Payroll Services in Bahrain

Payroll Services

If you are employing staff in Bahrain, payroll processing is not something to leave until later. Payroll reports links directly to work permits, contracts, bank transfers and to Ministry of Labour records. Companies must pay employee’s salaries on time, in the correct format and through the approved channels.

Bahrain’s Wage Protection System, social insurance contributions, employee benefits, leave policies and end-of-service gratuity settlements all follow fixed rules. This article breaks down what employers need to know to stay compliant and keep payroll processing and business operations running smoothly from day one.

Employment contracts

Under the Labour Law, all employment contracts must be in writing, in Arabic and in two copies, with each party receiving a copy. If the contract is drafted in a foreign language, a translated version must be attached.

Any terms or conditions that do not conform to Bahraini law will be deemed null and void, unless they are more favourable to the employee.

Setting up Payroll Processing in Bahrain

Once a company is registered with Bahrain’s Ministry of Industry and Commerce (MOIC) and staff are on the employee payroll system, salaries must be processed through a local bank account under the company’s name.

Most employers use one of Bahrain’s major local retail banks, which include the Bank of Bahrain and Kuwait (BBK), Ahli United Bank or National Bank of Bahrain (NBB), to open a corporate account.

Salaries must be paid monthly to employees in Bahrain in Bahraini dinars and in line with the employment contract. Monthly payslips are not mandatory, but most firms issue them to avoid disputes.

The payroll records of business operating in Bahrain must be kept in Arabic, either in digital or printed format, and stored for a minimum of three years. These records should cover salary details, payment dates, deductions, leave taken, and end-of-service payments. Authorities can request them at any time, especially during routine checks or Wages Protection System (WPS) audits.

Wage Protection System (WPS)

Once payroll is active, all salary payments must go through the Wage Protection System (WPS), which is now mandatory across Bahrain’s private sector and monitored by the Ministry of Labour and the Labour Market Regulatory Authority (LMRA). The WPS tracks payments in real time to ensure staff are paid correctly and on time.

The LMRA was set up in 2006 to assume all the tasks and specialities required to organise the labour market in the Kingdom, regulate work permits for international employees, handle licences of manpower agencies and employment offices, and handle work permits for expatriate employers in the Kingdom.

To comply with the WPS, companies must use a bank authorised by the Central Bank of Bahrain to make salary payments. The salary paid must match the amount stated in the employment contract registered with the LMRA. If there is any change to the contract, this must be approved by the LMRA before the new salary is paid.

Late payments, underpayments or mismatches between the bank transfer and the registered contract can trigger fines. Repeated breaches may result in blocks on work permits or issues with commercial licence renewals.

Social Security Contributions

There is currently no Personal Income Tax (PIT) in Bahrain on earnings from employment. However, payroll taxes apply in respect of social security contributions, which apply to every individual employed in Bahrain, with monthly contributions made toward compulsory insurances.

All Bahraini employers are required to register with the Social Insurance Organisation (SIO), which is responsible for providing insurance services to individuals covered under the Civil Retirement Law and the Social Insurance Law in the Kingdom of Bahrain.

For Bahraini employees, these contributions cover pensions and work-related injuries, while contributions for expatriate employees cover only work-related injuries.

The documents required for SIO registration include:

Copy of the employer’s Central Population Registry (CPR)
Copy of the company’s Commercial Registration Certificate (CR)
Copy of employment contract

Registrations and employment contracts for expatriate employees are made via the LMRA online portal. Once an expatriate is registered with the LMRA, the details will automatically be reflected in the SIO records and registered on the SIO database.

The contributions, which are determined as a percentage of the annual salary as defined by the Labour Law of Bahrain, are withheld by the employer and remitted to SIO on a monthly basis. The current rate of contributions to the SIO is 25% for local employees, of which 17% is paid by the employer and 8% by the employee. For expatriate employees the rate is 4%, of which 3% is paid by the employer and 1% by the employee.

Social insurance is also paid for nationals of the other Gulf Cooperation Council (GCC) countries working in Bahrain. The rates of the contributions vary according to the rates of the GCC employee’s home country regulations.

Employee contributions are capped at a maximum salary of BHD4,000 (c. USD10,500 per month), and the SIO portal is used to submit payments electronically.

