In this article, we’ll break down the indemnity law in Bahrain in simple terms, explain how it is calculated, highlight the latest legal updates, and even walk you through some real-life examples. By the end, you’ll have a clear understanding of how indemnity works, whether you’re an employee planning ahead or an employer trying to stay compliant.
What Exactly Is Indemnity in Bahrain?
Indemnity is a lump-sum payment that private-sector employees receive at the end of their service. It compensates workers for their years of dedication and is based on their basic salary and length of employment.
➡️ For Bahraini nationals, end-of-service benefits may overlap with social insurance and pensions, so rules differ slightly.➡️ For non-Bahraini employees (expatriates), the rules were recently updated to create a more secure and transparent system.
The Legal Backbone: Bahraini Labor Law
The key rule comes from Article 116 of the Bahraini Labor Law. It states that private-sector employees not covered by social insurance are entitled to an indemnity when their job ends. The amount depends on years of service and is tied to the last basic wage received.
Until recently, employers were responsible for paying this amount directly at the end of service. But from March 1, 2024, Bahrain introduced a new system for non-Bahraini employees under Edict No. 109 of 2023. This change shifts part of the responsibility to the Social Insurance Organization (SIO), making the process safer for employees and more structured for employers.
Who Qualifies for Indemnity?
Eligibility for indemnity depends on a few conditions:
➡️ Private-sector employees are covered. Public-sector staff follow different rules.➡️ Bahrainis may receive pensions and other benefits under the Social Insurance Law, so indemnity may not apply the same way.
➡️ Expatriates (non-Bahrainis) now fall under the new monthly contribution system.
➡️ No minimum service requirement exists—any period of service counts, even partial years, and is calculated on a pro-rata basis.
How Is Indemnity Calculated?
Here’s where things get practical. The indemnity depends on basic salary (not including most allowances) and years of service.
Old Method (before March 2024 or for service not covered under SIO)
🔸 First 3 years of service → Half a month’s basic salary for each year.🔸 After 3 years → One full month’s basic salary for each additional year.
🔸 Partial years → Paid on a pro-rata basis (months or even days worked count proportionally).
New Method (for Non-Bahrainis after March 2024)
Employers now pay monthly contributions to the SIO:
🔸 First 3 years → 4.2% of monthly salary (roughly equal to half a month’s wage per year).
🔸 After 3 years → 8.4% of monthly salary (roughly equal to one month’s wage per year).
When the job ends, the employee applies to the SIO to collect the accumulated benefit.
Salary Basis: What Counts?
Only the basic salary matters when calculating indemnity. Allowances like housing, transportation, or bonuses don’t count, unless specifically included in the contract. Think of it like building a house on solid foundations—you only use the basic pay, not the extras stacked on top.
Step-by-Step Example Calculations
Example 1: Traditional Calculation (Old Method)
- Basic salary: BD 300
- Service: 5 years 6 months
Calculation:
- First 3 years: 0.5 × 300 × 3 = BD 450
- Years 4 and 5: 1 × 300 × 2 = BD 600
- Extra 6 months: 0.5 × 300 = BD 150
- Total = BD 1,200
Example 2: New SIO System (Post-2024)
- Basic salary: BD 500
- Service: 6 years
Calculation:
- First 3 years: 0.5 × 500 × 3 = BD 750
- Years 4–6: 1 × 500 × 3 = BD 1,500
- Total = BD 2,250 (paid through SIO contributions)
Example 3: Split Service (Before and After March 2024)
- Employee: Non-Bahraini
- Basic salary: BD 400
- Service: 15 August 2020 – 1 October 2025
Old Method Portion (2020–Feb 2024):
- 3 years: 0.5 × 400 × 3 = BD 600
- 6.5 months: (6.5/12) × 400 = BD 216.67
- Subtotal = BD 816.67
New Method Portion (Mar 2024–Oct 2025):
- 19 months at 8.4%: 0.084 × 400 × 19 = BD 638.40
Grand Total = BD 1,455.07
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Bahrain Indemnity Calculator Online
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Transition Rules You Should Know
⚖️ Any service before March 2024 for non-Bahrainis is calculated under the old system.⚖️ Any service after March 2024 falls under the new contribution system.
⚖️ Employers must ensure they are reporting salaries correctly and paying contributions to avoid fines.
The Process of Claiming Indemnity
For employees:
- Confirm whether your indemnity is under the old or new system.
- If under the old system, request payment directly from your employer.
- If under the new system, apply to the SIO with proof of service and salary.
For employers:
- Maintain accurate payroll records.
- Report salary changes to the SIO promptly.
- Pay contributions on time to avoid penalties.
Penalties for Non-Compliance
Employers who fail to meet their obligations can face:
- Fines between BD 100–500 (doubled for repeat offences).
- Interest on unpaid contributions.
- Possible legal action from employees.
Benefits of the New System
The switch to monthly contributions has several advantages:
ℹ️ Security for employees: Workers don’t have to worry about employers refusing or failing to pay at the end of service.
ℹ️ Clarity for employers: Monthly contributions spread out the cost, rather than facing one large bill at the end.
ℹ️ Transparency: Records are stored with the SIO, reducing disputes.
Think of it like saving for retirement—you add a little each month, and over time it builds into a reliable safety net.
Practical Tips
📌 Employees: Always keep copies of contracts, payslips, and official communications. These documents are your proof if disputes arise.
📌 Employers: Invest in a reliable payroll system that automates contributions and keeps records up to date.
📌 Both parties: Use an indemnity calculator to get an accurate estimate. Several online tools can do the math for you.
Final Thoughts
Indemnity in Bahrain is more than just a legal requirement—it’s a way of honoring employees for their service. The recent reforms make the system fairer and more secure, especially for expatriates who make up a large part of Bahrain’s workforce.
Understanding how indemnity is calculated and what you’re entitled to puts you in control. Whether you’re an employer trying to stay compliant or an employee planning your financial future, knowing the rules ensures you don’t leave money—or peace of mind—on the table.