# HR for Saudi SMEs: Payroll, GOSI and Labor Law Compliance
*Managing people, payroll and legal compliance through one integrated HR system*

> **In short:** A practical HR guide for Saudi SMEs: employee files, payroll and allowances, GOSI contribution rules, and Labor Law compliance after the 2025 amendments.

- **URL:** https://www.snad.io/en/blog/sme-hr-productivity-saudi-labor-law
- **Arabic original:** https://www.snad.io/blog/sme-hr-productivity-saudi-labor-law
- **Category:** Guides — Human Resources
- **Tags:** human resources, Saudi Labor Law, payroll, employee management, Snad
- **Published:** 2026-05-10
- **Updated:** 2026-08-02
- **Publisher:** Snad (snad.io)

Employees are the real engine of any business, yet in small and medium companies "managing people" is often the most improvised part of the operation. Papers go missing, leave balances turn into arguments, salaries and allowances are miscalculated, and the requirements of the Saudi Labor Law and Qiwa go unnoticed. This disorder does not only hurt team morale; it can expose the business to heavy fines and labor complaints. This article shows how a small business can put its HR function on a professional footing, and how Snad turns people management from an administrative headache into a competitive advantage.

## Building the digital employee file: what it should contain

Relying on paper files for your people is both risky and exhausting. Every business needs a digital database. In the Snad HR module you can create a file for each employee holding a copy of the national ID or iqama, the employment contract, qualification certificates and the start date. What matters most is archiving those documents and setting alerts for the expiry of iqamas and medical licences, which protects the business from fines caused by nothing more than forgetfulness.

## Calculating salaries and allowances under the Labor Law

A salary is not one fixed number. It is built from a basic wage, a housing allowance and a transport allowance, less the employee's share of social insurance contributions. Snad lets you define the pay components for each employee and calculates net pay automatically. It also makes it easy to record advances, deductions and performance-linked bonuses, so the payroll run comes out accurate and professional and no employee is left feeling short-changed.

## Managing attendance, absence and leave without disputes

Arguments over "how many leave days do I have left?" drain management time. Snad keeps clear leave records. When an employee requests leave, the days come off the available balance once the request is approved. That clarity stops absences from overlapping and keeps the business running with the minimum cover it needs. Tracking absence and lateness also helps you judge the team's overall discipline and build a culture of commitment.

## Work regulations and the value of documenting tasks

A productive employee is one who knows what is expected of them. Using the Calendar and Tasks module in Snad completes the HR picture. When you assign a clear task with a deadline, you create a basis for objective evaluation. People respect an environment that values achievement and records it, and Snad gives you the tools to turn broad goals into measurable daily tasks.

## Snad HR: a smart way to run your team at the click of a button

The Snad HR module was designed specifically around the needs of the Saudi market. It is not just a database; it is part of an integrated ERP suite that links employee salaries to journal entries and cash flow. The system is simple enough that you do not need a large HR department. The owner or the accountant can run people operations efficiently, which frees time to focus on growing the business while keeping staff satisfied and loyal.

## The wage subject to GOSI contributions: what counts and what does not

Most payroll errors in small businesses start with the contribution base itself, not with the deduction rate. The General Organisation for Social Insurance (GOSI) defines the components of the wage subject to contribution explicitly, and any item added or dropped by mistake compounds over years.

| Component | Treatment in the contribution base |
|---|---|
| Basic wage or salary | Included in full |
| Commission and a percentage of sales or of profits | Treated as basic wage and included with it |
| Cash housing allowance | Included at the value agreed between the employer and the contributor |
| In-kind housing allowance | Valued at the equivalent of two months' basic wage |
| Maximum wage subject to contribution | SAR 45,000 per month |

Source: the awareness platform of the General Organisation for Social Insurance, accessed 1 August 2026. Any other allowance not listed among these components must be reconciled against the wage registered in the GOSI portal before it is adopted in the payroll run. Test the approximate impact with the [GOSI calculator](/tools/hr/gosi-calculator) before you sign the job offer, not after.

## Two contribution tracks: existing contributors and those under the new system

Since the new social insurance system took effect on 3 July 2024, the market has run on two parallel tracks. Existing contributors keep their current rates, while those under the new system follow a phased schedule in the pensions branch.

| Branch | Contributors not covered by the amendments | Contributors under the new system |
|---|---|---|
| Pensions | 9% from the contributor and 9% from the employer | Reaches 11% from each party, applied gradually over five years with a 0.5% annual increase starting from the second year |
| Occupational hazards | 2% from the employer | 2% from the employer |
| SANED (unemployment insurance) | 0.75% from each party | 0.75% from each party |

The operational takeaway: do not hard-code a single rate for every employee in your payroll file. Read the actual deduction for each contributor from the monthly GOSI invoice, enter it into [payroll](/payroll) exactly as stated, then reconcile the total with the journal entry at month end.

