All about End of services Gratuity in Oman
HLB Oman Payroll Team
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Article 39 of the Labor Law (Royal Decree 35 of 2003) states as follows regarding Gratuity;
On the termination of the relation of work of the workers who are not beneficiaries of the Social Insurance Law, the employer shall pay the worker a post-service gratuity in the amount of the wage of fifteen days for each year of service for the first three years, and the wage of one month for each of the following years. The worker shall be entitled to the gratuity for a fraction of the year proportionate to the period of his service and the last basic wage of the worker shall be considered the basis for the calculation of the gratuity.
The continuous period of service, which commenced prior to the enforcement of this law shall be included in the period of service which is considered for determining the period for which gratuity is payable.
The said gratuity shall not be payable if the duration of service is less than one year.
Gratuity is the payment of a lump sum amount of money to the employee by the employer for their service. The end of service gratuity calculation depends on numerous factors, such as the length of service and how the salary is structured.
Our payroll experts at HLB HAMT, explain a few frequently asked questions on gratuity and its calculation.
What is Gratuity?
Gratuity is a monetary payment eligible to an employee as a lump sum at the end of his tenure provided that the period of service exceeds one year. Gratuity payment is a liability to the employer which accrues as the employee service period progresses.
Who can receive end-of-service benefits?
The gratuity provision in Oman is applicable to expatriate employees only. Regardless of whether short-term, Fixed-term, Long-term contracts or indefinite ones, employees in Oman are entitled to receive their end-of-service benefits. Social security law applies to Omani nationals employed in the Sultanate of Oman.
When does an employee become eligible for his/her gratuity payment?
Employees are eligible for gratuity pay at the end of their service period, at termination, death or while resigning. According to article 39, the worker shall be entitled to a fraction of the year worked provided he has completed more than one year of continuous service.
What is the basic amount that is used to calculate gratuity?
The Last drawn basic wage shall be considered the basis for the calculation of the gratuity.
What is the number of days used to accrue gratuity?
- Below 3 years at 15 Days per Year
- Three years and above one month (30 Days) per year
The following example shows the gratuity accrual at a given time.
Service period Less than 3 years 3 Years and Above Hire date 15/04/18 18/04/15 Basic salary 500.000 500.000 One day Basic salary (Basic salary/30) 16.667 16.667 Payroll Month January – 2020 January -2020 Number of days in service as of 31 January 2020 657 1750 Number of years in service 1.80 4.79 Gratuity Days For the first three years (15 days per year) 27.00 45 Three years and above (30 days per Year) NA 53.84 Total Gratuity Days 27.00 98.84 Gratuity Amount (Gratuity days*One day Salary) 450.000 1,647.260 Does type of Termination of an employment contract make any difference in gratuity payment?
Termination of an employment contract can be in terms of Resignation, Death, Non-renewal of the contract or termination by the employer. In all these cases, the employer is bound to pay end-of-service benefits. If employee is terminated as per Article 40, Employer is not liable to pay any Gratuity to the employee.
What is the effect of unpaid leave taken during the period of service?
Any period taken by the employee as unpaid leave is excluded when determining the service period. That means unpaid leave days are excluded when accruing gratuity. The period of service is reduced by the number of days served as unpaid leave.
Is there any exception for Gratuity payment while calculating final settlement of an employee?
As per Article 40 of Oman labor law, employer may dismiss the worker without end-of-service gratuity in any of the following cases:
- If he assumes a false identity, or if he resorts to forgery to obtain the employment.
- If he commits a mistake which results in a heavy financial loss to the employer provided that the latter should notify the relevant directorate of the incident within three days from the date of his knowledge of its occurrence.
- If he in spite of being notified in writing does not comply with such instructions the compliance with which is necessary for the safety of workers or the workplace, provided that such instructions shall be written and hanged in a conspicuous place and the contravention of which is likely to cause a grievous damage to the work place or to the workers;
- If he absents himself from his work for more than ten days without reasonable cause during one year or for more than seven consecutive days provided that such dismissal shall be preceded by a written notice to him from the employer after his absence for five days in the first case;
- If he discloses any secrets relation to the establishment in which he works.
- If a final judgement is entered against him for an offence or felony for breach of honor or trust or for a felony committed in the workplace or during the course of his work.
- If he is found during the working hours in a state of drunkenness or was under the influence of an intoxication drug or mental stimulus.
- If he commits an assault on the employer or the responsible manager or if he commits a grievous assault on any of his superiors in the course of the work, or because of it if he assaults one of his colleagues in the work place by hitting him and as a consequence thereof sickness or delay from the work for a period exceeding ten days ensues.
How Gratuity is calculated during final settlement?
Total Service period Gratuity calculation Less than 1 Year No Gratuity 1 to less than 3 years 15 days basic salary for each year of service 3 years or more 15 days each for the first 3 years and One-month basic salary for each year of service thereafter
Please see the below example for a better understandingService period Less than 1 Year 1 to Less than 3 Years 3 Years and Above Hire date 24/02/19 15/04/18 18/04/15 Last Working Day 25/01/20 25/01/20 25/01/20 Basic salary 500.000 500.000 500.000 One day Basic salary (= Basic salary/30) 16.667 16.667 16.667 Number of days in service 336 651 1744 Number of years in service 0.92 1.78 4.78 Gratuity Days For the first three years (15 days per year) 0.00 26.75 45 Three years and above (30 days per Year) Not Applicable Not Applicable 53.34 Total Gratuity Days 0.00 26.75 98.34 Gratuity Amount (Gratuity days*One day Salary) 0.000 445.890 1,639.041
For information on the payroll process in Oman click on this link
Disclaimer:
Whilst every effort has been made to ensure the accuracy of this information, HLB HAMT will not accept any liability arising out of errors or omissions. Please note that this blog is not all-inclusive. Our guidance is designed only to give general information on the issues/topics covered. It is subjected to change and not intended to be a comprehensive summary of all laws which may be applicable to your situation, treat exhaustively the subjects covered, provide legal advice, or render a legal opinion.
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