Payroll in Saudi Arabia Is Now a Compliance Process First
Not long ago, payroll at many companies was a spreadsheet the accountant prepared at month-end, followed by a bank transfer file, and that was that. Today a salary is no longer a purely internal number. The wage is recorded in the employee's contract on Qiwa, the contribution base is registered with GOSI, the wage protection file is uploaded to Mudad and compared against what came before, and expatriate residency is tracked through Muqeem. When these figures disagree, the result is an alert or a violation.
This guide sets out the core HR and payroll requirements in the Kingdom as they stand in 2026: wage protection and Mudad, GOSI contributions after the new Social Insurance Law, overtime, leave and end-of-service rules, and the Labor Law amendments in force since February 2025. It works through full numerical examples, lays out a disciplined monthly payroll cycle, and explains where an integrated ERP fits.
Wage Protection and Mudad
The Wage Protection System requires establishments to upload a file proving that wages were paid. On 6 February 2025 the Ministry of Human Resources and Social Development announced that the upload deadline would drop from 60 days to 30 days, effective 1 March 2025.
Mudad also raises automatic alerts, including when the recorded basic wage looks illogical against the employee's other data, and when deductions exceed 50% of the wage. Reminders go out on the due date, ten days later and on day fifteen, and if no file is uploaded within about twenty days the case may be referred for inspection.
In practice that means payroll must agree with the registered contract, deductions must be controlled and justified, and the WPS file must come from the approved payroll itself rather than a separate sheet. We cover this in detail in our article on WPS and Mudad compliance through ERP.
GOSI Contributions
Contributions are calculated on basic salary plus housing allowance, capped at SAR 45,000 a month. Rates depend on nationality and when the employee first joined the system:
| Category | Employee share | Employer share | Note |
|---|---|---|---|
| Saudi registered before 3 July 2024 | 9.75% (9% annuity + 0.75% SANED) | 11.75% (9% annuity + 0.75% SANED + 2% occupational hazards) | Existing system |
| Saudi new entrant from 3 July 2024 with no prior contributions | Stepped annuity rate + 0.75% SANED | Same annuity rate + 0.75% SANED + 2% hazards | New Social Insurance Law |
| Non-Saudi | None | 2% occupational hazards |
For new entrants the annuity rate starts at 9% on each side and rises half a point every 1 July: 9.5% from 1 July 2025, 10% from 1 July 2026, 10.5% from 1 July 2027 and 11% from 1 July 2028. Two Saudi employees on identical salaries can therefore have different deductions, and your system has to know each employee's first registration date.
Worked example
A Saudi employee under the existing system earns basic SAR 8,000, housing SAR 2,000 and transport SAR 800.
- Contribution base = 8,000 + 2,000 = SAR 10,000. Transport is excluded.
- Employee share = 10,000 x 9.75% = SAR 975, deducted from pay.
- Employer share = 10,000 x 11.75% = SAR 1,175, a company expense.
- If the same person were a new entrant after 1 July 2026: employee SAR 1,075 (10% + 0.75%), employer SAR 1,275 (10% + 0.75% + 2%).
Working Hours and Overtime
Normal hours are capped at 8 a day or 48 a week, and during Ramadan at 6 a day or 36 a week for Muslim workers. An overtime hour is paid at the hourly wage plus 50% of the basic hourly wage. With the worker's consent, the employer may grant paid compensatory leave instead. Overtime is capped at 720 hours a year unless the worker agrees otherwise.
Worked example
Using the figures above, total monthly wage is SAR 10,800 and basic is SAR 8,000. With a common convention for hourly rates (monthly wage / 30 days / 8 hours):
- Full hourly wage = 10,800 / 240 = SAR 45.
- Basic hourly wage = 8,000 / 240 = SAR 33.33; half of it is SAR 16.67.
- Overtime hour = 45 + 16.67 = SAR 61.67.
- Ten overtime hours in the month = SAR 616.70.
