August 29, 2017

KSA: Developments in Saudisation and Parallel Nationalization

Employers operating in KSA will be familiar with the growing regulations relating to Saudisation and the challenges of building up a pipeline of national talent. A welcome measure to assist employers struggling with Saudisation, is the recently announced 'Parallel Nationalization' program. The program aims to help employers who are unable to meet the requirements of the Nitaqat program (namely the achievement of quotas set according to employer size and sector). Essentially, the program will allow employers to pay fees in order to upgrade their classification within Nitaqat.

These fees will be determined according to how many KSA nationals would need to be employed in order for the employer to move to the higher or next classification category under Nitaqat.  The fees will be subject to change each month. However, the employers will have the option of paying such fees six months in advance for the Nitaqat classification to be upgraded accordingly. The fees will go to support the Human Resources Development Fund ("HRDF") for the purposes of training Saudi nationals who are seeking employment.

The program is designed to make one unit of Parallel Nationalization equal to one Saudi national under Nitaqat. The calculation method is based on specific criteria in the electronic calculator on the Ministry of Labor and Social Development's website with one unit being determined by the number of KSA nationals already employed within the particular establishment.

By way of example, if an employer has ten KSA nationals, and needs to add three nationals to move to the next Nitaqat category, the first unit will be 10%, the second 20% and the third 30%. The calculation of each unit will be in line with the schedule below:

  • First: SAR 3600
  • Second: SR 4200
  • Third: SAR 4800
  • Fourth: SAR 5400
  • Fifth: SAR 6000
  • Sixth: SAR 6600
  • Seventh: SAR 7200
  • Eighth: SAR 7800
  • Ninth: SAR 8400
  • Tenth: SAR 9000

The final cost will be the total of all units (e.g. in our example: 3600+4200+4800 = SAR 12600)

It is worth noting that an employer is eligible to amend or cancel its subscription in Parallel Nationalization at any time. The subscription payment will be made through the MOL portal for Parallel Nationalization services. If the employer discontinues the payments due, the subscription will be cancelled and will gradually reduce the percentage of Nationalization equivalent to the units of subscription.

The levies or subscription costs within this new system are high and depending on the number of KSA nationals required to achieve a certain Nitaqat classification, it may well be that it is more economical for an employer to hire more KSA nationals rather than subscribe to this new program or to aim to maintain a high green Nitaqat category rather than aiming for platinum.

The program however, will help employers that could not find Saudi nationals, and which are in the Low Green Level or Yellow Nitaqat classification, to upgrade to the preferred level and thereby qualify to obtain new visas and enable transfer of sponsorship from other employers.

Developments in Nitaqat

The Parallel Saudisation program also takes on new significance given the recent revisions of the Nitaqat classifications of employer categories with it now applying to employers with six employees or more and, quotas being significantly increased.  In many sectors a quota which currently sees an employer fall into a high green or even platinum category will following these changes, see the employer fall into a low green category unless the employer increases its Saudi national headcount.  Only employers classified as high green or platinum may apply for block visas.  These changes will be implemented from 3 September 2017 onwards following the conclusion of Eid Al Adha.

The company size thresholds can be summarized as follows:

  Category Employee numbers
1-A Very small 5 employees or less
1-B Small 6-49
2-A Medium (A) 50-99
3-B Medium (B) 100-199
4-C Medicum (C) 200-499
5 Big 500-2999
6 Huge 3000 or more

Enabling workforce flexibility

The Ministry of Labour and Social Development is currently consulting on a number of initiatives including the publication of an employee Code of Conduct as well as new Occupational Health and Safety regulations. Perhaps two of the more interesting proposals relates to enabling flexible working and reduced hours.

The proposal is to permit KSA nationals to work flexibly as they choose in return for an hourly rate of pay and no entitlements to statutory holiday, end of service gratuity, health insurance or GOSI contributions (apart from cover under the injury insurance scheme).

In order to apply for reduced hours, an employee would need to have two years of continuous service as a full time employee and there must be evidence of a business slow down within the employing organization. The employee can apply to do reduced hours (meaning 50% of his previous full time hours) and receive Saned (unemployment benefit) at the same time. This arrangement can last a maximum of six months.