Indemnity is a financial benefit offered to employees upon resignation, termination, or end-of-contact. Usually, indemnity calculation in Bahrain is based on the employee’s salary and years of service. All the companies need to follow indemnity laws in Bahrain to ensure fair treatment for local citizens, expats, and housemaids.Â
As stated in Article 47, Bahrain labor law indemnity calculation is counted on the basis of the last basic salary, including the social allowances. Calculating the indemnity requires employee data, salaries, and contracts of service to align with the formulas of local labor laws. Any eligible employee can claim their indemnity upon job termination. All that is needed is to go to the SIO website and follow the outlined process.
What Is Indemnity in Bahrain?
Indemnity is a part of the special scheme of end of service benefits in Bahrain. Generally, it is the payment that is given to the employees after they quit their jobs. Whether you’re a local citizen, an expat, or a daily wage employee, you are under the indemnity scheme.
Based on specific terms, every company is responsible for paying their employee this gratuity. According to the Labor Law in Article 116, the salary of 15 days is allocated for each year for the first 3 years. Afterward, an entire month’s salary is counted for indemnity each year. The main aim of this indemnity is to help the employee from sudden termination.
The Indemnity Bahrain law is an employee-friendly way of prioritizing employee benefits. Focusing on the employee’s future and long-term benefits, the new indemnity laws are launched in May 2024. This is a more clarified and fixed version of specific rates of employee salary contributions. The new update eliminated the involvement of employers in the indemnity settlement, which linked the government directly. This reduces the risk of underpayment or no payment of employees, helping them get hassle-free gratuity.
Who Is Eligible for Indemnity in Bahrain?
All general citizens, expats, and housemaids are eligible for indemnity under Bahrain local law. Still, there are some eligibility criteria that you need to fulfill to get indemnity.Â
- Local worker: Any full-time, part-time, or contractual worker who has worked more than 3 months.Â
- Foreign workers: Any expats who has worked in a private Bahraini company for at least one year.
- Employee without Social Insurance coverage: Any employee who is not included in Social Insurance Law in Bahrain.
- Employee who has completed tenure: Any employee who has completed its service contract period.
- Nominees of deceased employees: Article 113 states the nominees or workers’ families are also eligible for indemnity.
Besides the local citizens, there is an entire section of indemnity law for foreign workers. While discussing indemnity the common confusion is what are the rules for indemnity for expats in Bahrain.
Expats are also entitled to equal end of service benefits to the local citizens. Moreover, as per the new Indemnity Law that came into effect in May 2024, it gives the rules a new dimension. This law fixed a rate of 4.2% of the monthly salary of the first three years and 8.4% for the later ones. This is the general rule for indemnity for expats in Bahrain, and it is calculated based on basic pay.
Indemnity rules in Bahrain also include housemaids. As they also fall under the general employee segment, knowing about the rules for indemnity for housemaids in Bahrain is also necessary. However, there is no difference in contribution rates compared to the local employee as stated in Article 116. As of the new rule, it is 4.2% of the month’s salary for the first three years and 8.4% afterward.
Despite having such an employee-friendly labor law, there are still some gaps. Still, there is the working class who is ineligible for indemnity in Bahrain. The eligibility and rules for indemnity in Bahrain do not apply if you are-Â
- Currently employed and not yet terminated or resigned
- Worked less than three months and terminated without unlawful reason
- Working in a public company
- Foreign nationals working less than a year
- Covered by Social Insurance
How to Calculate Indemnity in Bahrain?
Most of the workers and employers struggle to calculate indemnity amounts in Bahrain. For this understanding the rates of Bahrain leaving indemnity calculation is necessary. Whether it is in new gratuity law or old, multiplying the rates with the recent payment is the main task. Adding them up gives you the indemnity.
In Bahrain, indemnity for workers in the private sector is calculated based on the last monthly wage and the total duration of employment of the employee. The Labour Law sets the following two clear categories for indemnity calculation:
- Employment duration up to 3 years
- Employment duration more than 3 years
Employment Duration 3 Years or Less:
If a worker has completed 3 years or less, the indemnity is calculated at half a month’s wage for every full year, with months prorated.
Here, Indemnity = (Half a month’s wage ÷12) x Total Months Worked + Last
For example, let’s say a worker in Bahrain has
- Monthly wage: BHD 150
- Total service: 15 months
So, Indemnity,
= (Half a month’s wage ÷12) x Total Months Worked
= BHD {(150 ÷ 2) ÷12} x 15
= BHD 93.75
So, Indemnity = BHD 93.75 + BHD 150 [Add last monthly wage]
Total Indemnity= BHD 243.75
Employment Duration More Than 3 Years :
If a worker has completed more than 3 years, the indemnity is calculated as:
- Half a month’s wage for the first 3 years, plus
- One full month’s wage for each year after 3 years, with months prorated
For example, Let’s say a worker in Bahrain has:
- Monthly wage: BHD 420
- Total service: 55 months (36 months = 3 years, 19 months after 3 years)
So,
Indemnity for first 3 years = Half a month’s wage = 420 ÷ 2 = BHD 210
Indemnity for 36 months = (210 ÷ 12) × 36 = BHD 630
Indemnity for remaining 19 months = Full month’s wage = 420
Indemnity for 19 months = (420 ÷ 12) × 19 = BHD 665
So, Indemnity = BHD 630 + BHD 665 = BHD 1,295
Total Indemnity = BHD 1,295 + BHD 420 [Add last monthly wage] = BHD 1,715
To have a clear look and know the basics of how to calculate indemnity in Bahrain, it’s best to see some examples.Â
Example (New law on effect from May 2024)
The current rate of indemnity is 4.2% of last basic salary for the first 3 years and 8.4% for the next subsequent years.
