News FlashesApril 19, 2024

News Flash 18 April 2024 – BAHRAIN – Mandatory end-of-service benefits

APRIL 2024 – BAHRAIN
MANDATORY END-OF-SERVICE BENEFITS
It is important that employers note the following:

End-of-service benefit (EOSB) system for non-Bahrainis employed in the private sector
Prime Minister HRH Prince Salman bin Hamad Al Khalifa issued Decree No. 109 of 2023 in relation to the regulation of end-of-service remuneration for non-Bahrainis working in the private sector. The decree came into effect on 1 March 2024.

This replaces the current system where end-of-service indemnity is paid directly by employers to non-Bahraini employees upon their termination or resignation. Prior to the change, workers who were not citizens of Bahrain or another nation in the Gulf Cooperation Council (GCC) received a lump sum EOSB from their employer in place of social security retirement benefits. This lump sum was calculated as one half month’s final salary for each of the first three years of service, plus one month’s final salary for all additional years.

The new system is geared to providing adequate retirement security to employees. As of mid-2023, the Labour Market Regulatory Authority reported that non-Bahrainis accounted for approximately 80% of the workforce.

In accordance with the new decree, employers of non-Bahrainis must begin making monthly contributions to the Social Insurance Organisation (SIO) immediately in order to prefund these workers’ EOSBs for future work. The employer is obligated to share the salary data and increase, if any, in line with the employee’s employment contract. If not submitted, the SIO will determine the contribution amount using the higher salary basis found under its workers compensation programme.

According to Article 5 of the decree, only the employer will make the monthly contribution to the SIO. Employers are required to give non-Bahraini employees the same gratuity as Bahraini employees.

The monthly percentages to be collected by the SIO for the EOSBs will be as follows:
• 4.2% per month in the first three years of employment (0-3 years), i.e., half a month’s wage per year;
• 8.4% per month for each subsequent year of employment (3+ years), i.e., one month’s wage per year (If the employee has worked for more than three years prior to the effective date, the employer’s contributions to the SIO will automatically be set at 8.4%).

In case of entitlements related to years or periods of service that occurred before the decree’s implementation, the employer is required to pay the EOSB amount as per the standard procedure.

In accordance with the new EOSB system, the SIO will send the employer two separate monthly invoices: one for the contributions made by Bahraini and GCC workers each month (which is issued under the standard system and remains unchanged), and another for EOSBs for non-Bahraini and non-GCC workers.

The Social Insurance Law’s Articles 29 and 31 provide that employers will be forced to pay an additional sum equal to 20% of the contributions that they have not paid if they do not make the required end-of-service indemnity contributions within a set time frame.

Regrettably, Decree 109 of 2023 is not publicly available.

 

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