Middle East | Social Security | New end-of-service gratuity system for foreign employees in Bahrain

Social Security

Middle East | New end-of-service gratuity system for foreign employees in Bahrain

Summary
The Bahraini government has introduced Resolution (109) of 2023, which brings significant changes to the payment of end-of-service “leaving indemnity” for non-Bahraini employees in the private sector. Effective March 1, 2024, employers are required to remit end-of-service entitlement contributions for all relevant employees to the Social Insurance Organisation (SIO) on a monthly basis. This marks a shift from the previous system where employers directly paid leaving indemnity to employees upon termination or resignation.

The detail
Resolution (109) of 2023 introduces several significant provisions affecting the end-of-service gratuity system for non-Bahraini employees in the private sector:

• Grace Period for Data Submission: Employers are granted a one-month grace period from March 1, 2024, to accurately submit all required wage data, including information on non-Bahraini employees, to the SIO. This time frame ensures a smooth transition to the new system.
• Employer Responsibility During Secondments: Employers are mandated to cover their employees’ end-of-service contributions even during temporary secondments to other establishments. This provision maintains continuity in employee benefits during transitional work arrangements.
• Calculation of Gratuity: The gratuity calculation remains consistent with existing rates: 4.2% of the employee’s annual salary for each of the first three years of employment and 8.4% for subsequent years until termination. For employees with a tenure exceeding three years before the Resolution’s effective date, the employer’s contributions automatically adjust to 8.4%, with prior legal provisions applying to the indemnity for the pre-resolution period.
• Timely Contribution Payments: Employers are required to pay the relevant contributions into the system within the first fifteen days of each month. Failure to meet this deadline incurs interest at a rate of 5% on outstanding amounts. Additionally, employers failing to make the required contributions for any given period will be subject to a penalty equivalent to 20% of the unpaid contributions.
• Penalties for Non-Compliance: Employers failing to comply with the Leaving Indemnity Resolution may face penalties ranging from BHD 100 to 500, which double for repeated offenses. Moreover, providing false or inaccurate information to obtain an unentitled benefit may result in sanctions on the employee.
• Implementation Regulations: Detailed procedural guidelines will be provided through implementing regulations issued by the Minister of Finance and National Economy. These regulations will offer clarity on compliance measures and administrative procedures.
• Transition from Internal Accruals: Many employers currently set aside monthly accruals internally as a contingent liability for end-of-service payments. However, with the SIO now requiring monthly contributions for non-Bahraini employees’ leaving indemnity, this internal accrual practice will cease.

What this means:
Employers must adjust their processes to ensure timely submission of salary data and payment of leaving indemnity contributions to the SIO. Failure to comply could result in penalties and sanctions. It also shifts the responsibility of paying leaving indemnity from employers to the SIO, offering greater protection to employees.

• Submit up to date and accurate details of the salaries of their non-Bahraini employees to the SIO as soon as possible.
• Ensure that their financial positions allow them to provide the SIO with the monthly contributions to avoid paying interest or penalties.

Ensure payment of the leaving indemnity for the duration of employment prior to the effective date upon resignation/termination (noting that this remains the responsibility of the employer despite the passing of this Resolution)

How we can help:
Our team is equipped to guide employers through the intricacies of Resolution (109) of 2023, facilitating accurate data submission, contribution calculation, and compliance with regulatory mandates. We provide tailored solutions to mitigate risks and ensure smooth adherence to the new system.

Contact us
For a deeper discussion on the above, please reach out to your Vialto Partners point of contact, or alternatively:

Michael Edmond
Partner

Jammy Mustafa
Senior Manager

Rim Daanoun
Consultant

Further information on Vialto Partners can be found on our website: www.vialtopartners.com

For additional alerts, please visit: www.vialtopartners.com/regional-alerts

---

Vialto Partners (“Vialto”) refers to wholly owned subsidiaries of CD&R Galaxy UK OpCo Limited as well as the other members of the Vialto Partners global network. The information contained in this document is for general guidance on matters of interest only. Vialto is not responsible for any errors or omissions, or for the results obtained from the use of this information. All information is provided “as is”, with no guarantee of completeness, accuracy, timeliness or of the results obtained from the use of this information, and without warranty of any kind, express or implied, including, but not limited to warranties of performance, merchantability and fitness for a particular purpose. In no event will Vialto, its related entities, or the agents or employees thereof be liable to you or anyone else for any decision made or action taken in reliance on the information in this document or for any consequential, special or similar damages, even if advised of the possibility of such damages.

Want to know when a Regional Alert is posted?

Simply follow our Vialto Alerts page on LinkedIn and posts will be displayed on your feed. To ensure you don’t miss one, once you’re on our LinkedIn page, click on the bell icon under the banner image to manage your notifications.

Further information on Vialto Partners can be found here: www.vialtopartners.com

Vialto Partners (“Vialto”) refers to wholly owned subsidiaries of CD&R Galaxy UK OpCo Limited as well as the other members of the Vialto Partners global network. The information contained in this document is for general guidance on matters of interest only. Vialto is not responsible for any errors or omissions, or for the results obtained from the use of this information. All information is provided “as is”, with no guarantee of completeness, accuracy, timeliness or of the results obtained from the use of this information, and without warranty of any kind, express or implied, including, but not limited to warranties of performance, merchantability and fitness for a particular purpose. In no event will Vialto, its related entities, or the agents or employees thereof be liable to you or anyone else for any decision made or action taken in reliance on the information in this document or for any consequential, special or similar damages, even if advised of the possibility of such damages.

© 2025 Vialto Partners. All rights reserved.