## What changed in the Labor Law on 19 February 2025

The Labor Law amendments took effect on 19 February 2025 under Royal Decree No. (44) dated 8/2/1446 AH. The provisions below need to be updated directly in your contract templates and work regulations.

| Article | Provision after the amendment |
|---|---|
| 51 | The contract is drawn up in two copies and must be documented in line with the relevant statutory provisions |
| 53 | The total probation period may not exceed 180 days under any circumstances |
| 75 | For an indefinite-term contract paid monthly: notice from the worker 30 days in advance, and from the employer 60 days in advance |
| 79 bis | A resignation is deemed accepted after 30 days without a response; the employer may postpone acceptance for no more than 60 days with a written explanation, and the worker may withdraw it within 7 days |
| 107 | With the worker's consent, paid compensatory leave may be granted in place of pay for overtime hours |
| 151 | Maternity leave is 12 weeks at full pay, of which 6 weeks are mandatory after delivery |

Source: the guidance manual on the amendments to the Labor Law articles, Ministry of Human Resources and Social Development.

## Liabilities that never show up in your bank account: leave balances and end of service

Accrued leave and end-of-service gratuity are live debts of the business even if nothing is paid out this month. Ignoring them means your reported profit is higher than the truth.

- Annual leave is no less than 21 days at full pay, rising to 30 days after five continuous years with the same employer (Article 109).
- Leave may not be waived or exchanged for cash during employment, and the worker is entitled to pay for accrued days if they leave before taking them (Articles 109 and 110).
- End-of-service gratuity: **half a month's wage** for each of the first five years, and **one month's wage** for each subsequent year, based on the last wage the worker received (Article 84).
- On resignation: one third of the gratuity for service of two to five years, two thirds for more than five and less than ten, and the full amount for ten years or more (Article 85).

Treat both items as a monthly provision in [accounting](/accounting) rather than a surprise at the first resignation. The [end-of-service calculator](/tools/hr/end-of-service-calculator) gives you the approximate provision for each employee in a minute.

## A monthly compliance calendar that cannot be postponed

HR compliance is not an annual project. It is four tasks that repeat every month. Fix one day in the calendar for them and tie it to the payroll close.

- Upload the Wage Protection file monthly. The programme covers all establishments, and its seventeenth and final phase was applied to establishments with 1 to 4 workers from 1 December 2020.
- Pay the GOSI invoice and reconcile the list of contributors against the payroll register, name by name.
- Review documented contracts against who is actually on the job, and close the file of anyone whose employment has ended.
- Update the registered wage on any increase or change to the housing allowance, because the contribution base moves with it.

The difference between a disciplined business and a struggling one is not team size. It is whether this list exists in writing and is assigned to a named person.

## Five recurring payroll mistakes

- Paying overtime hours at the ordinary rate. Overtime pay equals the hourly wage plus 50% of the basic wage (Article 107).
- Ignoring Ramadan hours. The general standard is 8 hours a day or 48 hours a week, reduced for Muslims during Ramadan to 6 hours a day or 36 hours a week (Article 98).
- Deducting without a ceiling. Instalments on employer loans may not exceed 10% of the wage (Article 92), deductions for damage caused by the worker may not exceed five days' wage in a month (Article 91), and total amounts deducted may not exceed half the wage (Article 93).
- Mixing sick leave with annual leave. Sick leave is at full pay for 30 days, at three quarters of the wage for the following 60 days, and unpaid for a further 30 days within the same year (Article 117).
- Paying wages in cash. The employer is required to pay wages through banks on their set dates (Article 90).

Every one of these five is caught by a single review before the payroll run is approved, and catching it early costs far less than settling it before the labor court.

## GOSI deadlines that are counted in days

What costs small businesses most is not the contribution rate; it is a two-day delay in an administrative step. The deadlines below are set out by the General Organisation for Social Insurance, and every one of them can be automated with a single calendar alert.

| Obligation | GOSI provision |
|---|---|
| Notification that a new worker has joined | Within (15) days of the month following the month in which the worker started work |
| Payment of monthly contributions | Within the fifteen days following the month in which they fall due |
| Ceiling on late-payment fines | Their calculation stops once they reach 100% of the value of the contributions |
| Retroactive registration for a previous period | Late-payment fines capped at 100% of the value of the contributions due for that period |
| Minimum wage subject to contribution | SAR 1,500 in the pensions branch, and SAR 400 in the occupational hazards branch for those not subject to the pensions branch |

Source: the employers' frequently asked questions page, General Organisation for Social Insurance, accessed 2 August 2026. The practical reading: a fine ceiling at 100% means an extended delay can double the bill. Set your [payroll](/payroll) close at least a week before the payment date, not after it.

