Red Circled Pay

What red circled pay is

Red circled pay (الأجر المجمد فوق حد الدرجة), also called red circling or a red circle rate, describes a particular situation: an employee whose pay is above the maximum of the range for their grade. The organisation stops the increases tied to the range and keeps the amount where it is, until the maximum catches up with it or the employee moves to a grade whose range can accommodate it.

Red circled pay is also described as pay frozen above the grade maximum. In that description, “frozen” refers to the increase, not the amount. The pay itself continues to arrive every month as before, and what has stopped is its upward movement. Taking the label to mean a pay cut gets it wrong, and taking it as a penalty gets it backwards, because none of the ways it arises, described below, is a response to anything the employee has done wrong. The opposite case, pay below the minimum of the grade, is known as green circled pay, and the two sit at opposite ends of the same range.

How red circled pay arises

1. Rebuilding the ranges. The organisation revises its pay table and lowers the maximum of some grades, so that an employee who was at the top of the range is now above it without their pay changing by a single riyal.
2. Evaluating the job again. A job is evaluated afresh and moves down a grade, its range moves down with it, and the person in the job is left above the new maximum.
3. A move to a lower role. Through a reorganisation, or at the employee’s own request, the employee moves to a lower role and keeps their pay. That route is described under demotion, which notes that moving an employee down a grade does not in itself require a reduction in the wage.
4. Increases that build up. An employee who stays in one grade for a long time accumulates annual increases until their pay passes the maximum. This is the one route that arises with the passing of time rather than through a decision, and how soon it arrives depends on the range spread of the grade.

Three of the four follow from a decision about the classification or the role, and the fourth from time passing. That point governs everything below: red circled pay is the trace of an administrative decision, or of years spent in one grade, and not a response to anything done wrong by the person it falls on.

How long red circled pay can last

Take an employee paid SAR 18,000 a month in a grade whose maximum is SAR 15,000, in an organisation that raises its ranges by an assumed 3% a year in line with the market. The gap today is SAR 3,000, which is 20% above the maximum:

At that rate the gap closes only with the seventh annual increase to the range, so the employee is still above the maximum in the seventh year. At an assumed 1.5% a year it would take thirteen annual increases, and at an assumed 7% it would take three. Red circled pay is therefore not a measure that lasts a few months. It is a position that can last for years, during which the employee goes through one increase cycle after another and receives nothing from any of them.

That is the other side of the calculation. The employee’s pay has not fallen by a riyal, but its purchasing power has fallen by however much prices moved over those seven years. Saying “we did not touch their pay” is accurate about the amount and describes only half of what happened.

The periods above are the result of a calculation on assumed rates, not a rule taken from any source. In the sources we reviewed, we found nothing that sets a maximum period for which pay above the grade maximum may stay frozen. Where periodic increments are provided for in the contract or in the work regulation, how a freeze affects them turns on the wording of the document that provides for them, not on the definition of red circled pay. Article 2 of the Saudi Labor Law (نظام العمل) includes periodic increments within the basic wage (الأجر الأساسي).

Why red circled pay is not resolved by cutting the wage

The answer that suggests itself at first sight is to bring the pay down to the maximum. There are two separate reasons not to take it, and they differ in kind.

The first is that the wage is a term of the contract. Article 2 of the Labor Law defines the basic wage as everything given to the worker in return for their work under a written or unwritten contract, whatever the kind of wage or the method of payment, plus periodic increments. Reducing it is therefore an amendment to the contract, not a unilateral administrative step. In the sources we reviewed, we found no provision setting out whether a wage may be reduced, or the conditions, procedure or effect of such a reduction, so we state nothing about it in either direction. The question is a matter for the contract, the establishment’s work regulation (لائحة تنظيم العمل), which is covered in our guide to the work regulation, and specialist advice.

The second is that a cut can be confused in practice with a deduction from wages, and the two are different matters. Deductions are governed by a closed list of deductions that may be made without the worker’s written consent, in Article 92 of the Labor Law, and by an aggregate ceiling on everything deducted, in Article 93 of the Labor Law. Both are covered in our guide to wage deductions. A cut takes nothing out of a wage that is due. It changes the wage itself.

The effect of confusing the two shows up in the records rather than in the arithmetic. Article 5 of the Implementing Regulation (اللائحة التنفيذية) lists seven statements, registers and files whose contents the employer must include, and one of them is the statement of workers’ wages. Under Article 5 of the Implementing Regulation, that statement records the workers’ wages, the dates on which they received them, the amounts deducted from the wage and the reason for each deduction. The last two items are a column for what is taken out of a wage that is due, and for why. Entering a pay cut there would put into a statutory record a deduction that never took place, and leave in the establishment’s books a trace of an event other than the one that occurred.

Responses to red circled pay, and what each one costs

• Freezing until the maximum catches up. It is the simplest option. Its cost is years of cycles without an increase, which can push the employee to look for another role or another employer.
• Paying the increase as a single amount that is not added to the base. It gives the year a visible effect without widening the distance above the maximum. Its cost is that nothing is built on the amount, so it does not raise the base on which later increases are calculated. Whether it counts towards an entitlement calculated on the wage is a separate question: Article 2 of the Labor Law counts a grant or bonus as part of the actual wage (الأجر الفعلي) where the contract or the work regulation provides for it, or where it has been customarily given until workers came to regard it as part of their wage rather than a gift.
• Widening the range itself where the cases are concentrated in the grade. Its cost is that it changes the whole classification for the sake of its edge, and raises the maximum of the grade for everyone inside it as well.
• Moving the employee to a grade whose range accommodates their pay. It ends the condition at once, rather than waiting for the range to move. Its condition is that the higher role has work that needs doing, not that a grade is created for the employee so that they leave the table.

