Payroll Process in Bahrain: A brief overview

Jahid Tapadar

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    Payroll is quite a complicated and time-consuming process that requires an eye for accuracy. The process will not be the same for all countries; each country has its own tax laws, minimum salary requirements, pension plans, gratuity schemes, leave policies, and many more. Here we have covered in detail about the payroll process in Bahrain, via a set of FAQs.

    1. What is the frequency of making salary payments to employees in Bahrain?

      The law stipulates in Article 40 that the intervals for making salary payments to employees should be monthly for employees paid monthly. If the work is paid per production and the work requires at least two weeks, the worker shall be paid an advance in the first week and the balance should be paid in the last week after completion of the job. Employees who are paid on an hourly basis should be paid at least once a week.

    2. Which are the statutory pay components in Bahrain?

      There are no such specific pay components in Bahrain which is mandatory as per law. Article 66 of the Bahrain labour law defines wages as total remuneration payable to employees which may include basic pay, housing allowance, transport allowance and any other benefits. The law does not specifically define any statutory components.

    3. Which are the common pay components that are normally payable to employees?

      Fixed components may include Basic salary, housing allowance, transport allowance; the variable components may include Overtime, Bonus, Incentives, Sales commission, Relocation allowances, Leave passage etc.

    4. What is the minimum salary payable in Bahrain?

      There is no Minimum Salary in Bahrain mentioned in Labour law

    5. What is the maximum number of working hours set in the labour law?

      Article 51 states that, a worker shall not be employed for more than eight hours a day and 48 hours in a week. Muslim workers shall not be employed for more than six hours a day during the holy month of Ramadhan.

    6. How is overtime calculated?

      Overtime is any extra hours worked by an employee beyond the normal working hours. Article 54 states that, the employee shall be entitled to a remuneration equal to his normal working hours plus an extra of at least 25% of such remuneration for extra hours worked during the day and at least 50% for hours worked at night. As per Article 1, night means the time between 7 PM to 7 AM. Overtime hours in Bahrain shall not exceed 12 hours a week. If an employee works during his rest day or on a public holiday, he shall have the choice between entitlement to the remuneration of his normal wage plus an extra 50% or get an extra day of rest. All working hours performed during holidays and Eid’s shall be considered as overtime hours

    7. How is gratuity accrued?

      As per article 116 of Bahrain Labor Law, Gratuity calculation is accrued on the following basis.

      • If the service period is below 3 years at half month salary per year based on last drawn pay
      • If the service period is more than three years at full month salary per year.
    8. When is gratuity paid to an employee?

      Gratuity is paid at the end of employment. The end-of-service award shall be calculated based on the last drawn salary and the worker shall be entitled to an end-of-service award for the portions of the year in proportion to the time spent on the job.

      For a comprehensive understanding of Bahrain’s gratuity accrual and settlement, please refer to our article on Bahrain gratuity policy and settlement.

    9. What are the statutory deductions that are made to employees in Bahrain?

      In Bahrain, payroll is not subject to income tax, and hence there are no mandated tax deductions. However, Bahrain nationals are subject to mandatory social insurance contributions.

    10. How is Bahrain social contribution calculated? Which employees qualify for Bahrain pension contribution?

      The social security contribution is fixed at 19% of the employee’s Gross Salary for the Bahrain Nationals, of which 12% is payable by the employer and 7% is payable by the employee.
      The maximum deduction base amount is BHR  4000.

      There is an Employer contribution of 3% percentage for expat staff, but there are no Employee contributions.

    11. What is WPS in Bahrain?

      Wage Protection System (WPS) is a scheme implemented by the Bahrain Labour Markets Regulatory authority in collaboration with the Central bank of Bahrain. WPS records wage payments in the private sector and guarantees payments are made in full and on time.

    12. Are Employees eligible for Air Ticket Benefits in Bahrain?

      The labour law is silent on the issue of annual air tickets. In general, most of the companies provide air tickets to employees annually and some of the companies extend this payout to employee’s dependents as well.

    13. What is the leave policy defined under the labor law?

      A. Annual Leave
      According to Article 58, a worker who has completed a one-year service with the employer shall be entitled to a paid annual leave of not less than 30 days per year. If an employee’s period of service is less than one year, he/she is eligible for a proportion of his service in that year.

