1. Administering Payroll for Bahrain
  2. Gratuity Calculation

Gratuity Calculation

Employees working in Bahrain are entitled to an additional payment on termination which is called Gratuity.

The entitlement to this payment is accrued during the work relationship.

Gratuity calculations are triggered only for employees who aren't eligible or not registered for social insurance and if the employer has opted to provide an employee gratuity. The gratuity amount to be paid is driven by Bahrain labor laws. If you aren't following the Bahrain labor laws, you can define your own formula for gratuity processing. The following options are available:

  • You can define your own formula and create a setup according to the values to be returned to the formula run results. In such a scenario, you may not need to use the localization solution for gratuity processing.

  • You can define your own reference formula gratuity processing, which substitutes the gratuity formula defined at the legislative level. If a user-defined formula exists, then the seeded formula executes it.

Gratuity Calculation Rules

The localization solution for gratuity processing uses the following rules:

  • The duration of service determines the number of days of gratuity payment the payee is entitled per year of service. These days are retrieved from the legislative repository for calculation information. Note that the duration of service can be reduced by unpaid or unauthorized absences.

    This is obtained by creating elements for Unpaid Leave classification and attaching this element to the absence type. If an absence with this newly created absence type is recorded, the Unpaid Leave element’s days input value will feed the Leave Without Pay balance. In the Gratuity formula, the Leave Without pay balance is used to get the unpaid absences.

  • The base salary for gratuity payment is calculated through the salary formula selected at the legal employer level.
  • When a person is terminated the termination type and eligibility for gratuity is checked.
  • If the reason for termination is dismissal, then the gratuity isn't paid.
  • If the reason for termination is other than dismissal, the full gratuity amount the person is eligible for will be paid.
  • If the employee's does not meet any minimum service criteria, no gratuity will be paid.

Daily Salary:

Daily Salary is calculated as Monthly Salary divided by 30. Length of month is always considered as 30 days. If 30 days equals a month then 360 days equals a year