Bahrain Introduces New End-of-Service Gratuity System for Non-Bahraini Workers

Introduction

A new change is coming to Bahrain’s end-of-service gratuity system for non-Bahraini workers in the private sector. His Royal Highness Prince Salman bin Hamad Al Khalifa, the Crown Prince and Prime Minister of Bahrain, signed Edict (109) of 2023 to bring this change into effect. This move follows a proposal from the Minister of Finance and National Economy, and it has now been approved by the Cabinet.

Key Changes in Edict (109) of 2023

Edict (109) of 2023 brings important changes for non-Bahraini workers. Here are the key points:

  • The new system will require employers to submit wage data to the Social Insurance Organisation (SIO) for their non-Bahraini employees within one month of the edict’s publication.
  • The Minister of Finance and National Economy will issue additional rules to ensure the system is implemented properly.
  • The new system will begin on March 1, 2024.

Changes to the End-of-Service Gratuity Process

The new system changes how end-of-service gratuities will be handled. Here are the most important updates:

  • Monthly Contributions: Employers will now need to make monthly payments to the SIO for their non-Bahraini employees’ end-of-service entitlements.
  • Employee Applications: Employees will apply directly to the SIO for their end-of-service benefits when they leave the company. This replaces the old system, where employers paid the gratuity directly.
  • Grace Period: Employers have until March 1, 2024, to submit wage data for their employees. After this date, the new system will apply.
  • Secondments: Employers will still have to make end-of-service contributions during any temporary secondments.
  • Gratuity Calculation: The gratuity will be calculated at 4.2% of an employee’s annual salary for the first three years. For the years after that, it will increase to 8.4%.
  • Penalties for Non-compliance: Employers who fail to pay on time will face penalties, including interest charges. Employers who provide false information may also face fines.

What This Means for Employers

These changes will have a big impact on how employers manage their financial responsibilities. Here’s what employers should know:

  • End-of-Service Payments: Employers should stop setting aside money for end-of-service payments internally. The SIO will now handle all gratuity payments.
  • Protecting Employees: The new system ensures that employees will receive their end-of-service benefits on time. This reduces the risk of employees not receiving their due payments.

Action Steps for Employers

To comply with the new system, employers must take the following steps:

  1. Submit Wage Data: Employers should submit accurate wage data for non-Bahraini employees to the SIO by February 2024.
  2. Prepare for Monthly Payments: Employers should be ready to make monthly payments to the SIO starting in March 2024.
  3. Manage Previous Entitlements: Employers will still be responsible for payments for entitlements that existed before the new system starts, based on the old rules.

Conclusion

These changes represent a major shift in how Bahrain handles end-of-service gratuities for non-Bahraini workers. The new system will create more transparency, encourage timely payments, and offer better protection for employees. Employers must adapt to this new system to avoid penalties and ensure compliance.

Sources: HRH the Crown Prince and Prime Minister’s Edict (109) of 2023 & Lus Laboris

Published On: February 14th, 2024 / Categories: Global Workforce Solutions, News / Tags: , , , , , , /