Human-Power and Service Providers in Saudi Arabia

Background

The Saudi Labour Law requires that employees work for and be paid by their employer ‒ and, in the case of foreign nationals, be sponsored by their employer (for work/residency permit purposes). Saudi nationals can have more than one employer or act as independent (self-employed) consultants. This is in contrast with foreign nationals, who cannot work for a third party or for themselves; they may only work for their employer/sponsor, who must be one and the same entity licensed to do business in Saudi Arabia. As such, there are only two ways a party may benefit from “additional personnel” (so to speak) in Saudi Arabia ‒ and that is through a “manpower company” (“human-power company”, for the sake of equality) or a service provider, as shall be discussed.

A foreign national employee’s residence permit (iqama) shows the employee’s name, nationality, the entity they work for and are sponsored by, and their job position. If there is a labour office inspection at an entity’s premises, an employee may be required to present a valid iqama that shows the entity whose premises or work site they are working on is their sponsor.

If there is no valid reason for any inconsistency between the entity, whose premises a foreign national is working on, and their sponsor (ie, their employer is a licensed human-power company or their employer is performing services on the receiving entity’s premises ‒ in both cases, with an Ajeer certificate), the foreign national could be arrested and held until deported and the lending and receiving entities could be fined up to about SAR20,000 (per foreign national employee), banned from recruiting foreign nationals for one year, and the responsible manager could be deported if they are a foreign national. Fines are fairly common in the market; the latter two sanctions are seldom ‒ if ever ‒ imposed in practice.

Human-power companies

Local human-power companies can provide workforce solutions to other locally incorporated entities. They cannot provide workforce solutions to offshore entities, as that would raise a number of issues and risks. The offshore entity may be deemed to:

• be doing business in Saudi Arabia in violation of the Foreign Investment Law, which would require it to establish a local entity;
• have a permanent establishment exposing it to Saudi tax; and
• violate the Anti-Concealment Law (by virtue of using a local entity as a “front”), which carries criminal penalties.

While many companies present themselves as being human-power/recruitment companies, there are only a limited number who are properly licensed as such ‒ ie, their object is recruitment and they are a wholly Saudi-owned joint-stock company, properly capitalised and licensed as a recruitment company by the Ministry of Human Resources and Social Development (MHRSD).

Personnel

The human-power company’s “lent” personnel would be treated as the receiving entity’s personnel for all intents and purposes, would act under its direction and control, and would count in the entity’s Saudization ratio. (Therefore, the receiving entity would need to be in at least the Medium Green category or higher for Saudization purposes to receive any “lent” foreign nationals.) The talent that is readily available from human-power companies can often be limited.

Service providers

Locally incorporated entities can provide services such as technology support to individuals and other entities in Saudi Arabia, as long as these services are within the provider’s licensed objects. In Saudi Arabia, entities under formation must choose their objects from a long list of activities in the National Classification for Economic Activities, which is derived from the International Standard Industrial Classification of All Economic Activities, fourth version (ISIC4) issued by the United Nations Economic and Social Council. An entity can update its objects post-incorporation (unless it is a technical scientific office or regional headquarters). Locally incorporated entities cannot have a “catch-all” object clause as is often possible in other jurisdictions.

Sanctions for acting outside the scope of an entity’s objects would be on the service provider, not the receiving entity; however, if discovered, it could mean the service provider’s activities are suspended or cancelled and this may have a business interruption risk for the receiving entity. Therefore, it is advisable for entities who wish to avail services from local providers to ensure the provider is licensed to provide said services. This can be confirmed by requesting a copy of the service provider’s commercial registration certificate. Among other details, an entity’s commercial registration certificate usually includes its objects (or at least some of them) and a QR code with a link to the Ministry of Commerce’s portal, which will display the complete list of the entity’s objects.

Personnel

The service provider’s personnel would perform their employer’s obligations under a services agreement and should remain under the service provider’s direction and control at all times. The service provider would bear all employee-related obligations, such as paying its employees’ wages, accruing statutory end of service, making the relevant contributions to the General Organization for Social Insurance, and providing its employees and their dependents with medical insurance. The employees would count in their employer’s (the service provider’s) Saudization ratio. The receiving entity should not:

• instruct or manage the service provider’s personnel on a day-to-day basis ‒ it can have a contact/representative at the service provider who would manage its employees performing said services;
• be involved in hiring/firing or disciplinaries ‒ it can request a particular team at the service provider to perform the services and provide feedback on the performance of the services; or
• reimburse the service provider for its employees’ costs ‒ it should pay the service provider a fee to perform said services.

If the service provider’s employees need to be on the receiving entity’s premises to perform the services, the service agreement should be registered with Ajeer. The foreign national employees should hold valid Ajeer certificates to work on the receiving entity’s premises to mitigate the risks outlined above in case of an inspection.

Ajeer

Ajeer (meaning “rent” or “loan” in Arabic) is an online portal designed to regulate and document the temporary work of foreign nationals working on non-sponsors’ premises. Under the Ajeer programme, one of the main service lines is “contracting”. This is where a party conducts a valid services contract on another party’s premises that requires the service provider’s employees to be deployed on the counterparty’s premises. (The contract should be a true contract and the services should fall within the service provider’s objects.) This service line generally applies to the following activities:

• construction and building;
• cleaning and catering;
• maintenance and operation;
• consulting and business services; and
• institutes and colleges.

Other service lines include (but are not limited to) seasonal hire during Hajj season, seasonal hire during entertainment seasons, seasonal hire for parcel transportation, entities in the health or education sectors to engage foreign nationals on dependent residency, and temporary work during a labour dispute.

An Ajeer certificate would include the following information:

• the employee’s name, nationality, profession, and iqama number;
• the service provider’s data (name and MHRSD entity number);
• the data of the beneficiary receiving the services (name and MHRSD entity number); and
• details about the service contract, start date, end date, and work location.

Should there be an inspection, a foreign national’s iqama would confirm their sponsor and the Ajeer certificate would confirm their sponsor and the receiving entity’s details and work location they are permitted to work on.