Bahrain's indemnity (end-of-service) law lays out detailed rights and procedures for gratuity payments due to employees at the end of their service. The system experienced a major overhaul in 2024, shifting the process fundamentally and modernizing protections for workers. This in-depth guide covers the current legal framework, new employer obligations, eligibility rules, calculation methods (with examples), and how to use digital indemnity calculators.
Indemnity Law in Bahrain
Indemnity, or end-of-service gratuity, is a statutory payment to employees when their service terminates, whether by resignation, end of contract, or dismissal (provided it's not for gross misconduct). The indemnity serves as compensation and savings, helping employees transition after employment ends.
Historically, the indemnity system involved private
employers accruing and paying out lump sums at contract end. As of March 2024,
new rules require employers to contribute monthly sums to the Social Insurance
Organization (SIO), which then becomes responsible for paying employees
directly upon the end of service.
The law seeks to:
✅ Protect employee savings and rights, reducing risks of non-payment from employers.
✅ Create transparency and predictability in entitlements for local and expatriate workers.
✅ Modernize HR processes in line with global best practices.
Eligibility for Indemnity
Indemnity in Bahrain
applies broadly to:
- Local citizens (Bahrainis), expats, and domestic workers.
- Full-time, part-time, or contract employees who complete at least three months of service.
- Expatriates in the private sector with at least one year of continuous employment.
- Heirs or nominees if the employee dies during service.
Ineligibility applies to:
1. Workers in public sector or covered by government pension
plans.
2. Employees with service under three months terminated for
valid causes.
3. Certain employees covered by the Social Insurance Law in
other ways.
4. Foreign nationals with less than one year of employment.
Contributions Under New Indemnity Law
Since March 2024, the
process is as follows:
Employers must file salary data and submit monthly
contributions via the SIO portal for all eligible employees (especially
non-Bahrainis and non-GCC residents).
The SIO issues separate invoices for social insurance (for
nationals) and end-of-service contributions (for expats and private-sector
employees under the new system).
When employment ends, the employee applies for indemnity to the
SIO, who processes and pays the entitlement. The employer’s role is limited to
monthly contributions, not final settlement.
For periods worked before implementation, the old system
(direct employer payout) may apply, requiring calculation according to rules in
place pre-March 2024.
Indemnity Calculation Formulas
Current (Post-March
2024) : The updated law introduced a percentage-of-salary system
First three years: Employer contributes 4.2% of the basic monthly
salary each month for the employee.
After three years: This increases to 8.4% of monthly basic salary
for every month beyond the first three years.
Employees' total indemnity at separation = sum of all
contributions held in the SIO account for their name.
Bahrain Indemnity Calculator Online
Example Calculation:
Suppose an employee has a basic salary of BHD 1,000 and
serves five years:
Years 1-3: 1,000 BD × 0.042 × 36 months = 1,512 BD
Years 4-5: 1,000 BD × 0.084 × 24 months = 2,016 BD
Total Indemnity: 1,512 + 2,016 = 3,528 BD.[1][2]
If the basic salary changes mid-service, calculations are
adjusted accordingly for the months at the new rate.
Previous (Pre-March 2024)
For years prior to
the new law:
First three years: Half a month’s wage for each year of service.
After three years: One month’s wage for each subsequent year.
Fractions of years are pro-rated by time worked.
Calculation is based on the latest basic salary (excluding
allowances except social allowance).
Practical Calculator
Steps
Many Bahrain-focused HR and legal websites offer digital
indemnity calculators that follow national law. The process usually involves:
Entering the basic monthly salary.
Entering start date and end date of service.
Automatically applying relevant percentages (4.2% for first
3 years, 8.4% for years after).
Such calculators provide transparency and quick results for
both employees and employers.
Legal Safeguards and Recent Debates
The 2024 reforms arose to address gaps where employees were
sometimes denied end-of-service pay due to company cashflow or bankruptcy. By
making contributions mandatory and government-managed, workers are much more
likely to receive their entitlements without expensive legal recourse.[5
There has been some parliamentary debate about revising or
suspending these reforms, mainly over costs and employer administrative burden,
but as of September 2025, the SIO system remains in effect.
Step-by-Step Indemnity Calculation (Worked Example)
1. Determine the
length of service in years and months.
2. Identify which
periods were before and after March 2024.
- Apply old method
for service pre-reform.
- Apply new
monthly formula for service post-reform.
3. For periods
post-March 2024, use:
- (Basic Monthly
Salary) × (4.2%) × (Months in first 3 years)
- (Basic Monthly
Salary) × (8.4%) × (Remaining Months)
4. Add up results from each period.
5. Deduct any indemnity already paid or applicable social
insurance coverage.[1][2]
Example:
If worked Jan 2019 – Sep 2025 (6 yr 8 mo) at 800 BD basic
salary:
- Pre-Mar 2024 (5 yr 2 mo): Old law – For illustration, 2.5
months' salary (½ month for each of 3 years, 1 month for each next year)
- Post-Mar 2024 (1 yr 6 mo): (800 × 0.042 × 12 mo) + (800 ×
0.084 × 6 mo)
- Add the amounts from both systems for total entitlement.
Regulatory Details and Compliance
Bahrain’s Labor Law (notably Article 116) sets the statutory
foundation, while the 2023 Edict formalizes the SIO's role. All private
employers must comply, or face fines. Payments to the SIO must be prompt and
cover all eligible employees.
Impact on Employers, Employees, and HR Practice
For Employers:
- Ensures legal compliance and payroll transparency.
- Shifts liability and long-term planning burdens to a
central system.
- May require upgrades to payroll systems for monthly SIO
reporting.[5][4]
For Employees:
- Increases security of entitlements, especially for expats.
- Allows tracking and claiming benefits directly from the
government.
- Coverage for heirs in case of employee death.[2]
For HR and Payroll:
- Monthly tracking, accurate salary reporting, and timely
submission are essential.
- Must update policies to match new law and guide employees
on claim process.
Useful Digital Indemnity Calculators
1. BBD Indemnity
Calculator - Allows entry of salary and service period, automates new law
rates.[10]
2. Employer portals (official SIO and HR providers) provide
downloadable reports and calculation breakdowns for employees.
Key Takeaways
- The Bahrain indemnity law as amended in 2024 mandates
monthly employer contributions, managed by the SIO.
- Calculations are based on 4.2% (years 1-3) and 8.4% (year
4+).
- Employees claim directly via government, not employer, at
service end.
- Old law applies to service periods before March 2024, with
hybrid calculations in some cases.
- Both expatriates and locals in private sector benefit,
with increased legal safeguards.