ensure a shared understanding of rights, responsibilities, and the terms of collaboration. In this article, we delve into the diverse employment contracts in Saudi Arabia, with a spotlight on the distinctions between fixed and non-fixed contracts under the Saudi Labour Law.

Fixed Contract Vs. Non-Fixed Contract in Saudi Labour Law

Duration and Termination of The Contract

The primary distinction between these contract types is their duration, evident from their nomenclature.

Fixed contract: Defined by its set term, this contract culminates on its predetermined end date. An early termination by either party may incur penalties, except when driven by reasons recognized in the Labour Law.

Non-fixed contract: Infused with greater adaptability, this contract permits either party to conclude it, but they must provide the other party with a written notice, generally ranging between 30 to 60 days, depending on the contract's specifics.

Compensation for Invalid Termination

When a party terminates the labour relationship without a valid legal reason, they are obligated to pay compensation to the affected party, based on the following guidelines:

Fixed-term contract: Compensation is equivalent to the wages due for the remaining period of the contract. However, it should not be less than two months’ wages, unless both parties have previously agreed on a different compensation amount for termination without valid grounds.

Non-Fixed contract: The compensation is set at 15 days' wages for each year the worker has been employed. This amount should not be less than the worker’s wages for a two-month period unless both parties have determined a specific compensation amount for termination without a valid reason.

Read our blog to find out more details about the Termination Of The Contractual Relationship Under Saudi Labour Law.

Nationality and Its Influence on Contract Type

According to Saudi labour law, nationality plays a pivotal role in determining the type of employment contract you can utilize.

Fixed contract: This form of contract is available to employees of all nationalities.

Non-fixed contract: Only Saudi national employees are eligible for this type of contract.

Renewal of The Contract

Fixed contract: Renewal is possible through mutual agreement. Some contracts might stipulate clauses like "the contract will be renewed for a similar period.” A subtle detail is an implied renewal—if an employee remains working after the contract’s designated end without any reservations from the employer, this is seen as an implicit renewal. If the contract undergoes three renewals or if the total renewal period exceeds four years, it seamlessly transitions into a non-fixed contract except for expats; it always will be a fixed contract, no matter how many times it gets renewed.

Non-fixed contract: Owing to its indefinite tenure, there’s no need for periodic renewals. The contract remains active until either party decides to bring it to a close.

End-of-Service Reward

The end-of-service reward, often referred to as 'end-of-service gratuity', is one of the employee rights that comes as a gesture of appreciation upon completing their contractual or employment term, signifying gratitude for their service and dedication.

Fixed contract: Should the employer terminate the contract prematurely without a legitimate reason, the employee may be eligible for compensation. Furthermore, end-of-service benefits are tailored based on the service's duration.

Non-fixed contract: For this, the end-of-service gratuity hinges on the total duration of service, with different computations for employees who voluntarily resign compared to those who are laid off.

Read our blog to learn more about Everything employers need to know in Saudi Arabia: Employer Rights & Duties.

Navigating Your Way Through Saudi Employment? Let TASC Simplify Your Recruitment and Staffing Needs

Now that you have an overview of the complexities of fixed and non-fixed employment contracts in Saudi Arabia, it's essential to recognize the importance of keeping abreast with the ever-evolving labour and recruitment landscape. With over 15 years of experience in the industry, TASC is your trusted partner to guide you through these intricacies.

For hands-on support in setting up a fully compliant HR and staffing framework tailored to Saudi's unique requirements, our GRO and recruitment experts are at your service. Our local GRO specialists, enriched with years of firsthand experience, have a profound understanding of Saudi labour laws, visa procedures, and licensing protocols. Their expertise will not only streamline your government interactions but could also significantly reduce your typical GRO operating expenses by up to 60%.

Get in touch today and ensure 100% compliance.

Subscribe to our KSA weekly newsletter to stay updated on the latest news and updates on Saudi labour law.