## Which insurance track applies to each of your Saudi employees?

The deduction rate is not a management decision; it follows from the contributor's category. GOSI classifies Saudis into three categories using age and prior contribution periods, and the category is what determines retirement age and the conditions for early retirement.

| Category | Criterion for belonging to it | Statutory retirement age |
|---|---|---|
| Not covered by the amendments | Aged 50 Hijri years or more with prior contribution periods, or holding 240 contribution months (20 years) or more | 60 Hijri years, unchanged |
| Covered by the amendments | Under 50 Hijri years of age with prior contribution periods of less than 240 months | Rises gradually within a range of 58 to 65 Gregorian years depending on age when the system took effect |
| Under the new system | A new entrant to the labor market after the system took effect, with no prior contribution periods | 65 years, with early retirement permitted ten years earlier upon completing 30 years of contributions |

Source: the awareness platform of the General Organisation for Social Insurance, accessed 2 August 2026. Early retirement requires 300 contribution months for those not covered by the amendments, and rises on a sliding scale from 25 to 30 years for those covered by them. Add an "insurance category" field to every employee file in [HR](/hr) and update it once; it explains why two colleagues on the same salary see different deductions.

## From payroll run to journal entry: a line-by-line map

A payroll run is not a single expense. Recording it as one orphan line called "salaries" hides live liabilities and flatters your profit margin.

| Payroll line | Treatment in the books |
|---|---|
| Total wages and allowances | Payroll expense in the same period |
| Employee's share of contributions | Deducted from net pay and recorded as an accrued liability to GOSI, not as an additional expense |
| Employer's share of contributions | An expense to the business, matched by an accrued liability |
| Advances recovered | A reduction in employee receivables, not an expense |
| End-of-service gratuity provision | A monthly expense matched by an accumulating liability |
| Net bank transfer | An accrued payroll liability until the transfer is actually executed |

The immediate benefit is that you see the true cost of labor rather than the amount transferred. Break down a single salary with the [net salary calculator](/tools/hr/salary-calculator), then compare the result against the expense line in your books this month.

## A checklist for an employee's first thirty days

- A contract signed in two copies and documented, with a digital copy stored in the employee file before the start date.
- Notification of the new hire to GOSI within the deadline set out above, not when the first payroll run is prepared.
- Opening the payroll record and linking the bank account before the first month closes, so the first salary is not paid outside banking channels.
- Recording the start date to the exact day, since it is the starting point for the probation period, annual leave and end-of-service gratuity.
- Handing over a written job description and a copy of the work regulations, signed for by the employee.
- Creating iqama and professional licence expiry alerts under a named owner, not under "management".

The rule is simple: any item left unfinished in the first thirty days later turns into a documented dispute against the business, not in its favour.

## Five metrics are enough for a ten-person business

A ten-person business does not need a complex dashboard. Five numbers updated monthly expose most problems before they grow.

- **Fully loaded cost per employee**: wage and allowances, plus the employer's share of contributions, plus the end-of-service and leave provisions. The figure is always higher than the salary quoted in the job offer.
- **Labor cost as a percentage of revenue**: compared against itself month on month, not against an unsourced sector average.
- **Revenue per employee**: net revenue for the month divided by the average headcount for that month.
- **Turnover rate**: the number of people whose employment ended divided by the average headcount. A sudden rise is usually managerial in origin, not financial.
- **Accrued leave balance**: in days and in SAR alike. The [annual leave balance calculator](/tools/hr/annual-leave-calculator) gives you the days; multiplying by the daily wage gives you the size of the liability.

Measure all five on the same day of every month, or you lose comparability and the numbers become ink on paper.

## Segregation of duties: who enters, who approves, who transfers

Most payroll errors and cases of manipulation happen when one person owns the whole cycle. Even in a team of five, the roles can be separated.

- Whoever enters a change, whether a raise, an advance or a deduction, is not the person who approves it.
- Whoever approves the payroll run is not the person who executes the bank transfer.
- Changing an employee's bank details requires a second, documented approval.
- An audit trail that cannot be erased: who changed what, and when.

This is not distrust of the team; it is protection for them. An employee who both enters and approves alone carries the suspicion for any error, even one they had nothing to do with.

## Frequently asked questions

### Does Snad support the Wage Protection System (WPS)?

Yes. You can export payroll registers in formats compatible with bank requirements, ready to upload to Wage Protection platforms with no extra work.

