How to hire and pay independent contractors in Saudi Arabia

If you want to grow your team in the Middle East, employing experts from the Kingdom of Saudi Arabia can be the right move. The country has the largest economy in the Middle East, allowing you to access a large pool of skilled professionals. Recent government reforms are aiming to create a thriving environment for local and foreign businesses.

However, hiring independent contractors in Saudi Arabia can be challenging, especially if you don’t know how to manage foreign workers and comply with all relevant regulations. Noncompliance with Saudi Arabia’s labor laws can cause serious legal problems and financial penalties.

This guide explains what you need to know to stay compliant. You’ll learn which factors to consider before hiring independent contractors in Saudi Arabia and how a global contractor service provider can make global hiring quick and easy. 

Key considerations when hiring and managing independent contractors in Saudi Arabia

Saudi Arabia operates under Islamic law (Sharia) that influences various aspects of business and social life. A grasp of the country’s cultural norms and religious practices is essential when working with Saudi independent contractors.

Apart from understanding the culture in Saudi Arabia, you must be sure to offer contractors fair wages. The monthly minimum wage for workers in the private sector is 4,000 Saudi Riyals (SAR) or approximately $1,066. But that’s not all. 

When hiring independent contractors in Saudi Arabia, you must establish your business as a local legal entity and follow the Saudi Arabian Labor Law of 2006 (more on this below). Meeting these requirements can get complicated without localized expertise. 

With a global employment solution like Remote, hiring independent contractors while complying with local regulations becomes easy and affordable.

What are the labor laws in Saudi Arabia? 

The Saudi Arabia Labor Law of 2006 outlines employee protections and workers’ rights. The Ministry of Human Resources and Social Development and the Ministry of Labor enforce this law. 

The law requires employers to ensure workers work no more than eight hours a day or 48 hours a week. During religious occasions like Ramadan, businesses must reduce the working time for Muslims to six hours per day or 36 hours per week. 

Additionally, employers must pay workers the usual hourly wage plus 50% of their basic income for overtime hours. Overtime includes working during religious holidays, like Eid al-Fitr and Eid al-Adha. 

The country also has specified conditions that a company must meet before terminating an employee. For instance, an employer cannot end a contract without giving a worker advance notice and financially compensating the employee if they are entitled to a reimbursement. Notice periods range from 60 days for indefinite-term contracts (contracts without a specific end date) to 30 days for fixed-term contracts (contracts with a particular end date).  

How do I pay an independent contractor in Saudi Arabia? 

Paying contractors in Saudi Arabia is generally straightforward. First, create a legal agreement between your business and the worker. The agreement should clearly outline: 

• The amount you will pay the worker

• The pay cycle (daily, weekly, or monthly)

• The currency of payment

• The method used to calculate wages (e.g., hourly and per milestone completed)

• The payment channel (bank).

Having a payment agreement from the start minimizes disputes when processing wages for independent contractors. 

After drafting the agreement, set up a system for managing contractor invoices. You can leverage a contractor management solution like Remote to approve invoices, automate repetitive payment processes, and pay contractors in their local currency — quickly and safely. 

Whether you’re working with one or hundreds of contractors, the tool is the most efficient way to manage all of them in one place. The contractor management platform also allows you to generate tax forms and helps you understand compliance requirements in different countries. 

Note that contractor payments are subject to labor laws. In Saudi Arabia, businesses must pay wages and other worker entitlements using the country’s official currency (Saudi riyal). Additionally, companies must process payments during working hours, pay wages through accredited banks in the country, and follow the requirements below: 

• Workers you’ve hired on a pay-per-day basis should receive wages at least once a week.

• People you’ve employed on a monthly pay cycle should receive a payment once every month. 

• Workers who receive wages only after completing specific tasks or milestones must be paid once a week for the portion of work they’ve completed. This provision applies to projects that last more than two weeks. 

When paying contractors in Saudi Arabia, follow these rules to comply with regulations and avoid heavy fines. 

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What are the risks of misclassifying Saudi Arabian independent contractors as employees? 

Like many countries, Saudi Arabia treats independent contractors and employees differently. Employees are entitled to benefits, such as retirement plans and health insurance, while independent contractors are not. Misclassifying independent contractors as employees is a violation in Saudi Arabia. And it attracts regulatory fines and serious legal penalties. 

But those are not the only risks of miscategorizing workers. 

When businesses misclassify workers, they create uncertainty regarding intellectual property (IP) ownership, such as designs produced under an employment contract. That’s because contractors have certain rights over the work they produce. Protecting your company’s IP rights prevents intellectual property conflicts and empowers you to expand your global team confidently.

