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February 28, 2024 Bahrain implements new end-of-service benefit system from 1 March 2024
Executive summary Under a new end-of-service benefits system for non-Bahraini employees, effective from 1 March 2024, private sector employers are required to pay the monthly end-of-service contributions electronically through the Social Insurance Organization (SIO) portal. To do so, employers will need to register through the SIO portal and submit compensation data for their non-Bahraini employees. On 12 December 2023, Bahrain's Crown Prince and Prime Minister, HRH Prince Salman bin Hamad Al Khalifa, issued Edict (109) of 2023 (Edict) introducing the new end-of-service benefit system according to the official Prime Minister's Office website. Pursuant to this, the SIO published guidelines on the implementation of the new system. At the end of the employment period, employees should apply with the SIO for their end-of-service entitlement. Detailed discussion Background Under the traditional end-of-service benefit system, employers internally often accrue monthly contributions and make a lump-sum end-of-service payout to the employee at the end of the employment tenure. The new system, introduced as part of the broader strategy to align Bahrain's employment practices with global standards, is aimed at providing adequate retirement security to employees. It offers a potential solution to instances of nonpayment of accrued benefits at the end of the period of employment. The SIO published the associated guidelines to provide employers and employees with more background on the requirements, processes and procedures under the new system. Further details are expected to be made available through the SIO portal, as Bahrain moves closer to the effective date of the Edict. General provisions for employers under the new system Employers should submit the salary data of their non-Bahraini employees, as per the salary specified in the employment contract. Additionally, employers should notify the SIO, through the SIO portal, of any salary changes. For entitlements relating to years/periods of service prior to the implementation of the Edict, the employer should pay the end-of-service benefit amount in accordance with the traditional system. Effective 1 March 2024, the end-of-service benefit amounts should be paid to and collected by the SIO on a monthly basis. The monthly percentages to be collected by the SIO for the end-of-service benefits will be as follows:
The SIO will issue two separate monthly invoices to the employer — one for the monthly contributions of Bahraini and Gulf Cooperation Council (GCC) workers (which is issued under the traditional system and remains unchanged), and another invoice for the end-of-service benefits for non-Bahraini and non-GCC employees (per the new end-of-service benefit system). Implications Employers in Bahrain are required to enroll their non-GCC employees to the new end-of-service benefit system and pay the defined mandatory monthly contributions to avoid inaccurate calculations of the end-of-service benefit contributions and any potential legal repercussions. From a tax equalization perspective, it is important for the employer in the home country to factor in the monthly payments before initiating an assignment to Bahrain.
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