Effective March 1, 2024, the Kingdom of Bahrain has implemented significant reforms to Law No. (36) of 2012 promulgating the Labour Law for the Private Sector (“Labour Law”) concerning the payment of leaving indemnity, particularly affecting non-Bahraini employees in the private sector. These changes, introduced through Order No. (109) of 2023, mandate that employers are obliged to remit leaving indemnity contributions monthly to the Social Insurance Organization (“SIO”), transitioning from the previous system where lump-sum payments were made directly to employees upon termination of their employment.
Changes to Leaving Indemnity for Foreign Employees in the Kingdom of Bahrain
Employers are now required to electronically pay monthly leaving indemnity contributions to the SIO for their non-Bahraini employees. This system aims to ensure timely and secure accumulation of leaving indemnity payment, mitigating risks associated with non-payment or delays. The Order came into effect on 1 March 2024, accordingly, employers were granted a one-month grace period to comply, during which they must submit all required wage data for insured workers to the SIO.
The leaving indemnity contribution rates payable to the SIO are as follows: (i) First Three Years of Employment. A contribution of 4.2% of the employee’s monthly basic salary is required; and (ii) Subsequent Years until End of Service: The rate increases to 8.4% per month. For employees with more than three years of service prior to the effective date, contributions will automatically be set at 8.4%.
Employers must submit to the SIO accurate salary data for all insured non-Bahraini employees by the end of February 2024 and any salary changes made after said date must be promptly updated with the SIO. Further, the employer must pay the SIO the leaving indemnity contributions within the first fifteen days of each month, late payments shall incur interest at 5% of the due amount, with additional penalties for prolonged non-compliance
Employers who fail to comply with the new SIO contribution and registration requirements may face: (i) Fines. Monetary fines ranging from BHD 100 to BHD 500, doubled for repeated offenses; (ii) Interest and Penalties. Delayed contributions accrue 5% interest, and unpaid contributions attract an additional penalty equivalent to 20% of the outstanding amount; and/or (iii) Sanctions for False Information. Providing inaccurate data to obtain unentitled benefits may result in penalties for both employers and employees.
As for employees, they shall upon termination or resignation, apply directly to the SIO to receive their accumulated leaving indemnity, streamlining the process and ensuring prompt payment.
This reform aligns the Kingdom of Bahrain’s employment practices with international standards, enhancing the protection of migrant workers’ rights. Employers must adjust their payroll systems to accommodate monthly contributions and ensure compliance to avoid financial penalties. Employees benefit from a more secure and reliable system for receiving their leaving indemnity, reducing uncertainties associated with lump-sum payments from employers.
The Kingdom of Bahrain’s new leaving indemnity system represents a progressive step towards safeguarding employee rights and promoting fair labour practices. Both employers and employees must familiarize themselves with these changes to ensure smooth implementation and compliance with the updated legal framework.
