Bahrain End of Service Gratuity and Labor Law Overview

Article 116 of Bahraini labor law mandates that employers pay a gratuity to workers upon termination of employment, calculated based on years of service. Almost every employee must have heard about gratuity payment, but not many know the terms and conditions involved and how it is calculated. This document outlines conditions under which gratuity can be withheld, eligibility criteria, and calculation methods.

What is Gratuity?

Gratuity is a monetary payment eligible to an employee as a lump sum at the end of his tenure provided that the period of service exceeds one year. Gratuity payment is a liability to the employer which accrues as the employee service period progresses.

Who is Entitled to a Gratuity?

Expatriate workers are generally entitled to this payment and are entitled to a gratuity on completion of their contract. On the other hand, social insurance law applies to nationals employed in Bahrain and they are not entitled to Gratuity. Nationals covered under social insurance law are excluded from these provisions.

Eligibility and Basis for Payment

Employees are eligible for gratuity pay at the end of their service period, upon the death of the worker, by a disability preventing his work performance or by a period of sickness which exceeds his entitlement to sick and annual leave. According to Article 116, the worker shall be entitled to gratuity for the fraction of the year worked. As per Article 47, leaving indemnity shall be calculated on the basis of the worker’s most recent basic wage in addition to social allowance, if any.

Calculation of Gratuity Rates

The following details the number of days used to accrue gratuity based on the length of service:

• First three years of service: 15 days’ wages for each year.
• Service thereafter: One-month wages for each year of service.

Any period taken by the employee as unpaid leave is excluded when determining the service period. That means unpaid leave days are excluded when accruing gratuity, and the period of service is reduced by the number of days served as unpaid leave.

Termination and Withholding of Gratuity

Termination of an employment contract can be in terms of Resignation, Non-renewal of the contract or termination by the employer. In all these cases, the employer is bound to pay end of service benefits. However, as per Article 107, the employer may dismiss the worker without compensation in specific instances:

• If the worker assumes a false identity or submits false certificates or testimonials.
• If the worker committed a fault that caused serious material loss to the employer.

If an employee is terminated as per article 107, the Employer is not liable to pay any Gratuity to the employee.

Employment Contracts and Working Hours

Employers in Bahrain are required to provide a formal written contract for each employee they employ in the country. These contracts need to contain all the details of the employment arrangement, such as wages/salaries, benefits, and termination rules. The standard working week in Bahrain is 40 to 48 hours, five days in total. Generally, Friday and Saturday are rest days.

Leave Policies in Bahrain

Vacation and Sick Leave

Employees in Bahrain are generally entitled to 30 days of paid leave per year. This right is acquired after one year of service to the employer. Prior to this, leave is accrued at 2.5 days/month. Generally speaking, Bahraini employees are entitled to up to 35 days of paid sick leave per year. The first 15 days are paid at 100% of the normal salary, and the next 20 days are paid at 50% of the normal salary.

Parental and Pilgrimage Leave

Female employees in Bahrain are generally entitled to 75 days of maternity leave, of which 40 days are mandatory postpartum leave. The first 60 days are paid leave and the remaining 15 days are unpaid. Additionally, after five years of employment, Muslim employees receive a one-time 14-day paid benefit dedicated to a pilgrimage to Mecca.

Tax and Social Security Contributions

Bahrain has no personal income tax. However, the law mandates several social security contributions:

• Unemployment Insurance: Employees must contribute 1% of their wages.
• Social Security (Employee): Employees contribute 6% to social security.
• Social Security (Employer): Employers must contribute 9% of wages.

Furthermore, employers must pay a 3% tax on employees' wages. Bahrain has a public healthcare system, but foreigners may not be eligible for insurance and should always purchase private insurance.