• Insights

1

The most fundamental change to the payment of leaving indemnity is the requirement that employers remit end-of-service entitlement contributions for all relevant employees to the Social Insurance Organisation (‘SIO’) on a monthly basis. Upon termination or resignation, the employee would then apply to the SIO for their end-of-service entitlements, in contrast to the current system whereby employers pay the leaving indemnity to the relevant employee upon termination or resignation.

The Leaving Indemnity Resolution introduces the following provisions in relation to the end-of-service gratuity system for non-Bahrainis:

  • Starting from the Resolution’s effective date of 1 March 2024, employers will have a grace period of one month to submit all required data on wages for all insured workers, including non-Bahraini employees, to the SIO.
  • Employers will continue to bear the cost of the employees’ end-of-service contributions in the event of temporary secondment to another establishment.
  • The calculations of the gratuity will remain the same, at a rate of 4.2% of the employee’s annual salary for each of the first three years of employment, and 8.4% of the employee’s annual salary for subsequent years until termination. In the event that the employee has been employed for more than three years prior to the Effective Date, then the employer’s contributions will automatically be set at 8.4%, and the prior legal provisions (whereby the employer pays the leaving indemnity) will apply to the indemnity for the duration of the period of service prior to the effective date of the Resolution.
  • Employers are required to pay the relevant contributions into the system within the first fifteen days of the month. Failure to pay within that period will result in interest being accrued at the rate of 5%. If the employer fails to make the required leaving indemnity contributions for any given time period, it will be required to pay an additional penalty amount equivalent to 20% of the contributions which have not been paid.
  • Employers who fail to comply with the Leaving Indemnity Resolution may be subject to a penalty of BHD 100-500, which is 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 on the employee.
  • The Implementing Regulations will be issued by the Minister of Finance and National Economy. It is these Regulations which will provide much of the relevant procedural detail.

 

In our experience many employers, as a matter of good accounting practice, currently set aside monthly accruals on an internal basis, categorising the accruals as a contingent liability for the purposes of paying out end-of-service entitlements without jeopardising the company’s financials (in the event, for example, of several resignations/terminations within the same period). However, the changes in the law will mean that employers no longer accrue internally, given that the SIO will now require employers to make contributions (for the non-Bahraini employees’ leaving indemnity) to the SIO fund on a monthly basis.

The changes also have the effect of protecting employees against the risk of employers, without lawful excuse, failing to pay to out end of service entitlements upon termination / resignation.

Takeaway for Employers

The Resolution comes into effect on 1 March 2024. Employers should therefore:

  • Submit up to date and accurate details of the salaries of their non-Bahraini employees to the SIO by the end of February 2024.
  • 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).

Global HR Law Guide - Termination of employment