Payroll & HR Insights From a Global Payroll Outsourcing Provider
This guide is a must read before you either outsource your Bahrain payroll or build a local HR and Payroll function. As a Global Payroll Provider, Mercans can guarantee your full compliance with all the applicable regulations.
Investing in Bahrain
Along with competitive costs, easy access to the rest of the Middle East and a well-established business infrastructure, you will find that Bahrain has experience in understanding the needs of foreign businesses and responding to them.
The government regards foreign investment as key to its Economic Vision “2030 long-term plan” for improving the competitiveness of the economy, creating skilled jobs for Bahrainis and enhancing living standards. For this reason, the Bahraini Government is committed to building on their existing advantages, aiming to build the Middle East’s most attractive centre for business.
Registrations and Establishing an Entity
The company is required to have a legal entity established in order to process a payroll.
Some industries are prohibited in Bahrain (for example, gambling or the import and industrial use of restricted chemicals) whilst some industries are protected for investment by Bahraini Citizens; GCC citizens and Companies (for example, a diverse range of industries ranging from printing presses, accounting services and the import / export and sale of racing car fuel)
There are several types of company entities in Bahrain including:
- Bahraini Shareholding Company (B.S.C) – Public
- Closed Shareholding Company (B.S.C) – Closed
- Limited Liability Company
- Partnership Company
- Simple Commandite
- Commandite by Shares
- Single Person Company
- Foreign Company Branch
- Holding Company
The Commercial Registration of companies can be done at the Bahrain Investors’ Centre. The processing time for registering a business is estimated to be between one to three working days and must be renewed on an annual basis. For some commercial activities, a licence or approval is required.
It is mandatory to make payments to both Employees and the authorities from an in-country bank account.
Bank opening days and hours vary from branch to branch. Generally opening days are Saturday – Wednesday or Sunday to Thursday and general opening times are from 07:30-13:00 and then 16:00 – 18:00.
The working week in Bahrain tends to vary between 40 and 48 hours depending on company policy. Office hours are usually from 08:30 or 09:00 to 17:30 or 18:00. There are no differences in time keeping between summer and winter. In the month of Ramadan, the working day is reduced to six hours and legally this should apply to all staff but many companies only apply it to Muslims who fast during daylight hours.
Friday is the Muslim rest day and if your company has a five-day working week the other day off will probably be either Thursday or Saturday. Saturday is the more popular choice for international companies as taking Thursday off would mean a reduction in the number of operational days in common with much of the rest of the world. Conversely, other companies insist on Thursday as the school ‘weekend’ is Thursday and Friday.
Basic Facts about Bahrain
Full name: Kingdom of Bahrain
Population: 1,425,171 (2016)
Major Language: Arabic
Major Religion: Islam
Monetary Unit: 1 Bahraini dinar = 1,000 fils
Main Exports: Petroleum and petroleum products, aluminium
GNI per Capita: US $22,660 (World Bank, 2016)
Internet Domain: .bh
International Dialling Code: +973
How to say: –
Good morning صباح الخير
Good evening مساء الخير.
Do you speak English? هل تتكلم بالإنجليزية؟
Good bye وداعا
Thank you شكرا
See you later اشوفك بعدين
Payroll requirements are governed by the Bahrain Labor Law. There is no specific guidance for payslips; however, in general practice, payslips are released to employees monthly. It is mandatory to have a local employment contract and a salary transfer in Bahraini dinar.
Effective January 2016, annual health insurance fee of BHD22.5 must be paid by the employer for Bahraini nationals only on an annual basis.
Tax & Social Security
As there are no income tax obligations in Bahrain there is subsequently no tax year.
There are no tax deductions in Bahrain, however employees do contribute towards social security. Bahraini Nationals and expatriates contribute towards SIO (Social Insurance Organisation – official authority responsible for providing social insurance services).
Also, there is a regulated minimum salary for Bahraini Nationals (based on job description).
The GOSI contribution for expatriates is paid by the company.
There is no individual income tax in Bahrain.
Social security (SIO) contributions are calculated based on January values of employees’ contractual salaries (all fixed earnings) reported to the Social Insurance Organization (SIO), up to the monthly salary ceiling of BHD 4,000.
The current rate of contributions to the SIO is 19% for local employees (12% employer; 7% employee) and 4% for expatriate employees (3% employer; 1% employee).
The employer’s contribution is 12% of gross wages for insurance against old age, disability and death (applicable only to Bahraini employees) and 3% of gross wages for insurance against employment injuries (applicable to all employees).