Write the calculation method into policy and apply it to everyone in the system; inconsistent methods are a classic source of disputes. Remember the midday outdoor work ban as well: no work under direct sun from 12:00 to 15:00 between 15 June and 15 September for private-sector outdoor workers, which shapes site shift patterns every summer.
Leave Under the Labor Law
| Leave | Entitlement | Pay |
|---|---|---|
| Annual | At least 21 days; at least 30 after five consecutive years with the same employer | Paid |
| Sick | Up to 120 days a year | First 30 days full pay, next 60 at 75%, last 30 unpaid |
| Maternity | 12 weeks | Full pay (since February 2025) |
| Paternity | 3 days | Paid |
| Death of a sibling | 3 days | Paid (added by the amendments) |
Annual leave cannot be exchanged for cash during employment, so the system has to track balances and nudge managers and employees before leave piles up. Unused accrued days are paid out at the end of service. In the books, the leave balance is a liability that should be accrued monthly, not discovered when someone resigns.
End-of-Service Award
Under Article 84, the award is half a month's wage for each of the first five years and a full month's wage for each year after that, with partial years prorated, based on the last actual wage including allowances. On resignation, Article 85 gives nothing below two years, one third from two to under five years, two thirds from five to under ten, and the full award after ten.
Worked example
Seven years of service, last total wage SAR 10,800:
- First five years: 5 x 5,400 = SAR 27,000.
- Next two years: 2 x 10,800 = SAR 21,600.
- Full award = SAR 48,600.
- On resignation (five to under ten years): two thirds = SAR 32,400.
The common mistake is leaving this calculation until the last day. Accrue the provision monthly per employee so the financial statements show the real liability and a year in which several long-serving staff leave does not come as a shock. See our guide to end-of-service and leave under the Labor Law for more.
Final settlement
A final settlement brings several items together: pay for days worked in the last month, unused annual leave, the end-of-service award by reason of exit, and notice pay if notice was not worked, less outstanding loans and other amounts due within legal limits. When these live in separate spreadsheets, settlements are late and disputed. When they all sit in the employee record, the settlement is produced in minutes with a breakdown the employee can understand and sign.
Labor Law Amendments in Force Since February 2025
- Probation: up to 180 days, and it must be stated in the contract.
- Notice on indefinite contracts: 30 days if the employee resigns, 60 days if the employer terminates.
- Leave: 12 weeks' fully paid maternity leave, 3 days' paternity leave, 3 days on the death of a sibling.
- Training: employers must adopt training and qualification policies.
- Compensatory leave: may replace overtime pay with the employee's consent.
Each of these needs configuration: probation end dates with an advance alert, notice periods by contract type and by who ends the contract, new leave types with balances, and an option to bank overtime as leave.
Contracts, Qiwa and Expatriate Documents
Employment contracts are registered on Qiwa. The Unified Employment Contract arrived in October 2025, with wage-clause enforcement phased through 2025 and 2026. The principle is simple: the wage in the registered contract is the reference, and any gap between it and what is actually paid shows up when compared with the WPS file.
For expatriates, the company has to track iqama and passport expiry, exit and re-entry visas and professional licenses. One late renewal can block an employee's travel, disrupt payroll or trigger a violation. Muqeem integration and document expiry alerts with enough lead time prevent most of these problems.
A Disciplined Ten-Step Monthly Payroll Cycle
- Close attendance for the period and review absence, lateness and approved overtime.
- Enter changes (hires, exits, promotions, allowance changes), each backed by an approved document.
- Apply leave taken in the month, especially sick leave at its stepped rates.
- Calculate deductions (GOSI, loans, absence) and check they stay within acceptable limits.
- Run a trial payroll and compare with last month; any employee whose net pay moved more than a set percentage is reviewed.
- Approve, first by the HR manager, then by the CFO.
- Generate the bank file and check IBAN updates.
- Execute the transfer, then upload the WPS file to Mudad within the deadline.
- Post journals: salaries, employer GOSI, end-of-service and leave provisions.
