Independent contractors or freelancers are self-employed individuals who provide services to companies as a non-employee. This is one of the most common ways companies tend to hire non-local designers, engineers, support reps, etc.
For legal and tax purposes, independent contractors are not classified as employees. They may work for multiple clients, set their own work hours, negotiate their pay rate, and decide how a job gets done.
For example, the IRS says that if an independent contractor or freelancer does work that can be controlled (what will be done and how it will be done) by an employer then they are, in fact, classified as an employee.
As you can imagine, hiring someone as an independent contractor versus an employee is a fine line to tread.
While there are benefits when you choose the contractor route, there are quite a few drawbacks to consider and you’ll need to weigh them carefully to determine the best fit for your company.
A foreign subsidiary is a company that operates overseas as part of a larger company who’s HQ is in another country.
Establishing a foreign entity is great for having an international presence and accessing new markets. Though, setting up a subsidiary in Saudi Arabia can be expensive, stressful, and time-consuming. It's not for the faint of heart.
To set up a subsidiary in Saudi Arabia, you have to:
If you're lucky, this process can take months. If you're not so lucky, it can take up to a year. And on average, it costs about $50k-$80k, all-in-all, to get setup. And that's just for Saudi Arabia.
An employer-of-record (EOR) is a company that hires and pays an employee on behalf of another company.
An EOR is typically used to overcome the financial and regulatory hurdles that often come with employing remote workers.
Each country has its own payroll, employment, and work permit requirements for non-resident companies doing business in their jurisdiction. Meeting those demands can be a huge obstacle when it comes to hiring remotely.
At Panther, we help companies employ and pay people in over 160 countries, without having to set up a foreign subsidiary. Payroll, benefits, taxes, compliance, and more are all handled by us, at a fraction of the cost.
Outside of saving you months and tens of thousands of dollars, other advantages of using Panther are:
Because you no longer have to set up your own subsidiary, you’ll save a ton of time and tens of thousands of dollars using Panther.
Paying employees in Saudi Arabia is not the same as paying workers in your own country. Employees have to be paid using Saudi Arabia’s employment and payroll standards.
This means that you have to know, understand, and keep up with 1) fluctuating currency changes, and 2) local payroll and tax laws in the countries you’re looking to hire in.
Outside of the laws and regulations around payroll, there may be different conditions surrounding leave, overtime, termination, and more. As you can imagine, maintaining this kind of regulatory knowledge can be challenging. But it is crucial and necessary to follow local legislation.
After, you’ll have to determine the best way to pay your international employees. This can be done in a number of ways, including but not limited to:
One of the most challenging (and expensive) parts of paying international employees is setting up the infrastructure to do so.
Before you start to run payroll, you have to register your company as the local employer in the country the worker resides in. As you can see in the “Set up a subsidiary” section, this is a multi-step process that can take up to a year and put you on your way to bankruptcy.
Outside of EORs acting as the full admin employer, many also provide remote payroll.
For example, at Panther, in just 1-click, you’re able to pay your entire global team, anywhere in the world. We send you an invoice each month, charge you in US Dollars, and pay your employees the same amount in their local currency.
We factor in currency fluctuations and use the mid-market rate plus any applicable fee passed on by our provider at cost at the time of billing.
The Saudi working week begins on Sunday and ends on Thursday.
Friday and Saturday are the official days of rest, but in certain cases Saturday might be considered as a working day.
Office hours vary, ranging from 7.30am -8am until noon, then from 3.30pm - 4pm until 7pm - 8pm.
The working day may decrease to 6 hours a day during the time of Ramadan. Typically, Fridays are a rest day.
All work exceeding the standard working hours a week is to be paid as overtime and is regulated by employment contract/collective agreements. Daily hours cannot exceed 11 hours.
An employee's total working hours, including overtime, should not exceed 10hours a day or 60 hours in a six-day week.
Here is also an annual overtime cap of 481 hours.