### Which components count towards the wage subject to GOSI contributions?

According to the awareness platform of the General Organisation for Social Insurance (accessed August 2026): the basic wage or salary, with commission and a percentage of sales or of profits treated as part of it, plus the cash housing allowance at the value agreed between the employer and the contributor, and the in-kind housing allowance, valued at the equivalent of two months' basic wage. The maximum wage subject to contribution is SAR 45,000 per month.

### What is the maximum probation period under the Saudi Labor Law?

After the amendments effective 19 February 2025, Article 53 provides that if a worker is on probation this must be stated explicitly in the contract and its duration clearly defined, and that the total period may not exceed 180 days under any circumstances. Either party may terminate the contract during it.

### What notice period applies when terminating an indefinite-term contract paid monthly?

Under Article 75 as amended: if the worker terminates, they must give written notice at least 30 days in advance; if the employer terminates, it must give written notice at least 60 days in advance. Where the wage is not paid monthly, the notice period is 30 days for whichever party ends the contract.

### How is end-of-service gratuity calculated on resignation?

The basis in Article 84 is half a month's wage for each of the first five years and one month's wage for each subsequent year, calculated on the final wage. In the case of resignation, Article 85 provides for one third of the gratuity for service of no less than two consecutive years and no more than five, two thirds for service of more than five years but less than ten, and the full gratuity for service of ten years or more.

### Can overtime hours be compensated with leave instead of pay?

Yes. Article 107 as amended allows the employer, with the worker's consent, to grant paid compensatory leave days in place of the pay due for overtime hours, with the regulations setting out the related provisions. Otherwise, overtime pay is the hourly wage plus 50% of the basic wage.

### Are very small establishments covered by the Wage Protection programme?

Yes. The Ministry of Human Resources and Social Development announced the start of the seventeenth and final phase of the Wage Protection programme for establishments with 1 to 4 workers from 1 December 2020, and stressed that all establishments must upload the wage file monthly to avoid penalties.

### When must GOSI be notified of a new employee?

According to the employers' frequently asked questions page at the General Organisation for Social Insurance (accessed 2 August 2026): notification that a new worker has joined is submitted through the website within (15) days of the month following the month in which the worker started work. Registering the employee when the first payroll run is prepared may fall outside this deadline.

### What is the minimum wage subject to GOSI contributions?

According to the General Organisation for Social Insurance (accessed 2 August 2026): the minimum contribution wage is SAR 1,500 in the pensions branch and SAR 400 in the occupational hazards branch for those not subject to the pensions branch, and the maximum contribution wage is SAR 45,000.

### What happens if a business is late paying its GOSI contributions?

Contributions are payable within the fifteen days following the month in which they fall due. The General Organisation for Social Insurance provides that the calculation of late-payment fines stops once they reach (100%) of the contributions. Where registration is made retroactively for a previous period, the employer bears late-payment fines capped at (100%) of the value of the contributions due for that period (accessed 2 August 2026).

### How do I know which insurance category a Saudi employee belongs to?

According to the awareness platform of the General Organisation for Social Insurance (accessed 2 August 2026): those not covered by the amendments are workers aged 50 Hijri years or more with prior contribution periods, or workers with 240 contribution months (20 years) or more. Those covered by the amendments are under 50 Hijri years of age with prior contribution periods of less than 240 months. Those under the new system are new entrants to the labor market after the system took effect who have no prior contribution periods.

### What is the statutory retirement age for each category of contributor?

According to the awareness platform of the General Organisation for Social Insurance (accessed 2 August 2026): the statutory retirement age for those not covered by the amendments is 60 Hijri years, unchanged, and early retirement requires 300 contribution months. For those covered by the amendments, the retirement age rises gradually within a range of 58 to 65 Gregorian years depending on their age when the system took effect, with the contribution period required for early retirement rising on a sliding scale from 25 to 30 years. For those under the new system the retirement age is 65 years, and early retirement is permitted ten years earlier upon completing 30 years of contributions.

### How do I record the payroll run correctly in the accounting books?

Do not record the payroll run as a single line. Separate total wages and allowances as a payroll expense; the employee's share of contributions as a deduction from net pay matched by an accrued liability; the employer's share as an expense to the business matched by a liability; advances recovered as a reduction in employee receivables rather than an expense; and the end-of-service provision as a monthly expense matched by an accumulating liability. The net amount due remains an accrued payroll liability until the bank transfer is actually executed.

---
## About the publisher
**Snad (سند)** — a private Saudi software company
based in Riyadh, founded 2025. Legal form: Sole proprietorship.
Commercial registration: 7038154642
VAT number: 310959226500003
Only official domain: snad.io
> Snad is a private commercial business-management platform. It is not a
> government body, not a bank, and not a government services portal, and it
> is not affiliated with any government entity. Any site or app with a
> similar name is unrelated to Snad.