Business owners looking to expand their venture to Bahrain and hire employees must be well-versed with payroll rules and regulations in Bahrain.
After starting operations in Bahrain, employers must include all their employees on the company payroll in compliance with the country’s labor laws and payroll regulations. Payroll is an essential corporate expenditure that’s almost always deductible worldwide.
Planning employee payroll demands utmost precision and due diligence on the employer’s part. Apart from the net salary, they must consider multiple factors, including overtime, sick pay, paid leaves, gratuity schemes, pension plans, etc., while creating a payroll structure.
This blog takes a comprehensive look into all the essential aspects of payroll in Bahrain.
How is Payroll Calculated in Bahrain?
In most countries, the payroll calculation is based on income tax deductions and other compulsory deductions like social security, medicare, etc. The unique thing about payroll deductions in Bahrain is that employee payroll is not subject to income tax. Hence, employers do not need to deduct income tax from their employees’ salaries.
However, employees must contribute to Bahrain’s mandatory social security scheme. The net salary (take-home) is calculated by adding the allowances and benefits and deducting the statutory contributions from an employee’s monthly paycheck.
Important Elements of Salary Structure in Bahrain
The salary structure includes numerous elements alongside the basic salary. These elements may be monetary or non-monetary.
Payroll in Bahrain consists of the following essential aspects of salary structure:
- Basic salary – A basic salary is an employee’s base income, accounting for 35-50% of their overall pay. A predetermined figure is paid before any additional amount because of bonuses and overtime or deductions of any allowances.
- Housing allowance – A housing allowance is a monthly amount paid by the employer (over the basic salary) to assist their employees in paying the rent or mortgage installments.
- Traveling allowance – The purpose of the transportation allowance is to cover the costs of commuting between home and work. It is also available to cover expenditures incurred while traveling from one location to another.
- Overtime – Overtime pay is a stipend provided to employees working more than the minimum number of hours required by law or corporate policy. According to Article 54, an employee working overtime is entitled to their regular compensation and an additional 25% of the standard wage for hours worked during the daytime (7am to 7pm). If employees work overtime on the night shift (7pm to 7am), they should get their regular salary plus 50% for the extra hours worked.
- Bonus and incentives – An additional monetary payment provided to an employee in addition to their regular wage or compensation package. Employers utilize bonuses to reward their staff for a sense of accomplishment. Bonus and additional perks vary from company to company.
- Annual leaves – Employees in Bahrain are entitled to 30 days paid annual leaves in a year. The option of receiving payment in lieu of accrued leave days is available to the employee in Bahrain. Besides, Muslim employees who have worked in a company for at least five years get 14 days of paid leave for the Mecca pilgrimage.
- Sick leaves – According to Article 65, a worker with three months of continuous employment has the right to take sick leave provided a doctor nominated by the employer issues a sickness certificate.
- Maternity and paternity leave – A female worker in Bahrain is entitled to receive sixty days of paid maternity leave by providing a medical certificate mentioning the date of her delivery by the Ministry of Health. Article 63 permits male employees to take one day of paternity leave after the birth of their child.
- Gratuity pay – Gratuity is a one-time payment made by employers to employees leaving the company. It is computed based on an employee’s last salary amount. This parting gift is given to all employees as outlined by the Labor Law.
- Social security insurance – Social insurance is a government-run program that protects people from various economic hazards (such as loss of income due to illness, old age, or unemployment) and requires everyone to participate. Both employees and employers must pay for social security insurance in Bahrain.
How to Set Up a Payroll in Bahrain?
According to the Bahrain payroll policies and procedures, one of the first stages in expanding Bahrain’s business is hiring local staff, which necessitates setting up a payroll in the nation. While this is doable, Bahrain’s unique employment rules and linguistic and cultural hurdles can cause delays and make the process more time-consuming for international enterprises.
Moreover, before setting up the Bahrain payroll process, an organization must first create a subsidiary in the nation. This procedure might take weeks or months, depending on the place of incorporation and business structure. The organization would also need to open in-country bank accounts in Bahrain to pay staff.
A Step-by-step Process of Payroll Processing in Bahrain
Payroll is one of the highest monthly costs for a company. The HR team must closely monitor the entire procedure for the proper execution of the payroll process.
The following steps highlight how to do payroll in Bahrain:
- Step 1: The first step is onboarding employees and preparing the list of employees to be included in the company payroll.
- Step 2: The next step is to define your payroll policy elements (for example, monthly salary, leaves, payment cycle, employee benefits, etc.) and get the senior management’s approval for executing the payroll process.
