Fixed-Term and Indefinite-Term Contracts and When a Contract Converts

The difference between a fixed-term contract and an indefinite-term contract does not stop at a written end date. The law attaches different rules to the two types in notice and in compensation, and provides for cases in which a fixed-term contract converts into an indefinite-term one by operation of law, without the two parties signing anything new.

And in contracts with non-Saudis the default rule on the term changed substantially in the 2025 text, which is something worth reviewing in older templates.

1. When does a fixed-term contract end?

Article 55 provides that a fixed-term contract ends with the expiry of its term. If the two parties continue to perform it after that, the contract converts into an indefinite-term contract, having regard to what Article 37 provides in respect of non-Saudis.

Continuing performance after the term has run is therefore not an implied extension of the fixed-term contract, but a conversion in its type. This changes the rules attaching to it from that point onwards.

2. Conversion by repeated renewal

If the contract includes a condition for its renewal for a similar or a specified period, it is renewed for the agreed period. The law, however, places a limit on this repeated renewal:

If the contract is renewed 3 consecutive times, or its original term together with the renewal periods reaches 4 years, whichever is the lesser, and the two parties continue to perform it, the contract converts into an indefinite-term contract.

Three elements in this rule are misread:

• “Whichever is the lesser”: the text makes the lesser of the two criteria the operative one, so their conjunction is not required as a condition. As for characterising a particular occurrence, it is referred to the statutory text and the competent authority.
• “Consecutive” is the description of the three renewals in the text.
• “And the two parties continue to perform it” is an element within the rule itself, not a condition outside it.

An example of reckoning the two criteria

Assume a contract whose original term is one year, containing a condition for renewal for a similar period:

• After the first renewal: two years in total, and one renewal.
• After the second renewal: three years, and two renewals.
• After the third renewal: 4 years, and 3 renewals. Here both criteria are met together.

And assume another contract whose original term is two years with the same condition: after the first renewal the period reaches 4 years, so the term criterion is met before the three renewals are complete.

The ordering of the two criteria rests on the original term and the renewal periods together, not on the original term alone. As for characterising a particular occurrence, it is referred to the statutory text and the competent authority.

3. Renewal periods count towards service

Article 56 provides that each renewal period is deemed an extension of the original term when calculating the worker’s rights that depend on their length of service.

Service is therefore not broken up by the renewals. This bears directly on every right tied to length of service, among them the rise in the annual leave balance after 5 continuous years, and the end-of-service award, which is calculated on years of service.

The rights that depend on length of service

The effect of Article 56 shows in every right the law tied to length of service, among them:

• Annual leave: it rises from a period of not less than 21 days to a period of not less than 30 days once the worker has completed 5 continuous years with the same employer, under Article 109.
• The end-of-service award: it is calculated on the basis of years of service under Article 84.
• Compensation for unlawful termination in an indefinite-term contract: unless the contract stipulates compensation, the wage for 15 days for each year of service, and the compensation is not less than two months’ wage, under Article 77.

An establishment that treats each renewal as a fresh start does not merely contravene Article 56; it reduces every one of these rights.

4. Contracts with non-Saudis

Article 37 provides that an employment contract with a non-Saudi be in writing and fixed-term. If the contract does not state its term, its term is one year starting from the date the worker actually commenced work. If the two parties continue to perform it after that year has run, the contract is deemed renewed for a similar period.

The highest-risk change in older templates

Before 19 February 2025 the default term was the term of the work permit. The text in force makes it one year from the date of actual commencement.

Accordingly, every template, article or answer still saying that “the term of the contract is the term of the work permit” is conveying a superseded rule. This clause in particular is worth reviewing in every contract template prepared before 2025.

5. What follows from the type of contract

The type of contract is not a formal description; it governs rules laid down in other articles:

• The notice period: Article 75 concerns indefinite-term contracts terminated for a legitimate reason. A fixed-term contract ends with the expiry of its term, unless it is expressly renewed, under Article 74.
• Compensation for unlawful termination: Article 77 distinguishes between them. Unless the contract stipulates compensation, an indefinite-term contract carries the wage for 15 days for each year of service, and a fixed-term contract carries the wage for the remaining term, and in both cases the compensation is not less than two months’ wage.

Conversion from one type to the other, even where it occurs by operation of law without a signature, moves the relationship into a different set of rules.

6. What the text does not address

• The effect of conversion on the clauses agreed in the original contract. The particular case is to be referred to the statutory text and the competent authority.
• What counts as “continuing performance” precisely. The particular case is to be referred to the statutory text and the competent authority.
• The effect of a break between two terms on describing the renewals as consecutive. The particular case is to be referred to the statutory text and the competent authority.

