When it comes to calculating end-of-service indemnity, a question that often arises is whether the calculation should be based on the basic salary alone or include the full monthly remuneration, encompassing allowances like housing, transport, and other recurring benefits.
Understanding this distinction is crucial for employees, employers, and HR professionals navigating Kuwait’s labor landscape.
What Does Kuwait Labor Law Say?
According to Article 55 of Kuwait’s Private Sector Labor Law (Law No. 6 of 2010), indemnity must be calculated on the employee’s full last monthly wage, which includes the basic salary plus all regular and recurring allowances.These allowances often cover essential benefits such as housing, transportation, and other periodic cash perks that form part of the employee’s total remuneration package.
Why Does This Matter?
Calculating indemnity solely on the basic salary can significantly reduce the payout amount, leading to potential disputes between employees and employers. The law’s clear guidance to include all consistent allowances means that the indemnity reflects the true value of an employee’s services over the years.This legal stance also impacts indemnity calculators and payroll systems that must incorporate all allowances into their salary base to provide compliant and fair indemnity estimates.
📌 Key Takeaway for Employers and Employees
👉 Employees should ensure their indemnity includes all monthly components, not just the basic wage.
👉 Employers must factor in all allowances to meet legal requirements and avoid penalties.
👉 HR professionals should update their payroll and indemnity systems accordingly to align with the law.
Conclusion
Using only the basic salary to calculate indemnity is considered incorrect and illegal, as it significantly reduces the rightful payment to employees.
The proper legal practice is to include all components of the fixed monthly wage regularly received by the employee for an accurate indemnity calculation.
This means the at time of indemnity calculation should take the total monthly salary amount transferred to the employee — basic plus all allowances — as the base for calculating daily salary and subsequent indemnity entitlements.
This means the at time of indemnity calculation should take the total monthly salary amount transferred to the employee — basic plus all allowances — as the base for calculating daily salary and subsequent indemnity entitlements.