#CORPORATEADVISORY
How to Calculate Indemnity of Your Employees in Bahrain
Khalid Khan
October 20
Gratuity is a parting gift for an employee and it is promised to all employees covered under the Bahrain Labor Law subject to certain restrictions as laid down in the Labor Law.

In most cases, we have seen the calculation is not proper due to which the employees don't receive what they deserve and sometimes we have seen they are overpaid as well. If they are overpaid, it's fine for the employee even though this caused the company a loss but if the employee is underpaid, then he might go to the court etc. and in that case also the company will suffer loss for legal fees, etc.
So why not do this job properly so there are no issues for the employer and for the employee? This article is for all those employers who are not sure how to calculate the indemnity for their employee. Before you calculate, remember the following things:

  1. It is paid to all private sector employees not covered under the Social Insurance Law.
  2. It is calculated on the most recent basic pay.
  3. It is to be calculated on a pro rata basis.
  4. For the first three years, employee to get half month basic pay.
  5. From start of 4th year, employee entitled to full month basic pay.
Now let's look at the calculation procedure. We will show you two cases. The first one is easy and second complicated.
1. A is working with B (employer) for a basic salary of 500 BD monthly. A's contract is terminated after 5 years. What is the amount of indemnity he deserves?

First-year indemnity = half month salary (BD 250)

Second-year indemnity = half month salary (BD 250)

Third-year indemnity = half month salary (BD 250)

Fourth-year indemnity = full month salary (BD 500)

Fifth-year indemnity = full month salary (BD 500)

Total Indemnity to be paid = BD 1750

This is a very easy example because it was a case of a complete number of years. Now let's see a case where the contract was terminated in the middle.
2. A is working with B (employer) for a basic salary of 380 BD monthly. A's contract is terminated after 4 years, 3 months and 11 days. What is the amount of indemnity he deserves?

Here, let's first take the amount for the first 4 years since it's easy.

First-year indemnity = half month salary (BD 190)

Second-year indemnity = half month salary (BD 190)

Third-year indemnity = half month salary (BD 190)

Fourth-year indemnity = full month salary (BD 380)

3 months and 11 days = 380/365X101 days. Here we are calculating based on the number of days and presuming each month has 30 days. You need to see the month according to your employee's case. So here we have divided 380 (i.e. salary) by 365 = 1.041 BD (ONE DAY SALARY). Now we multiply this with 101 days since employee worked for 101 days with a month being 30 days, so 3 month multiplied by 3 is 90 days plus 11 days amounting to 101 days. The indemnity for 101 days would be based on our estimate is 105.150 BD.

The total amount payable to the employee would be BD 1,055.150.
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