The Kafala System in Saudi Arabia and Its "Abolishing": A Practical Guide

The Kafala System in Saudi Arabia and Its "Abolishing": A Practical Guide

At a Glance

• What changed? Saudi Arabia has replaced the legacy sponsorship model with a contractual relationship and expanded worker mobility, exit/re-entry, and final exit processes through government platforms (notably Qiwa and Absher) a multi-year reform path culminating in broader changes reported in 2025. SPA

  
  

• Why now? The changes align with Vision 2030 objectives to improve labor market efficiency, competitiveness, and investment attractiveness.

  
  

• What to do as an employer? Update contracts, align policies with the Labor Reform Initiative (LRI) rules, and use Qiwa workflows for employee transfers and visa-related requests. JRSD

  
  

• Bottom line for investors: The reforms reduce administrative frictions, clarify obligations, and enhance transparency, while introducing new compliance checkpoints and digital processes you must build into HR operations. HRSD

  
  

Background: What Was the Kafala (Sponsorship) System?

Historically, the kafāla framework linked a non-Saudi worker’s residency and employment to a specific employer (“sponsor”), shaping entry, mobility, and exit from the Kingdom. While terminology and practice varied over time and across sectors, the core feature was dependence on the sponsor for changes in employment and for exit/re-entry, with the sponsor handling many government processes.

Why this mattered to businesses:

• Hiring and mobility were tightly sequenced through sponsor-led processes.

• HR operations centered on approvals, paperwork, and timelines controlled by the sponsor-employer.

• Contract enforcement and dispute resolution relied on administrative pathways that presumed sponsor stewardship.

  
  

Under Vision 2030, authorities began to re-platform this relationship, aiming to modernize the labor market, improve ease of doing business, and attract talent and investment.

Timeline: From Reform to Replacement

• Nov 2020 - LRI announced. The Ministry of Human Resources and Social Development (MHRSD) launched the Labor Reform Initiative (LRI) to shift toward a contractual model, with measures around job mobility, exit/re-entry, and final exit.

• March 14, 2021 - LRI implementation phase begins. Workers in covered categories could request exit/re-entry and final exit through government platforms and transfer jobs subject to conditions (notice periods, contract status, etc.).

• 2021–2025 - Digitalization and incremental rules. Qiwa introduced structured employee-transfer and direct-transfer workflows; additional guidance and ministerial decisions clarified classifications and procedures.

• 2024–2025 - Complementary policy moves. Saudi Arabia announced a National Policy for the Elimination of Forced Labor, and MHRSD highlighted progress in reducing dependency on sponsorship mechanics as the contractual model matured.

• 2025 - Official communications emphasize replacement of the sponsorship model. The Saudi Press Agency noted that the kafala system is replaced by a contractual model, underscoring increased worker mobility and independence; several outlets reported the broader abolition milestone in 2025. For compliance, always rely on MHRSD/SPA updates and Umm Al-Qurā Gazette texts governing your specific sector and workforce.

  
  

  Practical note: While media headlines often use “abolish,” practitioners should track scope, carve-outs, and implementing decisions as published by MHRSD, SPA, and the Official Gazette (Umm Al-Qurā) to understand exact coverage, transition rules, and sector-specific requirements at any given time.

What Changed in Law and Practice

Below are the operationally significant changes that shape day-to-day HR and compliance in Saudi Arabia’s private sector.

(1) Contractual Relationship as the Default Anchor

The employment relationship is now grounded in a documented employment contract enforceable through judicial/administrative channels, rather than sponsor-discretion. Contracts, notice periods, and compliant documentation take center stage. MHRSD

(2) Job Mobility Through Qiwa

Eligible workers can transfer employers using Qiwa services; either with or (under defined conditions) without the current employer’s consent (e.g., contract expiry, notice served, or other qualifying criteria). Direct Transfer flows are available in specific scenarios.

(3) Exit/Re-Entry and Final Exit Requests by the Worker

Covered workers can request exit/re-entry or final exit via government platforms without requiring employer pre-approval, subject to notice, obligations, and valid documentation. Employers receive electronic notification of travel. MHRSD

(4) Digital Gateways, Better Audit Trails

Processes occur through Qiwa (labor/contract) and Absher (visa/travel), creating digital logs, timestamped steps, and clearer audit trails for internal control and compliance reviews.

(5) Classification & Skills Rules

MHRSD has issued guidance on work-permit skill categories and related compliance to align labor supply with national workforce planning under Vision 2030. HR teams should map roles to the proper skill category and permit type.