SIO registration should be completed as soon as staff are hired. Any delays or missed payments can lead to penalties or issues with visa renewals. It is also important to ensure that reported salaries match those filed with the LMRA and paid via WPS. Detailed records of SIO contributions should be kept for reporting to the Ministry of Labour.

SIO contributions are an important part of an employee’s salary in Bahrain because they facilitate access to various employee benefits and services. Employees therefore need to be made aware of their SIO contribution rates before entering a job contract.

Leave and absence pay

Leave entitlements in Bahrain are clearly set out in the Labour Law and must be tracked from day one of employment. When an employee completes a full year of service, they are entitled to 30 calendar days of paid annual leave.

Sick leave covers up to 55 days each year, which is divided into three stages: 15 days on full pay, 20 days on half pay and 20 days unpaid.

Maternity leave covers 75 days per pregnancy. The first 60 are fully paid, and the remaining 15 are unpaid. Employers should also allow additional unpaid leave if medically required.

Other forms of leave include three days for marriage, up to three days for a close family bereavement, and 14 days for Hajj, the annual Islamic pilgrimage to Mecca in Saudi Arabia, which is a mandatory religious duty for capable Muslims that must be carried out at least once in their lifetime. Study leave may also apply in some cases.

Leave must be paid accurately, recorded properly and reflected in payroll. End-of-service payments often include unused leave, so records need to be complete and up to date.

End-of-service benefits

Non-Bahraini nationals working in the private sector are generally entitled to a end of service gratuity payment (EOSG) upon termination or resignation. The amount due depends on how long the employee has worked in continuous employment for the employer and is based on the final basic salary, not the total package.

Bahraini nationals do not receive end-of-service benefits. Their retirement benefits are instead handled through the monthly Social Insurance Organisation (SIO) contributions.

Previously, the EOSG had to be paid as a lump sum directly by the private sector employer to the non-Bahraini national employee but, in November 2023, the Council of Ministers approved changes to the end-of-service benefits system.

As of 1 March 2024, private sector employers are required to pay monthly end-of-service contributions electronically through the SIO portal. To do so, employers will need to register through the SIO portal and submit compensation data for their non-Bahraini employees.

The gratuity calculation remains at 4.2% of an employee’s annual salary for the first three years of employment, increasing to 8.4% for subsequent years until termination.

Employers must pay relevant contributions into the system within the first 15 days of each month. Non-compliance can result in penalties and sanctions. If employers fail to pay within the specified period, interest will accrue at a rate of 5%.

Additionally, employers who do not make the required leaving indemnity contributions for any given month may face an additional penalty equivalent to 20% of the unpaid contributions.

Upon termination or resignation, Non-Bahraini national employees will apply to the SIO for their EOSG rather than to the private sector employer. However, any EOSG entitlements that had accrued before March 2024 are still required to be paid directly from the employer to employee. Employers are also still responsible for EOSG costs in the case of temporary secondments.

Employers are also expected to cover repatriation expenses. This includes the cost of a return ticket to the employee’s home country, unless they are moving to another job in Bahrain.

How can Sovereign PPG help?

Payroll in Bahrain isn’t hard to manage, but Outsourcing your payroll in Bahrain can free up valuable time and resources, while also ensuring that all the obligations and responsibilities of the payroll cycle are met in a timely and efficient manner in every jurisdiction of operation.

Mistakes can cause delays, incur penalties or licence delays. WPS tracking leaves little margin for error, so it pays to get the set up right and keep records in order.

Sovereign PPG’s payroll solutions provide a comprehensive but flexible outsourced payroll service that can be tailored to a client’s specific requirements. The first stage will involve registering the employer and its employees with the relevant authorities, recording employment notices and contracts, obtaining bank details of the employer and employee, issuing codes and, finally, inserting all that information into the Sovereign payroll system.

The Sovereign PPG team has in-depth experience of Bahrain’s payroll rules, WPS registration and ongoing compliance. Our team works directly with the relevant authorities to make sure your payroll runs cleanly from day one.

If you need help setting up or managing payroll in Bahrain, or support across Dubai, Abu Dhabi, the wider UAE, Qatar, Saudi Arabia or Oman, call us on +971 (0)4 456 1761 for Dubai or +971 (0)2 448 5120 for Abu Dhabi.