- Publish payslips through employee self-service.
Step five alone catches most errors before they reach the bank. An employee whose pay suddenly doubled or halved deserves a look before approval.
Hypothetical Payslip for a Full Month
| Item | SAR |
|---|---|
| Basic salary | 8,000.00 |
| Housing allowance | 2,000.00 |
| Transport allowance | 800.00 |
| Overtime (10 hours x 61.67) | 616.70 |
| Gross earnings | 11,416.70 |
| Employee GOSI (9.75% of 10,000) | 975.00 deduction |
| Loan instalment | 500.00 deduction |
| Net pay | 9,941.70 |
The company also bears costs that never appear on the payslip: SAR 1,175 employer GOSI, the monthly end-of-service accrual (roughly SAR 900 for someone in year seven, at one month's wage per year) and the leave accrual. The true monthly cost is more than SAR 2,000 above gross pay, and that is the figure that should land on the project or cost center.
Multi-Site and Project Payroll
Contractors, maintenance firms and distributors face an extra problem: one employee may work at several sites in a month. Book the whole salary to head office and projects look more profitable than they are. Record hours by project or site through timesheets, then let the system allocate full employment cost, including GOSI and provisions, by hours. Geo-fenced attendance, where employees clock in from their phones only inside the site boundary, makes the hours data more accurate and harder to game.
Common Payroll Mistakes
| Mistake | Likely consequence | Prevention |
|---|---|---|
| Payroll wage differs from registered contract | Mudad alerts and possible violations | Update the contract on Qiwa before applying a raise |
| Uncapped deductions | Alert for deductions above the acceptable share | A system rule that blocks breaches |
| One GOSI rate for all Saudis | Wrong deductions for new entrants | Record each employee's first registration date |
| Late WPS upload | Reminders, then possible inspection | Schedule upload inside the payroll cycle |
| No end-of-service provision | A financial shock when veterans leave | Automatic monthly accrual |
For structured document tracking, see document expiry alerts.
Spreadsheets Versus an Integrated ERP
| Area | Separate spreadsheets | Integrated ERP |
|---|---|---|
| Employee data | Several copies that drift apart | One employee record feeding every process |
| Attendance and overtime | Re-keyed from device reports | Linked to attendance, calculated automatically |
| GOSI rates | Formulas that get missed when rates change | Rules by employee category and registration date |
| End-of-service and leave provisions | Calculated yearly or on exit | Updated and posted monthly |
| Bank and WPS files | Prepared by hand from the sheet | Generated from the approved payroll |
| Journal entries | One manual summary entry | Automatic, split by cost center and project |
| Audit trail | Nobody knows who changed the cell | Every change stamped with user and time |
HR and Payroll in Tranquil
Tranquil includes employee management, time and attendance, scheduling and timesheets, payroll, employee self-service, document expiry alerts and geo-fencing, plus bank integration for direct salary transfer and Muqeem integration for iqamas and visas. Payroll is connected to financial accounting in the same system. Explore payroll management and Muqeem integration, or contact the Tranquil team to review your payroll setup.
Frequently Asked Questions
What is the WPS upload deadline on Mudad?
30 days from 1 March 2025, down from 60, as announced by the Ministry of Human Resources and Social Development in February 2025.
Is transport allowance part of the GOSI base?
No. The base is basic salary plus housing allowance, capped at SAR 45,000 a month. Other allowances such as transport are excluded.
Why do two Saudi employees on the same salary have different GOSI deductions?
Anyone who joined GOSI for the first time from 3 July 2024 falls under the new Social Insurance Law, where the annuity rate rises in steps. Those registered earlier stay on the previous rates.
Can annual leave be paid out in cash during employment?
No. The Labor Law does not allow annual leave to be waived for cash while employed. Unused accrued days are paid at the end of service.
How is the end-of-service award calculated on resignation?
Nothing below two years of service, one third from two to under five years, two thirds from five to under ten, and the full award after ten years.