(6) Wage Protection and Payments

The Wage Protection System (WPS) requires salaries to be paid electronically, in full, and on time, reducing wage disputes and creating a compliance trail helpful during audits or investigations.

(7) National Policy on Forced Labor

In 2024 Saudi Arabia introduced a National Policy for the Elimination of Forced Labor, reinforcing preventive, protective, and coordination mechanisms. Organizations should reflect this in supplier due diligence and internal policies.

(8) Communication & Notice

Notice periods matter: the new framework emphasizes timely notice (e.g., for transfer or exit) and contract status (fixed-term vs. indefinite). HR should template these steps to avoid disputes.

(9) Sector and Category Awareness

Coverage has expanded over time through implementing decisions. Companies should verify whether all worker categories in their industry fall under the latest rules, and monitor SPA/MHRSD for any sector-specific updates.

(10) Investor Takeaway

The move from sponsor-dependence to contract-anchored mobility can reduce administrative wait times, lower transaction costs for talent moves, and improve predictability for project timelines; if internal compliance is modernized accordingly. MHRSD

Side-by-Side: Before vs. After (Operational View)

Topic	Legacy Sponsorship Features (Historical)	Current Contractual Model (Key Elements)
Employment anchor	Sponsor-bound residency & employment	Documented employment contract as the core legal anchor
Job mobility	Typically required sponsor consent	Transfer via Qiwa, consent waived in defined scenarios (e.g., contract expiry, notice)
Exit/Re-entry	Sponsor initiated and approved	Worker can request via platforms; employer notified electronically
Final exit	Sponsor approval central	Worker-initiated, subject to contractual obligations and notice
Process transparency	Paper-heavy, sponsor-driven	Digital logs and workflows (Qiwa/Absher)
Compliance signals	Sponsor stewardship	WPS, skill categorization, and policy alignment (forced labor policy)
Strategic effect	Administrative friction; sequential approvals	Faster hiring/mobility, clearer compliance checkpoints

Sources: MHRSD announcements and SPA releases on LRI, Qiwa service guides, and MHRSD progress briefs.

How the Change Aligns with Vision 2030

Vision 2030 pursues a dynamic labor market, improved competitiveness, digital government, and investment readiness. Replacing sponsorship with a contractual model supports:

• Labor mobility to match skills with emerging sectors (tourism, entertainment, logistics, manufacturing).

• Predictable hiring for multinationals and local firms scaling projects.

• Transparent processes that are easier to audit and integrate into global compliance programs.

  
  

What It Means for Migrant Workers?

From a legal-operational perspective, the shift improves certain workplace conditions by changing who controls key steps and how those steps are executed:

• Mobility with conditions: Workers can transfer under defined rules, which reduces lock-in and allows better matching between roles and skills.

• Travel processes: Workers can request exit/re-entry or final exit through official platforms, which clarifies timelines, responsibilities, and notifications.

• Timely pay: WPS enhances on-time, in-full salary payments, cutting down disputes.

• Clarity and records: Digital systems create document trails, helping both workers and employers resolve disagreements through verifiable entries.

  
  

(Note: exact rights and procedures can vary by worker category and current ministerial decisions; HR/legal teams should verify the latest circulars and service rules.) - MHRSD

Compliance Checklist for Employers and Investors

Use this as a working list to bake reforms into your operating model.

1. Contract Hygiene

   • Ensure each employee has a documented, up-to-date contract reflecting current law and LRI practices (term, notice, mobility clauses, dispute venue).

     
     

2. Qiwa Workflows

   • Map and document employee-transfer processes (including Direct Transfer where relevant) with roles, approvals, and SLAs.

     
     

3. Exit/Re-entry & Final Exit SOPs

   • Publish internal SOPs stating who initiates what, how notices are served, and what documents must be archived for each case.

     
     

4. Wage Protection System

   • Confirm WPS compliance: bank channels, on-time payroll, variance explanations, and audit-readiness.

     
     

5. Skill Category Mapping

   • Align roles to approved skill categories and permit classes; maintain a matrix for HR audits.

     
     

6. Training & Communication

   • Train HR and line managers on notice, transfer, and travel request steps; update employee handbooks in both Arabic and English.

     
     

7. Monitor Official Channels

   • Subscribe to SPA and MHRSD updates; capture Umm Al-Qurā references for recordkeeping.

     
     

8. Vendor/Agent Oversight

   • If you use third-party recruiters or PROs, align KPIs and contracts with the new model and digital workflows.

     
     

Frequently Asked Questions (FAQ)

Frequently Asked Questions

Q1: Do workers still need employer permission to transfer?