The employee’s contribution is 7% of gross wages for insurance against old age, disability and death (applicable to Bahraini employees only) and 1% of gross wages for insurance against un-employment.
The above rates apply up to an income ceiling of BHD4,000 per month, subject to a maximum contribution of BHD160. (For employees whose salaries exceed BD4,000, the actual wages will be registered in the SIO records while the subscription or contribution will be calculated on the basis of a maximum wage amounting only to BD4,000)
Monthly social security contributions must be paid by the 15th of every month.
As there are no income tax obligations, there is no monthly, quarterly or annual reporting to be adhered to.
Employers must register their employees in the Kingdom of Bahrain with the Ministry of Labour and Social Affairs and receive a certificate of registration.
The employer must also register it’s employees with the General Organization for Social Insurance (GOSI) and contributions must be paid monthly for compulsory insurances against old age, disability and death (for Bahraini employees only), and against work-related injuries including death (for all employees).
When an employee is hired the employer has to enlist with the Pension Authority. This is generally managed by the legal firm and/or representative that are responsible for the legal registration of the company.
Each legal entity had guidelines stating the deadlines for registrations.
On the termination of employment of a foreign national two things must be considered.
- Leaving indemnity: An indemnity must be paid, which will depend on length of employment and whether it was the Employee or Employer that terminated the employment.
- Plane ticket: The Employer pays for a plane ticket for the Employee to leave the country, to a location specified in the employment contract or to the country of the Employee’s nationality.
It is legally acceptable in Bahrain to provide employees with online payslips.
It is not specified how long payroll reports must be kept for in Bahrain.
Article 25 of the Law of Commerce requires businesses to keep their commercial books and the documents supporting the entries made therein for a period of 10 years commencing from the date of the closing of books.
It also requires that all correspondence should be kept for a period of five years commencing from the date of despatch or receipt thereof.
Holiday Accrual / Calculations
All employees are entitled to 30 calendar days annual leave with full pay. An employee may not waive this entitlement, postpone it, or receive payment in lieu except in accordance with the law and on termination of employment.
An Employer is permitted to schedule the date of annual leave. Such leave, other than the first half of the prescribed entitlement, may be taken at intervals with the consent of the worker.
An Employer may approve the deferment of the annual leave entitlement at the written request of a worker for a period not exceeding three years provided the worker shall take 10 consecutive days of his annual leave entitlement in each year.
A female employee is entitled to maternity leave of 60 days on full pay and this period may be extended by a further 15 calendar days without pay. On her return, the employee will be entitled to an additional two hour each day for nursing, until the child reaches six months of age to two breastfeeding periods of not less than 1 hour each.
Paternity leave entitlement is up to five days after the birth. There are no additional benefits.
In the event of illness which is certified by an approved doctor or hospital, an employee is entitled to a total of 55 absences in each year of employment.
This is divided as follows:
Fifteen days on full pay
- Twenty further days on half pay
- Twenty further days without pay
A Muslim employee, employed for five consecutive years, will be entitled to leave of 14 working days on full pay once during his or her period of employment to perform his or her “Haj” pilgrimage duty.
In Bahrain, expenses are not processed through the payroll.
Visas & Work Permits
All foreigners wishing to work in Bahrain must obtain work visas and permits. The application for these documents should be made to the Labour Market Regulatory Authority prior to the applicant travelling to Bahrain. It is advisable to go through an agent to apply for a working Visa on an Employee’s behalf as they will be familiar with all aspects of the process and will already know all the procedures involved in applying for the Visa.
Submitted to: Labour Market Regulatory Authority
Issued by: Labour Market Regulatory Authority.
Visa Application Requirements:
- Visa Application Form
- Employee’s passport
- Passport size photograph
- Sponsorship Letter: a letter of employment indicating Employer’s name/organization, commercial registration number, Employee’s capacity, salary, contract duration, Employee’s name, birth date and nationality
- Copy of the contract
- Health record from an authorised clinic
- BD100 fee
Residency Permit (Family Visa)
Submitted to: Labour Market Regulatory Authority
Issued by: General Department for Nationality & Passport Residence
Residency Permit Requirements:
- Application Form
- Copy of the Employee & Employees family’s passport
- Employee’s Sponsorship Letter
- Employee’s Contract
- Family health record from an authorised clinic
- BD22 fee per applicant
CPR Card (Identification Card)
Submitted to: Central Informatics Organization
Issued by: Central Informatics Organisation.
- Employee (or spouse) passport
- Sponsorship letter stating names of dependents
- Marriage certificate (for spouse) and birth certificate (for children)
- BD1 fee per applicant