Saudi’s new expat charges – is your company footing the bill?

If you’re an expat in Saudi Arabia, or part of a company hiring foreign workers, life has become that bit more complicated in 2018. And costly.

In July 2017, an expatriate levy came into force, as a result of which expat employees now have to pay the kingdom SAR100 each month for each of their unemployed dependents. It’s just the tip of the iceberg too: that fee will rise incrementally to SAR400 per month by 2020. Meanwhile, changes for companies have also been implemented – as of January 2018, businesses that do not have a majority of nationals in their workforce are required to pay SAR600 per month per expat worker (or SAR500 where the numbers are equal), rising to SAR800 (or SAR700) in 2020.

The dependent tax is inevitably leading expats to reconsider their position in Saudi Arabia, which in turn is forcing business leaders to tackle an important question: who should foot the bill? Employer or employee?

How they answer that question could make the difference between retaining their expat workforce and having to restaff.

The choices businesses are making right now will reverberate across the whole of Saudi society and beyond. We already have some insight into how they intend to respond from the pulse survey for expatriates fees in Saudi Arabia, for which Willis Towers Watson surveyed participants from over 100 leading local and international companies across 12 industries.

The employee perspective
So how are expats likely to respond? That largely depends on the industry they’re in and the attitude of their employer. Having seen above-inflation wage rises of 5 per cent in the last three years, higher paid expats will be able to absorb the impact of the new levy without too much trouble, though they may resent having to pay anything at all, having been attracted to the country by the erstwhile zero tax policy.

A 2018 population and household census performed by the General Authority of Statistics in Saudi Arabia found that 38 per cent of the country’s population are expats. Where this equates to one expat worker with three dependents, the worker will find themselves paying SAR14,400 from 2020. For many expats in Saudi Arabia, unless their employer foots the bill, they will be left with little choice but to send their dependents out of the country and possibly follow them.

The employer perspective
According to the pulse survey, approximately 58 per cent of multinationals and leading local organisations in Saudi Arabia employ more expats than nationals. The vast majority of them (69 per cent) are currently choosing not to cover the dependents levy. After all, they now have their own costs to pay with the new law. In 2018, a company that employs, say, 500 expats and fewer Saudi nationals will have to hand over SAR200,000 per month. The prospect of covering its workers’ dependents too could be financially challenging.

Another factor in their decision could be the question of where to draw the line. Covering the cost of your own expat employees is a liability that is easy to calculate and plan for; covering the cost of their dependents is quite another. How many dependents could they have? And how long do you go on paying?

Of the 31 per cent of employers who are covering the levy, just 38 per cent said they would do so for more than three children. A similar figure (34 per cent) had no response to the question, suggesting businesses are yet to fully decide on the level of cover they can afford to pay. Furthermore, 43 per cent of those businesses covering the dependents levy said they plan to decrease their contributions over time, with two-thirds of them intending to cease payments completely by 2019.

It’s safe to say, however, that the companies that have chosen not to pay the dependants’ levy for their expat employees will have thought long and hard about their decision, because it will have repercussions. Companies that do not pay the levy for their employees are risking losing them; companies that do are taking on a significant financial burden. That’s the pressure being imparted by the government’s policy of Saudisation, to meet the objective of reducing unemployment among the national population, as set out in Vision 2030.

The argument for covering your employees’ costs
Before any decision is made, you need to think very carefully about the repercussions of leaving your expat workforce to pay their own way.

Employee engagement: It’s common knowledge that recognition is a sure route to turbocharging employee engagement and improving productivity, whether it’s financial incentives, promotions or other rewards. Employees who feel they are not being looked after by the company might become disengaged and their performance will suffer.

Standing out from the crowd: If most employers in your sector are not covering the cost, offering to do so as a benefit could be a powerful recruitment tool. The 2016 Willis Towers Watson Global Workforce study found that company reputation and job security were two of the top six drivers of attraction for employees around the world. As part of a well-rounded package, including a strong base pay and benefits, offering to pay the levy for an employee may well tip the balance.

Small business, small impact: While the cost would be high for big companies employing many expats, for smaller companies with only a handful of foreign nationals the hit would be much less severe. For these businesses it may well make financial sense to keep valuable staff members happy by footing the bill.

Look to the benefits: If a business already offers an extensive benefits package then it could consider cutting this back. There is a real need to tread carefully in order to avoid being perceived as giving with one hand but taking with the other. Employers should crunch the data – look at usage figures, programme costs and even insurance claims – to decide which aspects of their current benefits are being poorly used or offering little return by value.

Target new starters: Whichever route is chosen, current employees are likely to notice the change. New staff, however, will accept their offering as the status quo. As such, businesses can maintain an equilibrium by offering lower salaries or reduced benefits to new employees, while still attracting them with the offer to pay the levy.

Succumb to Saudisation: Ultimately, the levy being laid down directly onto employers may well force their hand into hiring fewer expats and more Saudis. This review of foreign workers is especially likely to be felt in industries and trades where there is already a lack of adequately qualified and skilled Saudi nationals. Before a business takes this approach, however, it should research the market to make sure there’s a sufficient pool of Saudi workers with the requisite skills or make commitment to train the local talent to the adequate level, if necessary.

No wrong or right
The Willis Towers Watson pulse survey gauged the reaction of businesses early in the journey of the expat dependent levy. It will be interesting to see how attitudes have changed in the coming months – if, indeed, they’ve changed at all. Ultimately, the imposition of these expat levies is a very thorny issue and it will take time to determine whether they prove effective for the Saudi economy.

For businesses and employees operating within that economy, decision time has already arrived.

Roman Weidlich is the director at Willis Towers Watson’s Rewards Line of Business (CEEMEA)