Remote offers IP protection when your team members work remotely in different countries. Through its robust Remote IP Guard and legal experts in international IP law, Remote makes certain you maintain ownership of what’s yours. 

How you label workers in legal agreements does not mean that you’ve classified a worker correctly. A contract may specify you’ve hired someone as an independent contractor. But if you provide the contractor with privileges that are only accessible to your employees, the law might regard that person as an employee rather than a contractor. 

Use our employee misclassification risk tool to ensure you properly categorize independent contractors in Saudi Arabia. It helps you evaluate the risk level of misclassification and recommends what you can do to mitigate the threat. 

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Tax and compliance practices for hiring independent contractors from Saudi Arabia

When hiring internationally, companies must comply with tax laws in their country of incorporation and the country where their international employees are based. For instance, if your business is in the United States but wants to hire and pay contractors in Saudi Arabia, you must follow tax regulations in both countries. 

Complying with Saudi Arabia’s tax regulations

One of the most notable features of the Saudi Arabian tax system is that the government does not charge a personal income tax on an employee's earnings. So employers do not have to withhold personal income taxes from workers. 

However, the country companies to collect other taxes and statutory fees. For example, regulations in Saudi Arabia expect businesses to withhold social insurance taxes, which are 10% of wages paid to non-citizen employees working in Saudi Arabia.

Employers themselves must also pay social insurance taxes. For local employers who are Saudi nationals, this amount is 12% of income, ranging from 1,500 SAR ($399.93) to 45,000 SAR ($11,997.99). Foreign employers who set up their businesses in Saudi Arabia pay two percent of their income in the same range. 

Complying with tax laws in your country

Once you’ve complied with Saudi Arabia’s tax laws, you must check the tax requirements in your country. In the United States, for example, the Internal Revenue Service (IRS) taxes wages paid to independent contractors and employees living outside the country. 

US-based employers who hire non-American workers overseas must request a W-8 BEN form from the workers and file it with the IRS. Non-citizens living outside America but earning income in the US, use this form to establish their country of residence, thereby determining how much tax the IRS will charge them. Additionally, any US company that hires a contractor must file Form 1096 when using mail to report returns. 

Building the processes to manage taxes and ensure compliance when hiring foreign contractors doesn’t have to be complicated. Outsourcing your global contractor management to a service provider like Remote makes everything easy and quick. Read our article on how Remote makes tax compliance for US companies simple.

How do I convert an independent contractor in Saudi Arabia to an employee? 

For many businesses, onboarding and paying foreign workers as independent contractors is the easy way to navigate international employment. 

However, the easy way might not always be the most suitable — or the safest. That’s why sometimes companies choose to convert contractors into employees. The switch helps employers protect themselves from legal penalties for misclassification, streamline employer-worker collaboration, and provide a better experience for employees. 

But when should you convert a contractor into an employee? 

• You’re non-compliant with the country’s regulations.

• You want a skilled contractor to get more involved in building your business. 

• You want to provide employee benefits to a contractor so that you retain top talent. 

You must develop a fully compliant employment contract outlining employee responsibilities to convert a contractor into an employee. 

Besides compliance, you’ll have to set up processes to manage payroll, taxes, and benefits when turning contractors in Saudi Arabia into employees. Unfortunately, doing so compliantly is often a problem for businesses. Keep in mind that Remote also provides a centralized platform to manage payroll and employee benefits, making the contractor-to-employee switch easy and hassle-free.

The fast and compliant way to hire international contractors

Hiring international contractors in Saudi Arabia can be an excellent opportunity to tap into global talent, grow your team fast, and minimize expenses related to employing full-time workers. 

However, many companies find international hiring difficult because of complicated legal and tax regulations. Even if you have a strong grasp of labor laws in Saudi Arabia, ensuring compliance when hiring remote workers abroad can be tedious and time-consuming. The good news is that there’s an easy and quick way to expand your team internationally.

Partner with Remote to gain access to a global contractor management platform that lets you hire and pay contractors in Saudi Arabia quickly, cost-effectively, and compliantly. Remote helps you: 

• Onboard contractors in minutes and manage them in a single place. This streamlines workflows and reduces the switch between multiple systems or tools. 

• Manage invoices of your Saudi contractors and automate recurring payments to reduce manual work and save time. 

• Create employment contracts for your international workers while complying with Saudi Arabia’s labor and tax laws. 

• Process payments for independent contractors in multiple countries, making it easy to pay workers in their local currency worldwide. 

Learn more about hiring international contractors or sign up with Remote today if you’re ready to start onboarding contractors in Saudi Arabia!