Saudi Arabia: KSA: Remuneration Cuts But Only In The Public Sector

Last Updated: 9 November 2016
Article by Sara Khoja

On 25 of Thul Hija 1437 (Hijra calendar), the Council of Ministers passed Resolution Numbers 551 and 552 which became effective on 30 of Thul Hija and 1 of Muharram respectively. The Resolution has been widely published and implements a number of significant changes to remuneration structures in the civil service. It does not apply to the private sector and the Ministry of Labour recently moved to clarify to private sector employers that remuneration could not be reduced unilaterally.

Resolution 551

Resolution 551 broadly provides for the following:

  • Elimination of annual increases in the Islamic new year on renewal, extension or continuance of contracts;
  • Overtime rates to be cut to 25% of basic salary if performed on a normal working day and 50% of basic salary if performed on a public holiday;
  • Travel allowances not to be paid during periods of annual leave;
  • The elimination of a number of allowances for specific roles as set out in Schedule A to the resolution including by way of example, the elimination of work nature allowances for roles such as typist, clothing allowances for diplomatic staff under specific regulations and annual bonuses for personnel of the General Organisation for Social Insurance;
  • Reduction of 10% in remuneration for certain roles (including revenue collectors) or 15% for other roles as set out in Schedule B to the resolution;
  • Introduction of upper limits for certain payments, for example a cap of one month for Ramadan bonuses for personnel of the General Organisation for Social Insurance; and
  • The suspension of certain allowances specified in Schedule B to the resolution, including excellence allowances for certain roles.

The Senior Officer, HR officer and Financial Controller of each government agency, the General Auditing Bureau and other supervisory bodies are tasked with implementing and monitoring the resolution. In addition, the Ministry of Civil Service is to form a committee to consider raising efficiency in performance and spending. The Military Service Council Secretariat is to form a committee to propose controls and mechanisms for the disbursement of allowances or increases for anti terrorism.

Resolution 552

Resolution 552 relates to the regulation of annual leave and broadly provides for the following:

  • Reduction of annual leave entitlement to 36 days;
  • A limit on carrying forward of leave from one leave year to the next with a time limit of 60 days of the next leave year within which to use carried forward leave;
  • Special provisions to regulate pay out of accrued carried forward leave in the first year of the resolution; and
  • A limit on emergency leave of 5 days.

Alongside Resolutions 551 and 552, salaries for Ministers were reduced by 20% and for members of Shoura Consultative Council by 15%.

Effect on the Private Sector

These resolutions do not affect the private sector and whilst some of the press coverage of these changes may have confused private sector employers, the Ministry of Labour has recently moved to clarify the position and warn private sector employers that remuneration, allowances and bonuses cannot be unilaterally reduced; with any unilateral measure being a breach of the labour law.

In an article in Al Eqtisadiah newspaper on 18 October 2016, Faisal Al Otaibi, a Ministry of Labour advisor stated that an employer wishing to reduce the remuneration components of existing employees would need to have a justification for such measures including the elimination of business units, financial loss or corporate restructuring. Moreover, existing contracts assuming these were fixed term) would need to be adhered to on existing terms and conditions until completion of the fixed term and any reduction or revision could only be imposed in a renewed contract. Revisions for employees on unlimited term contracts can be agreed with the employee but an employer must be wary of imposing the changes such that the employee feels under duress or intimidated to accept them.

Employers introducing changes in remuneration risk an employee resigning in response claiming a fundamental breach of the employment contract entitling him to claim unjustified termination and the pay out of any remaining term (if the contract is fixed term) or 15 days compensation for each year of service (subject to a minimum of 2 months); together with statutory entitlements such as notice, end of service gratuity and holiday.

KSA: Remuneration Cuts But Only In The Public Sector

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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