Bahrain: Legal Update: Latest Developments To The End-Of-Service Gratuity

Our Associate, Budoor Al Halwachi throws light on the 'Regulation of the End of Service Remuneration for Non-Bahrainis Working in the Private Sector' (Resolution).

The Prime Minister HRH Prince Salman bin Hamad Al Khalifa issued Resolution No. 109 of 2023 in relation to the Regulation of the End of Service Remuneration for Non-Bahrainis Working in the Private Sector (Resolution). The Resolution will come into effect on 1 March 2024 (Effective Date), where the Minister of Finance and National Economy is to issue the Implementing Regulations which will contain further information not covered in the Resolutions.

Summary of the Resolution

The Resolution requires employers to contribute to the Social Insurance Organisation (SIO) the end of service entitlements for Bahraini and Non-Bahraini employees monthly. This replaces the current system where leaving indemnity is paid directly by the employers to non-Bahraini employees upon their termination or resignation.

Timeline for Implementation

The employer must submit all required data on wages for insured workers, including non-Bahraini employees, to the SIO within one month of the Effective Date. Failure to meet this deadline will result in contributions being calculated based on the same wage basis used for employee contributions for work injuries, as specified in Articles 47-49 of Decree-Law No. 24 of 1976 Promulgating the Social Insurance Law (Social Insurance Law).

Employer Contribution Rates

The employer's contribution rates to the SIO are determined by Article 5 of the Resolution which stipulates "The Employer shall solely pay the Contribution to the Organisation, on a monthly basis, at (4.2%) of the Salary, for the first three years from the date of commencement of the work of the Insured, and at (8.4%) of the Salary for the following years until the End of Service. The provisions of Articles (29) and (31) of the [Socia Insurance Law] shall apply to the payment of Contributions." The employer is obliged to pay the same gratuity of non-Bahraini as to Bahraini employees which will be set at the rate of 4.2% of the employee's annual salary for each of the first three (3) years of employment and 8.4% for the subsequent years. As per Articles 29 and 31 of the Social Insurance Law, failure to make the required leaving indemnity contributions in any given time shall result in employers being required to pay an additional amount equivalent to 20% of the contribution which have not been paid.

Contribution Rates of Insured Employees before the Regulation

The employer's contribution rates to the SIO for employees who have been employed over three years prior to the Effective Date are provided in Article 13 which stipulates that "In application of the provisions of Article (5) of this Regulation, in case the Insured worked for the Employer for a period of more than 3 years before the implementation of the provisions of this Regulation, then the Contribution to be paid by the Employer for the Insured shall be from the date of enforcement of this Regulation until the End-of-Service at (8.4%) of the Salary." Moreover, Article 14 of the Resolution stipulates that "The Gratuity of the Insured related to the service period that precedes the implementation of this Regulation, shall be subject to the provisions of the Private Sector Labour Law issued by Bahrain Law No. 36/2012."

If the employee has worked for over three years prior to the Effective Date, the employer's contributions to the SIO will be automatically set at 8.4%. The leaving indemnity, in accordance with the provisions of the Labour Law (Decree-Law 36/2012), will apply to the period of service before the Effective Date.

Penalties

The Regulation shall apply the same penalties in violation of Bahraini employees under the Articles 148-151 of the Social Insurance Law. Employers who fail to comply with the Resolution may be subject to a penalty of BHD100-500 which shall be doubled if the offence is repeated. In addition, providing false or inaccurate information for the purpose of obtaining an unentitled benefit may result in the imposition of sanctions.

Concluding Remarks

By requiring employers to remit the end-of-service entitlements to the SIO monthly, the Resolution safeguards employees against the risk of non-payment by employers without lawful reasons upon termination or resignation. This initiative showcases Bahrain's dedication to fostering economic prosperity and creating a leading business environment that is attractive to both employers and employees alike. The Resolution reinforces the Kingdom of Bahrain's commitment to protecting the rights of all employees, regardless of their nationality.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.