A: Not in all cases. Under defined conditions (e.g., contract expiry, proper notice, or other qualifying criteria), transfer can proceed without current employer approval via Qiwa. Always verify eligibility criteria before initiating.

Q2: Who initiates exit/re-entry and final exit?

A: Covered workers can request these via government platforms; employers are notified electronically. Internal SOPs should address handover and recordkeeping.

Q3: Is everything “fully abolished” everywhere, for all categories?

A: SPA and MHRSD communications emphasize that the sponsorship system has been replaced by a contractual model. Coverage and implementing rules can vary by worker category and sector, so rely on official circulars and Gazette texts for your workforce profile.

Q4: What about wage delays and disputes?

A: The WPS regime and digitalization help prevent and resolve pay disputes through verifiable records and bank evidence.

Q5: How does this affect investment cases and timelines?

A: With clearer mobility and digital processes, project staffing can be faster and more predictable, particularly for multinationals orchestrating regional projects.

9) A Short, Real-World Scenario

You’re expanding a logistics hub in Riyadh and need to redeploy skilled technicians from a sister facility. Under the previous model, changes depended heavily on sponsor approvals and could trigger calendar risks. Today, your HR team prepares contract addenda, verifies eligibility on Qiwa, schedules notice periods, and initiates a Direct Transfer when applicable. As travel planning begins, technicians request exit/re-entry in the platform for equipment training abroad; your managers receive automated notifications, and project plans remain on schedule. This is not a policy statement, it’s how day-to-day operations increasingly function under the contractual model.

10) Key Takeaways for Foreign Investors and Legal Teams

• Modernized employment infrastructure: Contracts and digital workflows have replaced sponsor-centric mechanics for covered workers.

• Compliance is proactive: Your primary risks lie in documentation, notice, WPS adherence, and system proficiency (Qiwa/Absher).

• Track official updates: Treat SPA/MHRSD/Gazette as the single source of truth for scope, eligibility, and any sectoral nuances.

• Strategic upside: Mobility and transparency support talent acquisition, project delivery, and dispute avoidance, all factors that matter to board-level risk and returns.

  
  

11) Implementation Table: Who Does What Inside Your Organization

Function	Immediate Actions	Ongoing Controls
Legal	Update template contracts and letters; map notice and jurisdiction clauses to current practice.	Track Gazette and MHRSD circulars; maintain a register of policy updates.
HR/People Ops	Configure Qiwa access, Direct Transfer pathways, and exit request SOPs (Arabic/English).	Quarterly SOP reviews, completion audits on transfers and visa steps.
Payroll/Finance	Validate WPS compliance; reconcile bank files; document exceptions.	Monthly WPS reports; variance logs for audits.
Compliance/Internal Audit	Build checklists for file completeness (contracts, notices, Qiwa logs).	Semi-annual spot checks; evidence retention (digital logs + signed docs).
Line Management	Train managers on timelines, handover, and platform triggers.	Performance KPIs include on-time notice and handover quality.

12) Risk Notes & Clarifications

• Scope varies: Some worker categories may have specific rules at any point in time; always verify current coverage for your roles and sectors.

• Procedural compliance: Transfers and travel remain legal procedures governed by notice, valid contracts, and platform steps; non-compliance can delay plans.

• Continuous improvement: As authorities refine systems, expect interface changes, new checklists, and updated guidance, especially around skills classifications and digital services.

  
  

13) Glossary (Brief)

• LRI (Labor Reform Initiative): A policy package launched by MHRSD in 2020 to modernize employment relationships in the private sector.

• Qiwa: A government platform managing labor-market services, including employee transfer.

• WPS: Wage Protection System: electronic salary payment monitoring for compliance.

• Umm Al-Qurā: The Official Gazette publishing Council of Ministers decisions and regulations.

  
  

14) Quick Decision Map (Employer)

1. Do we have a current, documented contract? If not, update immediately.

2. Is the worker eligible for transfer without current employer consent? Check Qiwa criteria and notice.

3. Are exit/re-entry or final exit steps needed? Follow platform process; ensure obligations are met and notifications captured.

4. Are we WPS-compliant? Confirm salary runs, timestamps, and bank proofs.

   
   

15) Conclusion

For investors and counsel, Saudi Arabia’s move from the historical sponsorship model to a contractual, platform-enabled system is a structural change. It favors clear contracts, standardized procedures, and digital evidence, enabling smoother workforce planning and risk management, provided you align policies, training, and systems to the latest MHRSD/SPA guidance.

In practical terms, the reforms strengthen HR governance, talent mobility, and predictability, which are critical to executing large-scale projects under Vision 2030.