UAE vs. Saudi Arabia Payroll Compliance: What Employers Need to Know in 2025

In 2024, the statute of limitations for labour claims was extended from one year to two years, with the period now calculated from the date of termination of employment.

This means companies must retain complete wage payment records for at least two years to provide verification in the event of a dispute.

Employers are now required to demonstrate wage payment compliance through the Wage Protection System (WPS) to renew work permits.

With mandatory real-time integration, companies that fail to synchronize payroll data or meet employment standards risk losing work permit renewals and facing heavier fines.

From 2025, a mandatory unemployment insurance scheme applies to all public and private sector employees (with the exception of investors, domestic workers, temporary staff, and retirees). 

Both employers and employees are required to contribute to the scheme. Employers must contribute alongside employees and ensure proper accounting and withholding procedures are built into their payroll systems.

Starting July 2025, private sector employees will have the option to choose an investment-based severance pay plan instead of receiving a lump-sum payment.

Under this system, employers contribute a percentage of employees’ salaries into a savings plan on a monthly basis, rather than accruing end-of-service compensation internally.

In 2025, the GPSSA contribution rate for UAE nationals employed in the private sector is fixed at 20% of the employee’s monthly pensionable salary. The breakdown is as follows:

• Employer: 12.5%
• Employee: 5%
• Government: 2.5% (applicable for UAE nationals in the private sector)

As of 1 July 2025, GPSSA will impose penalties on employers who delay contribution payments for GCC national employees, in line with UAE federal pension deadlines and the rights of pension authorities in their home countries.

The maximum probationary period has been extended to 180 days. During this time, either party may terminate the contract.

Previously, the law allowed a 90-day period with a one-time extension of 90 days by one party only. Employers will need to adjust payroll cycles to ensure compliance with probationary wage payments.

Employers now have the flexibility to manage overtime by either paying employees 1.5x their regular wage or offering compensatory time off with the employee’s consent – a change from the earlier requirement of overtime pay only.

To accommodate this, companies should adopt payroll systems that can manage both options seamlessly.

• Maternity leave: Extended from 10 weeks to 12 weeks, with six weeks required postpartum.
• Paternity leave: Fathers are entitled to three days of leave within seven days of a child’s birth.
• Bereavement leave: Employees may take three days of paid leave upon the death of a sibling. Additionally, employees may take 5 days of paid leave for death of a spouse or one of the ascendants or descendants.

Employers must update their payroll systems to accurately calculate pay for these expanded leave types.

Non-Saudi employees are now required to sign a limited-term contract. If the contract does not specify a term, it will automatically be treated as a one-year fixed term starting from the employee’s first day of work – rather than being tied to the expiration of the work permit.

Companies will need to adjust their compensation and benefits systems to align with these new requirements.

The amendments now provide a structured process for resignation:

• Employees must give 30 days’ notice.
• Employers may delay acceptance for up to 60 days but must provide written justification within 30 days.
• Employees may withdraw their resignation within seven days, unless the employer has already accepted it.

This change means employers should refine severance and settlement processes to ensure accurate handling of wages, bonuses, and benefits.

Employers are now explicitly prohibited from discrimination based on race, colour, sex, disability, or social status, reinforcing fairness and equality in the workplace.

Companies should review their compensation systems carefully to ensure equal pay practices.

Employees now have the right to appeal disciplinary actions within 30 days of receiving notice, with extensions granted if the deadline falls on a public holiday.

To support this, employers must maintain accurate payroll and HR records to provide reliable data in case of disputes.

Under the New Social Security Law effective 3 July 2025, both employee and employer contribution rates will rise from 9% to 11% of contributory wages, with annual increases of 0.5% each until 2028.