Whether an employment contract is fixed-term or indefinite determines how the employment relationship ends, what notice is owed, and how compensation is calculated if the contract is terminated without legitimate cause. The governing text is the Labor Law issued by Royal Decree M/51, as amended by Royal Decree M/44 of 1446H, effective 19 February 2025. This page sets out the difference as explained by the Ministry of Human Resources and Social Development, including the special rule for non-Saudi workers.

The core difference

A fixed-term contract ends when its term expires, unless it is renewed or the parties continue performing it in a way that carries statutory effect. Its natural end point is the agreed date.

An indefinite contract has no end date. It ends at the will of either party, subject to the notice and legitimate-cause rules — the framework set by Article 75 of the Labor Law.

The distinction is not cosmetic: the contract type changes the lawful route to termination and the basis for calculating compensation for unlawful termination, as the table below shows.

What the contract must include

The law requires an employment contract to state:

  • The type of work and the workplace.
  • The agreed wage.
  • The contract type, and its duration if fixed-term.

If a contract does not clearly state its type or duration, that is the first point worth checking before anything else.

How each type ends

The law lists the cases in which an employment contract ends, including:

  • Mutual agreement of the parties.
  • Expiry of the term in a fixed-term contract.
  • Termination under Article 75 in an indefinite contract.
  • Resignation.
  • Retirement.
  • Force majeure.
  • Closure of the establishment or termination of the activity.
  • Other statutory cases.

Quick comparison

| Point of comparison | Fixed-term contract | Indefinite contract | | --- | --- | --- | | How it ends | On expiry of its term, unless renewed or performance continues with statutory effect | At the will of either party, subject to notice and legitimate-cause rules (Article 75) | | Unlawful-termination compensation (Article 77) | Wage of the remaining contract period | 15 days' wage per year of service | | Compensation floor | Two months' wage | Two months' wage |

Notice periods under an indefinite contract

Per the Ministry of Human Resources, where the worker's wage is paid monthly under an indefinite contract, notice is 30 days if the worker terminates and 60 days if the employer terminates. Where the wage is not paid monthly, notice is 30 days for either party. A party that fails to observe the notice period pays the other an amount equal to the worker's wage for the notice period or its remainder, unless the parties agreed on more.

Do not confuse notice pay with Article 77 compensation: a worker may be owed notice pay alone, or notice pay together with Article 77 compensation, depending on the reason for termination and how it was carried out.

Non-Saudi workers: always fixed-term

A non-Saudi worker's contract must be written and fixed-term. If the contract states no duration, the duration is treated under the statutory rule specific to non-Saudi contracts.

The practical consequence: indefinite-contract rules should not be applied to a non-Saudi worker without checking three things together — the contract's wording, nationality, and work permit status. Much of the common commentary about "open-ended contracts" concerns Saudi workers and does not carry over automatically to expats.

Compensation for unlawful termination — Article 77

Where a party ends the contract without legitimate cause and the contract sets no specific compensation, Article 77 provides:

  • Indefinite contract: 15 days' wage per year of service.
  • Fixed-term contract: the wage of the remaining contract period.
  • Both cases: a minimum of two months' wage.

This compensation does not cancel other claims such as unpaid wages, leave balance, or the end-of-service award where due. The end-of-service calculator estimates that award, and the labor section covers related topics.

When do you need a licensed lawyer?

The rules above are general. Some situations turn on their specific facts, including:

  • A dispute over the classification of the contract itself: did the term truly expire, or did performance continue with statutory effect?
  • A dispute over whether the reason for termination was legitimate and what Article 77 compensation follows.
  • A non-Saudi worker's contract that states no duration, with disagreement over its classification and the work permit status.
  • Overlapping claims: notice pay, compensation, and end-of-service entitlements at the same time.

In these cases the Labor Court examines the facts and documents, and a review by a licensed lawyer or labor consultant helps assess the position before any step is taken.