7. What your system should record

• The current type of contract, not only its type at signing, because the type may convert by operation of law.
• The date of actual commencement, because it is the starting point for reckoning the year in contracts with non-Saudis.
• The original term and each renewal period with their dates, because the two criteria rest on them.
• The renewal counter and the total of the periods, because whichever reaches its limit first converts the contract.
• The continuous length of service across the renewals, because Article 56 makes it a single extension.

8. A checklist

• Does the contract type recorded in your system match its type today, after any renewal or continued performance?
• Have the renewals reached 3 consecutive times, or has the total of the periods reached 4 years?
• Did the two parties continue to perform after the term ran?
• In contracts with non-Saudis: is the contract in writing and fixed-term? And if it does not state the term, was it treated as one year from the date of actual commencement?
• Does any template of yours still tie the term of the contract to the work permit?
• Is the length of service reckoned as continuous across the renewals, as Article 56 requires by deeming each renewal period an extension of the original term?

9. Why this turns into a problem

Conversion from fixed-term to indefinite-term occurs by operation of law, not by a decision and not by a signature. Years may pass while the establishment’s system still classifies the contract by its first type, and wrong decisions get built on that classification: a termination without notice because the contract is “fixed-term” when it has converted, or a compensation reckoned on the basis of the remaining term in a contract that no longer has a remaining term.

The components on which all of this rests are simple facts: a commencement date, an original term, a renewal counter, and continued performance. The absence of one of them makes determining the type of the contract today a matter of estimation.

This is where it pays to have an employee’s facts in a single file. That is what Qoyod HR provides: a single employee file holding the contract, the documents and their expiry dates with an alert before them, an attendance record for each employee, and their leave, salary and end-of-service entitlements. End-of-service, overtime and leave-balance calculations are built into the system. It is a standalone HR system with its own subscription, and the link with Qoyod accounting is available now.

For the form of the contract and its mandatory contents, see The employment contract: form and contents.

To estimate the entitlements accompanying the end of service, the end-of-service award calculator will help you, and for more guides and templates browse the HR Resource Centre.

Frequently asked questions

When does a fixed-term contract convert into an indefinite-term contract?

Article 55 provides for two cases: that the contract ends with the expiry of its term and the two parties continue to perform it, or that the contract is renewed 3 consecutive times or its original term together with the renewal periods reaches 4 years, whichever is the lesser, and the two parties continue to perform it. In both cases the contract converts by operation of law.

What is the term of an employment contract with a non-Saudi if it is not stated?

Article 37 provides that the contract be in writing and fixed-term, and if it does not state its term, its term is one year starting from the date the worker actually commenced work. If the two parties continue to perform it after that, the contract is deemed renewed for a similar period.

Is the term of the contract still tied to the work permit?

No. Before 19 February 2025 the default term was the term of the work permit, whereas the text in force makes it one year from the date of actual commencement. Every template still tying the term of the contract to the work permit is conveying a superseded rule.

Do renewal periods count within the length of service?

Yes. Article 56 provides that each renewal period is deemed an extension of the original term when calculating the worker’s rights that depend on their length of service.

Does a fixed-term contract have a notice period?

Article 75 concerns indefinite-term contracts terminated for a legitimate reason, and a fixed-term contract ends with the expiry of its term, unless it is expressly renewed, under Article 74. As for terminating it early without a legitimate reason, that gives rise to the compensation in Article 77: unless the contract stipulates compensation, it is the wage for the remaining term with a minimum of two months’ wage.

What does “whichever is the lesser” mean in the conversion rule?

The two criteria in Article 55 are 3 consecutive renewals, or the original term together with the renewal periods reaching 4 years. “Whichever is the lesser” means that the lesser of the two is the operative one, so their conjunction is not required as a condition. As for characterising a particular occurrence, it is referred to the statutory text and the competent authority.

Statutory references

This guide rests on the Saudi Labor Law: Article 37 (contracts of non-Saudis and their default term), Article 55 (the ending of a fixed-term contract and its conversion), Article 56 (reckoning renewal periods within service), Article 74 (cases in which the contract ends), Article 75 (the notice period), Article 77 (compensation for unlawful termination), Article 84 (the end-of-service award) and Article 109 (annual leave).

On the effect of the amendments made by Royal Decree M/44 of 1446 AH, in force since 19 February 2025: Articles 37, 74 and 75 were amended by it, and the amendment of Article 37 is the subject of the fourth section of this guide. The last amendment to Article 55 was by Royal Decree M/46 and M/44 did not touch it. Article 84 was not touched by M/44, and Article 109 was not changed by the 2025 amendments. As for Articles 56 and 77, this guide has not established an explicit amendment status for them, so it is not sound to assert that they were or were not amended, and reference on that point goes to the updated statutory text.

This guide is a regulatory explanation, not legal advice. In an existing dispute or a particular case, the statutory text and the competent authority remain the reference.