A worker named Bush is working in a company with a basic monthly salary of 5000 BHD. He has a contract to work for 6 years with the company. The indemnity will be –Â
1st year – 4.2*5000Â = 200 BHD
2nd year – 4.2*5000Â = 200 BHD
3rd year – 4.2*5000 = 200 BHD
4th year – 8.4*5000 = 410 BHD
5th year – 8.4*5000 =Â 410 BHD
6th year – 8.4*5000 = 410 BHD
Therefore, indemnity = 210+210+210+420+420+420 =Â 2310 BHD
How to Calculate Indemnity in Excel for Bahrain?
To calculate the indemnity in Excel, you can just input the above general formula. Just create sections and rows to input the basic payment for each monthly salary. Each column of the first three years is multiplied at the rate of 4.2%. For the rest, you need to incorporate an 8.4% rate.Â
Lastly, add all the indemnities at the end of each year. You can use the summation formula of Excel for this.Â
For a more detailed view, visit the example of how to compute indemnity in Bahrain in Excel.
What Is the Indemnity Calculation for Housemaids in Bahrain?
The indemnity calculation for housemaids in Bahrain is similar to that for general workers. As the rates of 8.4 and 4.2 remain the same, the calculation of the housemaids is also the same. You just have to multiply the rates to find the gratuity and add each at the end.Â
For instance, let’s assume a housemaid earns 700 BHD monthly for 4 years. The indemnity here should be –Â
1st year – 4.2*500Â = 21 BHD
2nd year – 4.2*500Â = 21 BHD
3rd year-4.2*500 = 21 BHD
4th year – 8.4*500 = 42 BHD
Therefore, indemnity = 21+21+21+42= 105Â BHD
How to Claim Indemnity in Bahrain?
Despite understanding the indemnity calculations, many employees suffer and do not understand how to claim indemnity in Bahrain. The process is quite simple. You just need to visit the SIO website to submit your request.Â
Below is the breakdown of the detailed process to claim the indemnity in Bahrain-
- Register to the Bahrain.bh government website and create an account.
- Visit the e-key service center nearest to your location.
- Verify your fingerprint and get the advanced e-key.
- Login into the GOSI website.
- Apply for the indemnity benefits from your account and request for indemnity.
- You can collect the indemnity from the government directly.
Â
Now the question may arise, how to claim indemnity in Bahrain for expats? The process is also no different. The expats who have worked at least a year and are terminated from the job can apply for it. All the steps are the same as the local citizen. They need to open an account and visit e-key centers to get the advanced e-key. With the e-key they can claim their indemnity whenever they want from the government.Â
As per Bahrain’s labor laws, it is the employer’s responsibility to calculate and disburse the indemnity payment upon termination. If the employer fails to pay the indemnity, the employee can contact Bahrain’s Ministry of Labor or the SIO for assistance.
How Can HR Software Simplify Indemnity Calculations in Bahrain?
Indemnity calculations can be hectic and time-consuming. Most of the time employers tend to calculate it mistakenly due to failure to follow the updated law or the complexity of handling high volumes of employee calculations. However, the HR software can streamline & automate the process for you. It can easily calculate using automated rules by following the latest compliance laws and make sure your indemnity calculations are error-free.Â
- Automate complex calculation: HR software automates indemnity calculations by syncing employee salary data and years of service. It also ensures accuracy and alignment with Bahrain’s Labor Laws.
- Updated by Local Laws: Bahrain local labor laws and indemnity laws are updated every now and then. Renowned HR software solutions in Bahrain are typically updated to align with local laws and remain compliant with SIO regulations.
- Accurate Employee Tracking: Using the HR software, you can get employee details along with the monthly salary and working period in a single click.Â
- Better Employee Experience: Using the self service portal of the HR software employees can access their personal data anytime and inform any confusions if found. As a result, the company can foster a transparent and trustworthy working environment.
Final Words
Indemnity is the compensation that is paid to employees after their service period. Bahrain’s local labor laws made this scheme available for locals and expatriates, including housemaids. Anyone working full-time, part-time, or on a contractual basis is included if they are not covered by social insurance. It is usually calculated based on the basic salary, with the rate varying according to the employee’s years of service. Employers can simplify the indemnity calculations by using an efficient HR software. This not only reduces the hassles of complex calculation but also helps to manage employee benefits more effectively and generate accurate amounts and reports.
