Entrepreneurs and company owners who want to set up businesses in Bahrain and hire staff must be familiar with the country’s payroll laws and regulations.
| Quick Facts | |
|---|---|
| Payroll services availability in Bahrain (YES/NO) | Yes, through our accountants in Bahrain |
Specific services for foreign companies (YES/NO) | Yes, we are also at the service of foreign companies hiring employees in Bahrain. |
Employee/employer registration (YES/NO) | Yes |
| Payroll setup | Yes, we use dedicated payroll software to ease the enrollment of employee. |
| Employee records setup and maintenance | Yes |
| Employee remuneration computation | Yes, wages are computed, taxes are withheld, and salaries are then deposited in employees’ accounts. |
| Mandatory contributions for employees | – social insurance, – pension, – unemployment and work injury insurance |
| Employment contributions for employers | Employers pay the same contributions as employees |
| Special requirements for foreign employees (if applicable) | Yes, foreign employees pay social contributions at different rates than local ones. |
| Payroll reporting requirements | On a monthly basis |
| Social security contribution for employees | – 7% for local employees, – 1% for expats |
| Social security contribution for employers | 15% (12% for local employees, 3% for foreign ones) |
| Authorities to register with in Bahrain | Social Insurance Organization |
| Salary payment frequency in Bahrain | Monthly |
| Employee benefits (if any) | – overtime payment, – bonuses, – allowances |
Employers must put all of their employees on the firm payroll after business operations have begun in Bahrain in order to adhere to labor laws imposed here. So, if you need support in this endeavor, you can rely on our local consultants.
Table of Contents
What are the applicable payroll regulations in Bahrain?
The payroll computation is based on income tax deductions and other required contributions, such as social security, healthcare, and others, in most countries in the world. Payroll deductions in Bahrain are distinctive in the sense that employee salaries are exempt from the income tax. Thus, companies are not required to withhold income tax from their workers’ salaries.
Yet, employees are required to contribute to Bahrain’s compulsory social security program. The allowances and benefits are added to the monthly paycheck of an employee, and the statutory contributions are subtracted to determine the net compensation of a worker.
How do I start Bahraini payroll?
The following steps must be completed in order to correctly process payroll in Bahrain:
- enrolling employees is the first step after starting a business in Bahrain;
- draft the components of the payroll policy (such as monthly wage, vacation time, payment schedule, benefits);
- the employer must collect all relevant information from employees, such as: ID documentation, addresses, and bank information in order to complete the payroll process.
Once the computations are complete and the deductions have been withheld, the final payments are distributed to the Social Insurance Organization in Bahrain (SIO). Nowadays, most companies use a payroll processing system that instantly sends employee pay slips to their business accounts.
The Social Insurance Organization receives payments from both local and foreign employees working in Bahrain.
What are the main payroll contributions in Bahrain?
Employees in Bahrain are only required to pay for social security because Bahrain does not recognize tax residency. For expatriates, employers often cover the SIO cost. Employers also have the option to deduct SIO contributions from employees’ pay.
Here are the rates of payroll contributions in Bahrain:
- for local employees, the SIO contribution rate is 19% (12% employer, 7% employee);
- for expat employees, it is 4% (3% employer, 1% employee);
- no more than BHR 4,000 can be deducted from an employee’s wage.
What is the authority supervising the payroll process in Bahrain?
The authority in charge of overseeing payroll in Bahrain is the Labour Markets Regulatory Authority, which cooperates with the National Bank. Together, they have elaborated the Wage Protection System (WPS), which applies to companies in the private sector. The WPS ensures the timely payment of wages.
What are the employment regulations in Bahrain from a payroll point of view?
The rules that businesses must adhere to in order to maintain the payroll for their employees are outlined in Article 40 of the Bahrain Labor Code. All companies must pay full-time employees’ salaries on a monthly basis.
People who work on a project basis (which can be the case of those in the oil sector) should receive two paychecks; the first should be an advance for their work in the first week, and the second should come when the project is finished.
What is the currency in which salary payments are made in Bahrain?
Given that the Bahraini Dinar is the official currency of the country, salary payments will be made in it. Ultimately, foreign employees can convert the amount into other currencies, as they want. However, there is also the option for the payment to be made in other currencies, as long as an agreement is signed in this sense.
Are there special payment dates that need to be considered in Bahrain?
Yes, the Employment Law provides for the periods in which payments must be made, as follows:
- for full-time employment, salary payments must be made on a monthly basis, according to Article 40;
- for seasonal or other workers, who are paid by the hour, payments must be made on a weekly basis;
- for project-based work that takes at least 2 weeks, an advance in the first week and the final payment in the second week are required.
Does Bahrain have a minimum wage system?
No, the minimum wage system does not apply in Bahrain.
How is paid/unpaid leave computed under payroll in Bahrain?
Bahraini employees are entitled to leave benefits, which are divided into:
- annual leave with a standard of 30 days per year;
- sick leave, which can be taken after a minimum period of 3 months of work, and which ranges from 15 to 35 days of paid stay-at-home time, and 20 days of unpaid leave;
- maternity leave, out of which 60 days are fully paid by the employer, and 15 days are available without pay;
- paternity leave, which consists of one day of paid leave;
- marriage leave, which consists of a 3-day paid period;
- compassionate leave, which consists of 3 days of paid leave.
Apart from these, the law also provides for Hajj leave, which is available for people who have 5 years with the same employer, and which consists of 14 days of paid leave. There is also the Iddah leave available for widowed women who can benefit from a one-month paid leave.
These days must also be included when drafting the monthly payroll in Bahrain.
What is the end-of-service gratuity?
This is a payment available for foreign employees who have worked in the private sector and have reached retirement age. It is calculated based on the last salary delivered to a worker. The amount is based on the period the employee has worked:
- half a month’s salary for every year of the latest pay, for less than 3 years of employment;
- full month’s salary per year, if the employee has more than 3 years in the line of employment.
If you need payroll services in Bahrain, do not hesitate to contact us. Our agents can also help you set up a company in Bahrain in just a few days.