The Saudi Social Insurance system covers three branches: the pension branch, the occupational hazards and additional compensation branch, and the unemployment insurance branch. Pension contributions for Saudi employees total 22% of the contributory wage, split as 11% borne by the employer and 11% by the employee. The rate for each branch, and who bears it, differs according to the nature of the coverage that branch provides, as detailed in the sections below.
Branches of Social Insurance
The Law covers the following social insurance branches: the pension branch, the occupational hazards and additional compensation branch, and the unemployment insurance branch.
Who Is Mandatorily Covered by the Pension Branch?
The pension branch applies mandatorily to all Saudi employees, and to all Saudi workers who work inside the Kingdom or abroad for an employer whose head office is inside the Kingdom, provided the worker's or employee's age, at the time the Law begins to apply to them, is below the statutory retirement age.
Pension Branch Contributions
Contributions to the pension branch are set at 22% of the contributory wage or salary, with the employer bearing 11% and the subscriber bearing 11%. For voluntary subscribers, the pension branch contribution is set at 22% of the contributory wage, borne entirely by the subscriber.
Occupational Hazards Branch Contributions
Contributions to the occupational hazards and additional compensation branch are set at 2% of the contributory wage or salary, borne entirely by the employer. The Board of Directors may, for a specified period, double this rate for employers who refuse to comply with instructions on the safety and health of subscribers.
Unemployment Insurance Branch Contributions
Contributions to the unemployment insurance branch are set at 2% of the contributory wage: 1% borne by the employer and 1% borne by the subscriber.
Retirement Age and Pension Calculation
The statutory retirement age for the purposes of the Law is the sixty-fifth year. The pension is calculated by multiplying 2.25% by the average contributory wage or salary, by the number of months of contribution, and dividing the result by 12, provided the pension does not exceed 100% of that average.
Unemployment Insurance Compensation
Unemployment insurance compensation is paid at 60% of the average monthly wages for each of the first three months, and at 50% of that average for each month thereafter, with a maximum compensation amount of 9,000 riyals for each of the first three months and 7,500 riyals for each month thereafter. Entitlement to this compensation requires a number of conditions, including that the subscriber holds Saudi nationality, has not been dismissed from work for a reason attributable to them, is able to work and is actively searching for work, and is committed to training. The maximum period for paying the compensation is 12 months, whether consecutive or intermittent, for each period of entitlement, and this compensation must be paid within 24 consecutive months for each period, starting from the date of the first payment made during that period.
Illustrative Example
As a hypothetical example, if a Saudi employee's contributory wage is 8,000 riyals, the total pension branch contribution (22%) amounts to 1,760 riyals, of which 880 riyals is the employer's share and 880 riyals is the employee's share (illustrative example with assumed figures).
Legal References
- Social Insurance Law — Articles Three, Fourteen, Fifteen, Sixteen, Seventeen, Twenty-Nine, Forty-Four, Forty-Five, Forty-Seven, and Forty-Eight.
For questions about your specific situation, you can ask the Saudi Arabia Tax & Legislation Helper on Helpers, or consult a licensed chartered accountant.