According to Saudi labor law article 107,overtime in Saudi Arabia is 150% of the hourly wage.
Payment of wages varies. If an employee is employed based on a weekly salary, then they are paid at least once a week, and if the employee is on a monthly salary, the frequency of wage payments is monthly.
While not mandatory, it is customary to pay employees a 13th salary before Eid al-Fitr. Employers can pay performance-based bonuses at their discretion.
If an employee has completed 1 year of employment, they are entitled to 15 days of paid leave per year. After 10 years of employment, this entitlement is increased to 21 days per year.
The employee is also entitled to 10 days of unpaid leave per year, subject to employer approval.
In Saudi Arabia, (Article 109 of the Labour Law), the annual leave entitlement is dependent on the employee’s seniority.
Employees with more than five years of service are entitled to 30 days of annual leave.
Employees may carry over any untaken leave to the following vacation leave with the employer’s written consent.
There are 3 public holidays.
The duration of sick leave entitlement provided to workers is dependent on how long they have been employed by their employer:
First 30 days: 100%
31 to 90 days: 75%
91 days to 120 days: unpaid
Employees are required to provide a medical certificate for all sick days.
Sick leave laws apply to employers with more than 20 employees.
Female employees are generally entitled to 10 weeks of paid maternity leave, up to four weeks may be taken before the birth and at least six of the weeks must be taken after.
The payment of maternity leave is dependent on the employee’s seniority; employers will compensate employees with service of at least one year at 50.00% of the employee’s pay rate. Employees with at least three years of service receive compensation at the rate of 100.00% of the employees’ regular pay.
An employee receiving full maternity leave entitlement may not also take the payment of annual leave in the same year. In contrast, an employee receiving 50.00% of their salary as a maternity benefit may also take an annual leave entitlement of 50.00% in the same year.
Fathers are eligible for three days of paid paternity leave after the child’s birth (Article 113 of the Labour Law).
There are no provisions in the law regarding paternity leave.
Hajj leave/Pilgrimage leave -According to the Labour law, an employee is entitled between 10 to 15 days (including the Eid Al-Adha holiday) to perform Hajj if the employee has completed at least 2 consecutive years of service with the employer.
In Saudi Arabia, an employee is entitled to 3 days of leave in the event of their wedding.
Employee is entitled to two days of bereavement leave in the event of he death of an immediate member.
Employees with unlimited contracts are entitled to receive 60 days’ notice.
Employees with other contracts are entitled to 30 days’ notice.
If proper notice is not given, the parties can agree to compensation instead.
During the notice period, employees may use 8 hours of work time per week to find alternate employment.
There is not notice period for definite contracts as it is rare to have a valid reason for ending a definite contract early.
When an employment contract ends, an employee is entitled to an “end-of-service award” equal to one-half of one month’s wages for each of the first 5 years of employment and a full month’s wages for each year of employment thereafter, pro- rated for any partial year’s service.
An employment contract may be terminated in the following situations:
The employer must give a valid reason for the dismissal of an employee; if an employer cannot provide lawful reasoning, compensation may be issued.
If an employee resigns, the employer must issue their final wages immediately.
The notice period in Saudi Arabia is:
For termination of an employee in Saudi Arabia, 60 days’ notice is required on open ended contracts (with an indefinite term and paid monthly).
For fixed term contracts, the notice period is 30 days.
When an employment contract ends, an employee is entitled to an “end-of-service award” equal to one-half of one month’s wages for each of the first 5 years of employment and a full month’s wages for each year of employment thereafter, pro-rated for any partial year’s service.
The end-of-service payment is calculated based on the last paid salary amount. Article 85 also stipulates that the employee is entitled to:
However, there are exceptions as to when severance is not mandatory:
An employee can be subject to a probationary period of no more than 90 calendar days and during this period the contract can be terminated without notice.
Subject to the employee's consent, this period can be extended up to 180 calendar days (i.e. six months in total).