In a move aimed at strengthening the business environment and supporting the stability of the private sector in Saudi Arabia, the Minister of Human Resources and Social Development, Engineer Ahmed Al-Rajhi, issued a significant ministerial decree outlining the terms and conditions for settling violations of the Labor Law. The decree includes unprecedented facilitations for businesses, most notably the possibility of reducing fines by up to 80%, reflecting the Ministry's efforts to incentivize compliance with regulations rather than solely relying on financial penalties.
Decision context and support for the business environment
This decision aligns with the goals of the Kingdom's Vision 2030, which places great emphasis on empowering the private sector and increasing its contribution to the GDP. The Ministry of Human Resources and Social Development is continuously reviewing its regulations to create an attractive and competitive labor market. This new approach is interpreted as a strategic shift from "collection" to "correction," offering businesses, particularly small and medium-sized enterprises (SMEs), a golden opportunity to adjust their legal status without incurring significant financial losses that could jeopardize their continued operation.
Discount details and settlement mechanism
Under the new mechanism, establishments can benefit from significant reductions in fines of up to 80%, specifically in cases where it is their first violation, or in cases where multiple violation notices are issued on the same date for the first time. This measure aims directly to alleviate the financial burden on employers and give them a second chance to comply.
Conditions for benefiting from the settlement
To ensure that establishments are serious about taking advantage of these facilities, the ministerial decision specified a set of strict controls that must be met in order to accept a settlement request:
- Time limit: The settlement request must be submitted within a period not exceeding 90 days from the date the establishment is notified of the administrative decision regarding the penalty.
- Correction of the violation: It is required to remove the violation in dispute and completely correct the legal status of the establishment, to ensure that the violation is not repeated.
- Fine status: The financial penalty to be settled must be unpaid at the time of application.
- Minimum: The ministry has set the value of the fine that can be settled as 1000 Saudi Riyals or more.
Expected economic impact
This decision is expected to improve the Kingdom's "ease of doing business" indicators by reducing operational risks for investors. It also fosters a culture of compliance among businesses, making the incentive to rectify issues greater than the fear of fines. Economists point out that such decisions support the sustainability of startups, which might otherwise falter due to hefty fines in their early stages resulting from unintentional management errors.
Cancellation of previous decisions
The new ministerial decision stipulates the cancellation of the previous decision No. 75907 dated 19/05/1445 AH, and any other decisions that conflict with its provisions, directing the concerned authorities to take the necessary measures for immediate implementation, which confirms the ministry’s determination to apply this regulatory flexibility without delay.