      B. Sick leave
      Sick leave is granted to an employee in the following rate:

      • First Fifteen Days – Full Pay
      • Next Twenty Days- Half Pay
      • Last Twenty Days – Without Pay

      As mentioned in Article 65, a worker who has completed three months of continuous service shall have the right to take sick leave, in case of sickness certificate by a doctor nominated by the employer.

      C. Maternity leave
      According to Article 32, a female worker shall be entitled to maternity leave on full pay for sixty days which shall not be deducted from her annual leave provided she produces a medical certificate attested by the Ministry of Health stating the expected period of her confinement. Such maternity leave shall include the period before and after delivery. Further, she may have additional leave without pay for fifteen days.

      D. Hajj Leave
      Article 67 states that, a Muslim worker who has completed a period of five consecutive years with the employer is entitled to a fourteen-day paid leave to perform Hajj. This shall be granted only once during the service period provided that the employee was not granted the leave while working with a previous employer.

      E. Paternity Leave
      Paternity leave is given to male employees upon the delivery of their child. Article 63, grants male employees one day paid leave upon the delivery of their child.

      E. Marriage leave
      Marriage leave is provided in the Bahrain labor law as per Article 63 and is granted for three days, as paid leave, only once.

      F. Compassionate Leave
      Compassionate leave is provided and given for three days for the death of a spouse or one of his ascendants and descendants under Article 63.

      G. Iddah leave
      Muslim woman whose husband has died is entitled to a one month paid leave. Moreover, she is entitled to a three month and ten days iddah leave from her annual leave. If the annual leave balance is insufficient, she may take the rest of the period as unpaid leave.

      Please read our article on Bahrain leave policy here for a comprehensive understanding.

    14. Is employee Medical Insurance mandatory in Bahrain?

      It is mandatory that an employer provide medical insurance to the employee during the duration of employment

    15. Which are the currencies that can be used while making salary payments in Bahrain?

      Article 40 states, the currency used in making salary payments is the Bahrain national currency i.e., Bahrain Dinar.  And any other legally available foreign currency is also acceptable if it is supported by an agreement.

    16. Is bonus or incentives payment mandatory in Bahrain?

      Bonus and incentives payments are not mandatory. Many companies have bonus or incentive schemes implemented to keep employee motivation and the structures vary from one company to the other based on their policy.

    17. What are the Official Holidays in Bahrain?

      Official holidays on full wage  that are granted to a worker are as follows:

      1. Hijri (Arabic Calendar) New Year
      2. El-Adha 3 Days
      3. Arafat Day
      4. El-Fitr 3 Days
      5. The Prophet’s Birthday
      6. National Day
      7. Ashoora 9th and 10th Muharram
      8. New year day i.e. 1st January
      9. Labor Day
    18. What are the items included in End of Service Benefits calculation in Bahrain?

      The employee is entitled to the following end of service benefits.

      1. End of service Gratuity
      2. Repatriation ticket if applicable
      3. Notice period pay if applicable
      4. Any unutilized leave (Vacation) pay
      5. Any other outstanding payment or deduction

    Employee Benefits in summary:

    1. Salary
    2. Gratuity
    3. Annual Leave
    4. Sick leave
    5. Maternity Leave
    6. Paternity Leave
    7. Marriage Leave
    8. Compassionate Leave
    9. Medical Insurance
    10. Overtime pay if applicable.

    The law and procedures related to payroll system might vary for different countries, but the mandatory requirement remains the same. An accurate and streamlined system for payroll processing will mitigate risk and improve business operations vastly.

    Payroll Process in Bahrain

    The process of payroll is a little complicated and time-consuming; hence it is always recommended to outsource your company’s payroll function. Outsourcing payroll will ensure the assistance of a team of trained payroll professionals and it frees up the time of the organization, helping them focus on other projects that add value to their business.

    One should be extra vigilant while selecting their payroll provider, as payroll data is highly sensitive, and one should opt for a provider that can ensure high levels of data security.

    As a leading payroll outsourcing company in Oman, HLB HAMT can help solve your payroll complexities through customized strategies. We take care of our clients’ entire payroll cycle that includes preparation of payroll reports, processing salary payment with WPS compliance, accrual management including Gratuity, pension funds, an online portal for accessing payslips, and many more. Our leadership team spends the necessary hours on every project, ensuring our clients get refined consulting services to take your business forward.

    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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