None of the four comes free. The decision turns on the number of cases: one or two are a matter for the individuals concerned, while twenty cases in one grade are a sign that the range itself is the problem rather than the people in it.

Red circled pay distorts what a grade’s figures say

An employee above the maximum enters every average calculated for the grade, and raises it. The effect is that the organisation sees itself as paying more than it does.

Take a grade whose range runs from SAR 10,000 to SAR 15,000, with a midpoint of SAR 12,500 and five employees. Four are paid SAR 11,000, SAR 11,500, SAR 12,000 and SAR 12,500, and the fifth is frozen at SAR 18,000:

• The average of all five is SAR 13,000, which is above the midpoint of the range.
• The average of the four, leaving out the frozen case, is SAR 11,750, which is SAR 750 below the midpoint.

A single case has turned the picture of the whole grade from “above the midpoint” to “below the midpoint”. Measured as a compa ratio, which expresses pay as a percentage of the midpoint, the grade shows the same thing. The frozen employee sits outside the range altogether, at 144%, and including them lifts the average compa ratio of the grade from 94% to 104%, a rise with no meaning for anyone in it.

A practical rule is to calculate the grade’s indicators twice, once with the frozen cases and once without them, and to state how many there are beside the two figures. The difference between the two results is itself a useful measure: the larger it is, the more the frozen cases weigh on the grade’s figures, and the less the table can support a decision.

Pay frozen above the maximum also bears on pay compression, which is covered separately.

Telling an employee about red circled pay

The harm in red circled pay can come from the way it is communicated rather than from the decision. There are three things the employee deserves to hear plainly:

1. That their pay is not going down. It is the first thing they will want to know, and leaving it to the end of the conversation can make everything said before it sound like the lead up to a cut.
2. Why the situation has arisen. If the range has been rebuilt, that is a decision about the table, and it should be described as one. Keeping the reason back can leave the employee to supply the nearest explanation to hand, which is that their standing has fallen.
3. What will end it. A move to a higher role, or the maximum catching up after a period. Saying “we will look at it later” leaves the employee with no condition to work towards.

The term itself is not used when speaking to the employee concerned. It is an administrative description of a position in a table, and carrying it into a conversation with a person makes it sound like a label for the person rather than for where their pay sits in the range. What helps is a description of the facts: your pay is at this figure, the maximum of your grade is at that figure, and this is what follows from it.

How red circled pay differs from a disciplinary penalty, low performance, a salary freeze and green circled pay

• A disciplinary penalty. It is imposed for a violation attributed to the employee. Where the penalty is a fine, Article 73 of the Labor Law requires every fine imposed on a worker to be entered in a special register stating the worker’s name, the amount of their wage, the amount of the fine, the reason for it and the date. Red circled pay is not a penalty. It is not entered in that register, and it is not communicated to the employee in the language of a penalty.
• Low performance. An employee above the maximum may be one of the strongest performers in the grade. The two get confused when the situation is raised in a performance review, so that the employee hears a good rating and a decision of no increase in the same meeting.
• A salary freeze. It stops increases for everyone a decision covers. Red circled pay concerns an individual whose pay is above the maximum of their range, and the increases stop because of where that pay sits.
• Green circled pay. It is the opposite case, at the other end of the range, and its remedy differs in direction, in cost and in who bears that cost.

When red circled pay stops being an individual matter

A single case is resolved by a decision about a person. Several cases in one grade call for a decision about the table, because their presence together suggests that the range does not describe what the organisation actually pays for the work. Three signs separate the second situation from the first:

• Concentration in one grade. Five cases spread across five grades are a matter for individuals, while five cases in a single grade are a matter for the grade.
• Concentration in one role within the grade. It suggests that the role itself was evaluated at a lower level than it warrants, so the place to look again is the job evaluation rather than the pay table.
• New cases with every new hire in the grade. An organisation that cannot hire within its range is paying a market price different from the one written in its table, and the table is what has fallen behind, not the market.

That is why these cases are counted, and their spread examined, before any one of them is decided. Resolving case by case a situation caused by the table produces a new exception in every cycle, and after a few cycles the organisation can find it has built a parallel table of exceptions that appears in no document.

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, including periodic increments, and of the actual wage), Article 73 (the fines register), Article 92 (deductions permitted without the worker’s written consent) and Article 93 (the aggregate ceiling on deductions). From the Implementing Regulation, Article 5 (the statements and registers the employer keeps, including the statement of workers’ wages) is relied on. Royal Decree M/44 of 1446H, in force since 19 February 2025, amended Article 2 of the Labor Law by adding new definitions to it. That decree did not change the definitions of the basic wage and the actual wage in Article 2 of the Labor Law, and it did not amend Article 73, Article 92 or Article 93 of the Labor Law. Article 73 of the Labor Law carries an amendment by Royal Decree M/46, not by M/44.

Before red circled pay cases are resolved

An organisation that finds cases of this kind can begin by counting them rather than by resolving them one at a time. The count is what shows whether the matter lies with the people or with the table they were placed in.

This is an explanation of the concept and of the statutory provisions cited, not legal advice.

Related terms

• Broadbanding
• Range Spread
• Pay Compression
• Salary Review
• Job Classification