In line with Bahrain’s continued efforts to strengthen labor protections and foster a balanced employment environment, a new regulatory framework governing end-of-service gratuities for expatriate workers in the private sector has been introduced. Effective 1 March 2024, this system reflects a policy shift towards ensuring transparency, timely disbursement of benefits, and enhanced financial security for non-Bahraini employees.
The new structure stems from recent labor policy amendments and introduces a dedicated end-of-service gratuity account within the Social Insurance Organization (SIO), with contributions made exclusively by employers.
The system applies to non-Bahraini employees in the private sector who are covered under the work injury insurance branch of Bahrain’s Social Insurance Law. However, certain categories are excluded from the application of this system, including:
Under the new system, only the employer is responsible for making contributions to the designated end-of-service account. The rates are as follows:
For existing employees who have completed more than three years of service before the implementation date, the 8.4% rate applies prospectively from 1 March 2024 until the end of their employment.
It is important to note that contributions must be based on actual wages, and late or incorrect payments may result in penalties or supplemental charges.
The end-of-service gratuity due to the insured employee upon termination of service will be calculated as follows:
The benefit is capped at the amount accumulated through paid contributions and is based on the final wage of the employee. Only periods during which contributions were made are considered when calculating service duration.
In the event of a salary increase, the employer is required to adjust the monthly contributions to reflect the new wage.
If the salary is decreased and the employer continues paying contributions at the previous higher rate, the employer is entitled to claim the excess when the gratuity is disbursed.
Notably, the law does not specify a justification for treating wage increases and decreases differently in terms of employer obligations, which may raise questions regarding administrative fairness.
The regulation also addresses non-standard employment scenarios:
While this reform is expected to enhance labor protections and ensure employees receive their gratuity in a timely and predictable manner, it also imposes new financial and administrative burdens on employers. Previously, many businesses managed end-of-service obligations informally, often using operational funds at the time of termination. The new system eliminates this practice by requiring real-time monthly contributions, which may reduce liquidity and affect short-term cash flow planning.
The requirement to submit employee wage data within one month of the law’s publication (issued in the Official Gazette on 14 December 2023) underscores the importance of prompt administrative action.
Ministerial Decision No. (109) of 2023 represents a significant shift in the administration of end-of-service benefits for non-Bahraini workers in Bahrain. It aims to strike a balance between legal structure and practical enforcement while offering stronger protections for expatriate employees. Employers should review their HR and payroll systems to ensure full compliance and consider seeking legal or financial advice to navigate the transition effectively.