- Step 3: Employers must gather the necessary details from all employees (including ID proof, address, bank details, etc.) for the payroll process.
- Step 4: After collecting the relevant data for the payroll process, employers must validate the employee details to ensure they align with the company policies and operational model. Also, employers should double-check that only active employees of the organization are included in the payroll list.
- Step 5: The next step involves feeding valid data into the payroll processing system, which calculates the net payment to be disbursed to the employees after the necessary deductions, such as withholding the social security insurance.
- Step 6: Final payments are disbursed once the calculations are done, and the withheld amount (deductions) is paid to the respective department.
- Step 7: After the payment of salaries the employer must offer payslips and tax computation sheets to their employees. Usually, employers now use a payroll processing system that automatically uploads employee payslips to their official accounts. Employees can log in to their personal accounts to view monthly payslips and deductions.
SIO (Social Insurance Organization — the entity responsible for delivering social insurance services) is funded by Bahraini nationals and expats. There are no payroll taxes in Bahrain since it does not recognize tax residence – employees only need to contribute to social security.
Employers typically pay the SIO payment for expatriates. However, an employer may withhold the SIO contributions from the employees’ income.
Contributions to the SIO stand at 19% for local employees (12% by the employer and 7% by employee) and 4% for expats (3% by the employer and 1% by employee). The maximum deduction amount is capped at BHR 4000.
Article 40 of the Bahrain Labor Law states the guideline to be followed by the companies for maintaining the payroll cycle for their employees.
- The companies in Bahrain should disburse the salaries monthly to full-time employees.
- Employees paid on a project basis should be paid twice – Such employees must be offered an advance for their work in the first week, and the remaining payment should be paid after project completion.
- Employees paid on an hourly basis should be paid weekly.
Bahrain Payroll Options for the Companies
Companies in Bahrain have four main payroll options:
- Remote: If a parent company wants to maintain only one payroll, it can add the employees of its Bahrani subsidiary to that payroll. However, it would become more tedious and complex since employers must ensure compliance with the Bahraini compensation payroll laws and regulations.
- Internal: Companies can opt for an internal payroll process in Bahrain, which requires a competent HR team. Additionally, employers must ensure that their subsidiary in Bahrain has sufficient funds for disbursing timely payments to all employees. While this option allows companies to streamline their payroll process internally, it is costly and time-consuming.
- Bahrain Payroll Processing Firm: Working with a Bahrain payroll processing firm will relieve employers of the burden of payroll processing, but they will remain responsible for compliance. Hiring a local payroll processing firm might result in higher legal fees to assure compliance.
- Global PEO: Partnering with a global PEO firm like Multiplier would be a commendable and affordable option for companies with Bahraini subsidiaries. Since PEO experts are well-versed with international laws, they can seamlessly handle regulatory issues to create a legally-compliant payroll process in Bahrain.
Entitlement and Termination Terms in Bahrain
The standard notice period for terminating an employment contract in Bahrain is 30 days. However, if the employer and employee mutually agree to a more extended notice period in the work contract, that becomes binding on both parties.
Employers may dismiss an employee without formal notice or compensation if the employee has been working under a false identity, is absent from work without a credible reason, or does not adhere to the company policies. If an employee breaks the mandates of the work contract, they get a written warning before receiving a formal termination letter with 30 days of notice.
According to Bahrain’s payroll rules and regulations, employees on indefinite contracts dismissed after three months typically receive two days’ salary for each month worked, with a minimum of one month’s pay and a maximum of one year’s pay. When terminating a fixed-term contract before its completion, employees must generally pay for the remaining time on the contract.
Bahrain Payroll Processing Company
Today, a global workforce is essential for the expansion and growth of the company. However, employing international talent and managing them while juggling multiple administrative tasks is usually challenging for new employers in the Bahraini market.
Selecting Multiplier as your Bahrain payroll processing company would allow you to focus on business operations since we’ll handle payroll management and global team management for you. Partnering with a global PEO firm like Multiplier will streamline your processes and give you a competitive advantage.
How can Multiplier Help With Global Payroll?
Bahrain is an excellent location for business expansion. However, there are several rules and regulations to consider during the growth process. Before launching a subsidiary in Bahrain, the business heads must ensure that everything is in place, from their Bahrain payroll requirements to setting up a locally compliant payroll.
Multiplier offers payroll solutions to companies across 150 countries. Setting up Bahrain payroll would become more accessible with our one-click payroll solution. With our help, you need not set up a subsidiary in Bahrain to execute your payroll process. Your company can concentrate on its operations and the new market instead of worrying about compliance with the labor laws and payroll processes.