Employment in the hospitality and retail industry is rapidly changing around the globe. Due to the emergence of new technologies and innovative solutions, companies discovered a better way to hire and retain talent through flexible work (gig economy). Before we jump into the flexible work cost, let us try to understand the gig economy market first.
In the UK, the gig economy market has doubled over the past 3 years reaching 5 million workers. In the US, 34% of workers are part of the gig economy and the number is expected to increase to 50% by 2023.
Flexible Work in Saudi Arabia
The Saudi Ministry of Human Resources and Social Development launched the flexible work system in August 2020. Since launch, the number of registered companies that wish to benefit from this system has reached 3,000 companies.
This new flexible work system allows employers to hire easily using short-term hourly contracts while eliminating the lengthy process that comes with full-time recruitment.
Moreover, with the increasing cost of employment, companies and investors in the retail and service industry began to show interest in flexible staffing over the traditional full-time employment contracts.
What is the cost of the Flexible Work System in the Saudi market?
To get a better understanding of the cost of flexible staffing, you will have to compare it to full-time employment.
For example:
Ahmed’s salary with a full-time contract is
4,500 riyals per month, which means approximately 26 SR per hour
Noura’s salary with flexible or part-time work is
31 SR per hour
(Estimated from the current rate in the market)
However, is that an accurate comparison?
Is hiring Noura with a flexible work contract more expensive than hiring Ahmed with a full-time contract?
A common mistake is to rely solely on salary to calculate the cost of full-time employment.
Consequently, the miscalculation gives the impression that the cost of flexible staffing is higher than the cost of full-time employment, which is contrary to the fact that many organizations have taken advantage of flexible staffing to reduce operating costs.
To calculate the full-time employment cost, you need to consider the following:
1. Social Insurance Cost (GOSI)
The employer pays a monthly fee of 12% of the employee’s salary ( basic salary + housing allowance). This percentage constitutes the fees for the Saudi employee’s registration in GOSI.
GOSI Cost = 12% x Ahmed’s salary (basic + housing allowance)
Given that, let’s calculate Ahmed and Noura’s cost of employment accurately:
Ahmed’s full-time employment cost = monthly salary + GOSI cost
Noura’s flexible contract cost: doesn’t include additional GOSI fees
2. Medical Insurance
The employer is obligated to provide medical insurance for all workers according to Saudi labor laws.
The annual medical insurance cost is approximately 2,500 riyals
Ahmed’s full-time employment cost = monthly salary + GOSI subscription cost + Medical insurance cost
Noura’s flexible contract cost: medical insurance is not required
3. Health Certificate Costs (For food or public health sector)
Employers pay for a health certificate fee (health card) for their full-time employees, which is a requirement to work in restaurants, cafes, supermarkets, health centers, and other sectors in which the employee deals with food or public health.
Health card cost = 180-250 riyals annually in the Riyadh region (for the rest of the regions, it ranges from 700-900 riyals)
Ahmed’s full-time employment cost = monthly salary + GOSI cost + medical insurance cost + health certificate cost
Noura’s flexible contract cost: does not include the issuance of the health certificate, and usually the employee of flexible work has the health card in advance from previous work experience
4. Paid Leaves
The employer bears the cost of paid vacations to employees on full-time contracts according to the Saudi labor laws. These paid leaves include:
- 9 days annually for holidays (4 days for Eid Al-Fitr, 4 days for Eid Al-Adha, and the National Day)
- 30 days of annual leave
- 1 day per month for sick leave (Employees in F&B and retail sectors opt-in monthly for a sick leave)
Total leave is 40 days per year, which amounts to 2.75 days of a full-time employee’s salary each month.
Ahmed’s full-time employment cost = monthly salary + GOSI cost + medical insurance cost + health certificate cost + paid leaves
Noura’s flexible contract cost: does not include compensation for paid leaves as the employee is only paid for hours worked.
5. Recruitment and HR management Costs
Hiring is usually a continuous process throughout the whole year. This is especially true for the retail and service industry due to the high turnover rate that reaches up to 70% in the first three months for companies in these industries.
As a result, companies will need to hire a recruiter to be responsible for the recruitment process from sourcing the right talent, interviewing, filtering candidates, and processing their official papers. The effort goes beyond that to schedule them and place the workers in the company branch nearest to them.
The average monthly cost of a recruiter’s salary is 10,000 riyals per month. It is estimated that 1 recruiter can recruit and manage 100 employees.
Ahmed’s full-time employment cost = monthly salary + GOSI subscription cost + Medical insurance cost + Health certificate cost + 1% of the recruiter salary
Noura’s flexible contract cost: recruitment cost is calculated within the hourly wage if using flexible work service providers such as Sabbar. There are no additional recruitment costs.
Given all these points, what would the cost of hiring be for an employee on a flexible contract compared to a full-time contract?
In conclusion, flexible staffing may appear to cost higher than full-time employment at first. However, with the accurate calculation, you will find out that it is a solution to reduce employment costs in companies. It can also be the best immediate solution as long as the company is ready to adapt.
