Everything You Need to Know About Payroll... A Guide for Saudi Companies and Organizations

Payroll preparation is one of the most crucial HR operations, requiring high accuracy and efficient time management. Effective payroll management is key to improving employee satisfaction, enhancing engagement, and building trust in the organization. The most successful companies are those that manage payroll processes in a timely and disciplined manner. In this article, we provide a comprehensive guide on payroll processing for companies and organizations in Saudi Arabia.

What is Payroll?

Payroll is the process of regularly and systematically disbursing wages, compensations, and financial entitlements to employees, usually on a monthly basis.

While it may seem simple, payroll management is a comprehensive process that includes managing salaries, allowances, benefits, financial entitlements, and obligations for all employees.

Why is Payroll Important?

Payroll is essentially what organizations pay to benefit from the efforts and expertise of their employees. Hence, payroll must align quantitatively and qualitatively with the organization's strategic goals, legal compliance, and employee satisfaction.

Efficient payroll management is also vital for maintaining financial stability, managing cash flow, and estimating operating costs effectively.

Overview of Payroll-Related Articles in Saudi Labor Law

The first chapter of the Saudi Labor Law defines salary components as:

1. Basic Salary: This includes everything paid to the employee for their work, whether the contract is written or verbal, including periodic raises.
2. Actual Salary: This includes the basic salary plus all additional entitlements granted for work effort, risks, or as stipulated in the contract or internal policy. Examples include:

• Commission or sales/profit percentages for marketing or increasing output.
• Allowances for effort or risk associated with the job.
• Living allowances or family-related bonuses.
• Bonuses or rewards, if regular and expected.
• In-kind benefits provided under the contract or policy.

Whenever the term "salary" is used in the law, it refers to the actual salary.

3. Overtime: Article 107 mandates that overtime should be paid at 150% of the basic hourly wage. Alternatively, paid time off can be granted with consent.

When is Salary Due?

According to Article 62, the employee earns their salary by being present on time at the workplace, ready to work unless prevented by reasons related to the employer.

Payroll Content

Payroll includes several elements to ensure accurate calculation:

• Fixed Content: Period covered, last update date, and authorized signatory sections.
• Payroll Table:

1. Employee ID
2. Employee Full Name
3. Hire Date
4. Start Date for Salary Calculation
5. End Date for Salary Calculation
6. Actual Working Days
7. Overtime Hours
8. Absence Days
9. Paid Leave Days
10. Actual Salary: Basic salary + commissions + allowances + bonuses
11. Deductions:
    1. Social insurance contributions
    2. Applicable taxes
    3. Penalties or loan repayments

Steps for Preparing Payroll According to HR Best Practices

Define Cut-off Day

This is the day when recording payroll changes stops. Any adjustments after this day are processed in the next cycle. Factors include:

• Salary disbursement date
• Time needed for preparation and approvals
• Bank processing time
• Whether payroll is manual or automated

Typically agreed upon with other departments, attendance and overtime records are reconciled manually or automatically via HR systems.

Review Previous Period Adjustments

Retroactive changes (e.g., unrecorded absences) are applied in the current payroll period.

Prepare Monthly Movement Report

Includes:

1. Employees on leave (handled separately)
2. Employees who left (handled separately)
3. Employees returning from leave
4. Newly joined employees

Used to validate payroll headcount.

Reconcile Attendance and Overtime Sheets

If no HR system exists, manually extract workdays, absences, leave days, and overtime from attendance sheets.

Calculate, Review, and Approve Payroll

Once changes are recorded, calculate salaries, validate using previous records and movement report, then approve.

Transfer Salaries

Create and send bank-compatible payroll files.

Generate Salary Notifications

If automated, the system emails/SMSs salary slips. Otherwise, use Word mail merge with Excel and Outlook.

Extreme care is required to avoid privacy breaches.

How Talento Simplifies Payroll Preparation

Talento helps HR teams efficiently organize and automate salary payments, reducing errors and ensuring timely disbursements. Key features include:

• Salary calculation based on contract, attendance, and leave
• Automatic deductions (tax, loans, benefits)
• Payroll slip generation
• Direct bank deposits
• Compliance reports for audits

Avoid Payroll Errors with Talento

Talento automates monthly deductions without manual tracking. Benefits include:

• Policy-based deductions and delays
• Detailed deduction impact reports
• Smooth integration with payroll for consistent and accurate data

Top Features for Salary, Deductions & Bonuses

• Automated deductions for delays, absences, unpaid leaves
• Simple deductions for long unpaid leaves
• Bonus management automation based on achievements and performance

How Talento Protects You from Payroll Penalties

Late salary disbursement may reduce employee satisfaction and cause regulatory fines. Talento ensures fast and accurate payroll with audit-ready reports.

In Summary...

Efficient payroll management is not just routine—it ensures legal compliance and boosts satisfaction. With Talento, you automate with accuracy and speed, reduce errors, and gain transparency. HR managers and business owners benefit by investing in smart tools that elevate organizational efficiency and trust.

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