IMPACT – HIGH

What is the change? Saudi authorities are rolling out a program called “Parallel Nationalization,” which allows companies to pay monthly fees in lieu of hiring Saudi workers. The program is being launched following last month’s implementation of stricter Saudization rules for employers.

What does the change mean? The amount of the fees depends on how many workers a company employs and how many Saudi employees it would need to hire to reach the next Nitaqat color level. Companies pay six months up front, which immediately counts toward their Saudization. Under recent changes, only companies rated at the top two tiers— “high green” and “platinum”—are eligible for block visas.  

  • Implementation time frame: Immediate and ongoing.
  • Visas/permits affected: All work visas.
  • Who is affected: Saudi companies that employ expatriate workers.
  • Business impact: The fees are high and are meant to substitute paying a Saudi employee.
  • Next steps: Companies should determine how much the parallel nationalization would cost to reach the desired Nitaqat level and whether they wish to use the program. The Ministry of Labor has set up an online calculation tool (available in Saudi Arabia only) to assist companies in making that determination. Employers may wish to consult with their BAL professional to weigh the advantages and disadvantages of paying the government fees versus hiring additional Saudi employees, depending on their current Nitaqat rating, the number of Saudi hires required, their desired Nitaqat rating and other individual factors.

Background: Last month, Saudi Arabia strengthened its Saudization program by requiring employers to meet higher thresholds of Saudi employees in order to be eligible for certain benefits, including access to block visas and ability to renew or transfer work visas.

Labor authorities are now introducing the monthly fees as an alternative to hiring Saudi workers. Companies may pay a fee to the Ministry of Labor for each Saudi worker it would need to hire to reach the desired Nitaqat level. The calculation would depend on how many Saudi workers are already employed and other factors. For example, a company that employs 10 Saudis and requires three additional Saudi workers would pay 12,600 riyals (about US$3,360) per month to cover the three additional employees. The fees are by monthly subscription and employers pay for six months in advance. Companies may cancel their participation in the parallel nationalization program at any time, but their rating will then go down.

The fees will be paid through the Ministry of Labor portal and will fund a national program to train Saudi citizens.

BAL Analysis: BAL is working with employers to determine if the parallel nationalization program is a workable option for individual businesses. Some employers may find it a useful alternative if they are unable to find suitable Saudi workers, or as an interim measure. Companies will need to consider whether it is more cost-effective to pay the fees or hire additional Saudi workers, and which Nitaqat level and attendant privileges their business needs require.

This alert has been provided by the BAL Global Practice group and our network provider located in Saudi Arabia. For additional information, please contact your BAL attorney.

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