What a payroll run is
A payroll run, also called a pay run, is the periodic process, which can be monthly, in which an organisation calculates what each employee is due in basic wage, allowances and variable earnings, and deducts from it what the employee owes in advances, disciplinary fines and contributions, to arrive at the net amount transferred to the employee’s bank account.
The result of the process is a single approved record documenting the month’s pay for every employee. Two things are built on that record. The first is the wage file under the Wage Protection System (حماية الأجور), the monthly file of employees’ salary and settlement data that the establishment uploads through the Mudad platform (مدد). The second is the accounting entry by which salary expense is recorded in the books.
The components of a payroll run
- The basic wage. Article 2 of the Saudi Labor Law (نظام العمل) defines the basic wage (الأجر الأساسي) as everything given to the worker in return for their work, under a written or unwritten employment contract, whatever the kind of wage or the method of its payment, with periodic increments (العلاوات الدورية) added to it. The basic wage is one of the bases on which later calculations in the run rest, not the base for all of them. Article 2 of the Labor Law also provides that wherever the Law says wage without a qualifier, the actual wage (الأجر الفعلي) is meant: the basic wage plus the other due increases that Article 2 of the Labor Law lists. Which of the two a calculation uses follows from the wording of the provision behind it.
- Allowances. Among them are the housing allowance and the transport allowance. Items 5 and 6 of Article 61 of the Labor Law require the employer to provide suitable housing for its workers and suitable transport from their place of residence to the place of work, and allow the employer to replace either with a suitable cash allowance paid with the wage. The choice between providing the benefit and paying the allowance is the employer’s. Royal Decree M/44 of 1446H added both items to Article 61 of the Labor Law.
- Variable earnings. They are the amounts that change from one month to the next, such as overtime pay, commission pay and bonuses.
- Deductions. The employee’s share of social insurance contributions, advances, disciplinary fines and days of unpaid absence.
- Net pay. Total earnings less total deductions. It is the amount actually transferred to the employee’s account.
What the Saudi Labor Law requires of the payments in a payroll run
Article 90 of the Labor Law sets when the wage is paid and through which channel. Paragraph (1) of Article 90 of the Labor Law requires the wage and every amount due to the worker to be paid in the official currency of the country, on a schedule that depends on how the wage is set:
- An employee on a monthly wage is paid once a month.
- A worker paid by the day is paid at least once a week.
- Piece work that takes more than two weeks is paid by a weekly instalment in proportion to the work completed, with the remainder paid in full during the week following delivery of the work.
- Any other case is paid at least once a week.
Paragraph (2) of Article 90 of the Labor Law obliges establishments to pay wages into workers’ accounts through banks accredited in the Kingdom, no later than the due dates in paragraph (1), and allows the Minister to exempt some establishments from that obligation. Article 90 of the Labor Law was last amended by Royal Decree M/46 of 1436H. Royal Decree M/44 did not amend it. The schedule and the bank channel are covered in our guide to wage payment dates and the final settlement.
The payroll run is tied directly to the Wage Protection System, because the run is the source of the data on which the wage file is built.
A worked example of a payroll run
An employee has a basic wage of SAR 6,000, a housing allowance of SAR 1,500 and a transport allowance of SAR 500. In one month they earn SAR 430 for overtime hours, and they owe an advance of SAR 1,000.
- Total earnings: the sum of 6,000, 1,500, 500 and 430, which is SAR 8,430.
- Total deductions: SAR 1,000.
- Net pay: 8,430 less 1,000, which is SAR 7,430.
The deduction for social insurance (التأمينات الاجتماعية) contributions has been left out of the example, because its rate varies with the employee’s nationality and with which of the two contribution systems applies to them. For a Saudi employee, the system follows the test in Clause Second of Council of Ministers Decision 1022, which keeps a subscriber with uncompensated contribution periods from before 3 July 2024 on the existing system. For an employee who is not Saudi, nothing is deducted from their pay. No single rate therefore fits every case, and the example does not apply one.
How a payroll run differs from payroll accounting
The payroll run is an operational process within human resources. It calculates what the employee is due this month, and it ends when payment is approved. Payroll accounting is a later accounting treatment. It turns the result of the run into entries in the books, allocates the expense across cost centres, and shows the liabilities not yet settled in the financial statements.
Put briefly, the payroll run answers the question of how much the employee is due this month, and payroll accounting answers the question of how that amount appears in the organisation’s books.
The provisions behind a payroll run
The provisions relied on are those of the Saudi Labor Law as published by the Ministry of Human Resources and Social Development: Article 2 (the definitions of the basic wage and the actual wage, and the reading of wage without a qualifier), Article 61 (items 5 and 6, on housing and transport and the cash allowance in place of each) and Article 90 (the payment schedule, the official currency and payment through accredited banks). Royal Decree M/44 of 1446H, in force since 19 February 2025, added items 5 and 6 to Article 61 of the Labor Law and did not amend Article 90 of the Labor Law. The social insurance test cited in the example is that of Council of Ministers Decision 1022.
This is an explanation of the concept and of the statutory provisions cited, not legal advice.
A standalone Saudi HR system
One employee file holding the contract, the documents and their expiry dates, the attendance record, leave, salary and end-of-service entitlements. End-of-service, overtime and leave-balance calculations are built into the system.
A standalone system on its own subscription. The connection to Qoyod Accounting is now available.