Country Spotlight: Payroll in Bahrain

The land of two seas,

Born in 1971,

But old enough to be home to the Tree of Life.

Yes, It’s Bahrain! This tiny island nation in the Persian Gulf is known for its oil and gas industries. With a GDP growth of 6.9% in 2022, Bahrain is an inviting hotspot for foreign businesses to establish their presence.

However, this middle-eastern state might pose a riddle when it comes to payroll processing. From tax regulatory authority to the several types of leaves, here are everything employees and employers need to know about payroll in Bahrain.

Taxes in Bahrain

Bahrain has interesting regulations when it comes to taxes. Employees are exempt from personal income tax.

However, Bahraini citizens must contribute 7% towards insurance, which the Social Insurance Organization oversees. On the other hand, employers are required to contribute 14% towards insurance.

Another tax, Value-Added Tax (VAT), has been implemented since 2019. Businesses in Bahrain must be registered with the National Bureau of Revenue (NBR) and pay a standard rate of 10% VAT.

These regulations come with strict penalties and fines. Even failing to register with the NBR can lead to a penalty of up to 10,000 BHD (Bahraini Dinar).

Employers keen on outsourcing their payroll, should look for a service provider who would remain compliant while filing tax returns within the stipulated time is crucial.

Overtime

Overtime in Bahrain is defined under article 54 of the Labor Law. It defines any hour beyond working hours as overtime. It states that employees are entitled to compensation equal to their regular working hours plus an extra 25% for hours worked during the day and 50% during the night.

It is also mentioned that overtime can be 12 hours a week. Employers must also note that any time worked during festivals like Eid is overtime.

Also read | Country Spotlight: Payroll in Kenya

Holidays

Any employee who has completed a minimum of one year of service under an organization is entitled to 30 days of paid leave per year.

Sick leave is granted with the range of pay specified, as mentioned:

• Full pay for the first 15 days
• Half pay for the next 20 days
• No pay for the next 20 days

Maternity leave of 75 days is granted to female employees. However, the last 15 days are unpaid.

Employers would require a time and absence system that allows customizable data entry for hassle-free payroll processing.

Gratuity

Employees are eligible to get gratuity at the end of their tenure. This applies only to expatriate workers in Bahrain, as the Bahraini employees contribute to social security.

If the service period is below three years, then gratuity is accrued as half of the monthly salary for every year of service. If the service period is over three years, it is accrued as a full monthly salary per year.

However, there are exceptional circumstances when the employer can withhold gratuity, such as:

• If an employee submits false identification or documents
• If an employee gets involved in legal implications
• If an employee does not comply with their employment contract
• If an employee is absent from work for ten days consecutively in a year or 20 intermittent days without any cause

Understanding intricacies

It is evident that there are various intricacies when it comes to processing payroll in Bahrain, keeping in mind the multiple contract-bound inputs.

Organizations would require a tech-powered payroll solution that ensures compliance in tax calculation and accounts for a smooth payday experience.

But if payroll intricacies pose a riddle, Neeyamo’s Global Payroll solution answers it. Powered with tools like Time, Absence, and Compliance as part of the Global Payroll Tech Stack, Neeyamo’s solution optimizes payroll processing.

Reach out to us today.