Coronavirus impact: Saudi companies to reduce salaries by 40 percent, terminate employees

King Salman extends Indonesia tour: 45 trucks to transport Saudi King's luggage during Bali holiday
King Salman of Saudi Arabia rides in a golf cart driven by Indonesian President Joko Widodo at the presidential palace in Jakarta, Indonesia March 2, 2017. Reuters

Companies in Saudi Arabia can now reduce salaries of their employees by 40 percent and even terminate their contracts owing to the exceptional circumstances caused by the coronavirus pandemic, as per a ministerial decision taken on Monday, May 4.

According to a report in the local Asharq Al-Awsat newspaper, which obtained a copy of the document, the decision was taken as part of a directive signed and issued by the Saudi Ministry of Human Resources and Social Development.

The directive stipulates reducing working hours of employees and cutting salaries by 40 percent of their actual effective wage for a period of six months in accordance with the hours of work. Companies are also allowed to terminate employees after the end of the six-month period.

It defines force majeure (caused by the COVID-19 situation) as the reason for the Kingdom taking such measures which it deems appropriate or based on recommendations by a competent international organization to limit deterioration of the situation.

The ministry's decision includes a provision wherein companies can cut wages of employees if they find the employees benefit from any government assistance and subsidies, such as those that help with wages for workers or exemptions from government fees.

Termination of employees

The memo also stressed that companies are not allowed to terminate any employee unless they meet certain conditions, namely, the company must ensure that six months have passed since the salary cuts were enforced, all reducing pay, annual leave and exceptional leaves were utilized by the employees, and the company is able to prove that it is facing financial troubles due to the pandemic.

It also ensures that an employee will receive his salary if he or she is on an annual leave within the six-month period.

The memo has not been published by the cabinet yet. However, the report suggests the regulations will come into affect as soon as the directive gets published in the Saudi government's official newspaper.

All salary cuts and terminations coming under the new regulations will be considered force majeure in the contracts signed by the employees in the Saudi labor market.

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