What Severance Pay Rules Must Employers Follow in Bahrain?

Which Employees Qualify for Severance Pay?

• Bahraini and expatriate employees in the private sector generally qualify for end-of-service benefits unless they are fully covered by a statutory pension scheme that replaces gratuity.
• Employees on indefinite or fixed-term contracts qualify if they complete at least one year of continuous service, with pro-rated benefits often applied for shorter periods by agreement.
• Full-time employees paid a regular wage and working under your direction are covered, regardless of job title or seniority, unless a specific legal exemption applies.
• Part-time employees may qualify on a pro-rated basis where they meet the definition of an employee under the Labour Law and are not excluded by a pension arrangement.
• Employees dismissed for a lawful reason other than gross misconduct remain entitled to accrued end-of-service benefits up to their termination date.
• Employees terminated for gross misconduct may lose some or all severance-related entitlements if the misconduct and procedure meet the strict standards set by Bahraini law.

What Are the Legal Timelines for Paying Severance?

In Bahrain, the Labour Law expects you to settle all final dues, including end-of-service benefits, promptly upon termination. In practice, most employers aim to pay within the employee’s last working day or within a few days after completing exit formalities and returning company property. Delays can trigger complaints to the Ministry of Labour and Social Development and increase the risk of legal claims. To stay safe, your company should set an internal standard of paying severance within 7 to 10 days of termination and document the calculation clearly. Where a dispute exists, pay the undisputed portion immediately and record your position on any contested balance.

What Penalties Apply if Severance Is Not Paid Correctly?

If your company fails to pay severance correctly in Bahrain, you risk financial, regulatory, and reputational consequences. Employees can file complaints with the Ministry or bring claims before the labour courts, which often interpret end-of-service protections in the employee’s favor. Courts can order back payment of all outstanding amounts plus potential compensation and legal costs. Non-compliance can also affect your ability to maintain a smooth relationship with regulators and may complicate future workforce decisions.

• Courts can order payment of all unpaid end-of-service benefits with retroactive effect.
• You may be liable for additional compensation for unlawful or arbitrary dismissal.
• Legal proceedings can add court fees, expert costs, and interest where awarded.
• Repeated or serious breaches can draw closer scrutiny from labour authorities.
• Disputes over severance can damage your employer brand and increase employee turnover.

Does Outsourcing Employment via an EOR Change Severance Liability?

Using an Employer of Record (https://www.playroll.com/employer-of-record) in Bahrain does not remove the need to comply with local severance rules, but it can shift who is the legal employer of record. Typically, the EOR becomes the formal employer responsible for calculating and paying end-of-service benefits under Bahraini law. However, your company usually bears the economic cost through your service fees and remains exposed if you instruct the EOR to terminate in a way that breaches the law. You should ensure your EOR contract clearly allocates liability for miscalculations, late payments, and disputes. Always confirm that the EOR’s severance practices align with statutory requirements and any enhanced benefits you promise to your team.

Be 100 Percent Compliant in Offering Severance with Playroll

Playroll helps your company navigate Bahrain’s end-of-service rules by standardizing how you collect data, calculate benefits, and document terminations. Our approach focuses on aligning your internal policies with the Labour Law, including clear rules on notice, cause, and how basic wage and service length are determined. With structured workflows, you reduce the risk of ad hoc decisions that can later be challenged by employees or regulators.

When you use Playroll as your global employment partner, you gain access to local expertise and up-to-date guidance on Bahrain’s evolving labour landscape. We help you design compliant severance practices, integrate them into contracts and handbooks, and coordinate with in-country partners where needed. That means your HR and finance teams can execute terminations confidently, knowing severance is calculated, approved, and paid on time in line with Bahraini law.