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Bahrain’s government will now collect contributions for migrant workers' indemnity and disburse them directly

Decision comes as Bahrain aims to boost its Social Insurance Organization's fund, yet questions remain regarding the dispersal of indemnity

On March 6, 2024

Starting from March 2024, Bahrain’s General Authority for the Social Insurance Organization (SIO, also known as GOSI) will begin implementation of Resolution No. 109 of 2023, and start collecting end-of-service contributions from employers with workers insured under GOSI in the private sector, and subsequently disburse them to migrant workers.  

Previously, employers paid out the indemnity directly to migrant workers after their contracts ended. However, only a few companies allocate funds specifically to meet these obligations. It is common for employers to declare bankruptcy, file absconding cases, terminate residency permits, or repatriate workers without settling their rightful benefits. With the new regulation, employers will be required to pay contributions directly to the SIO every month. 

However, employers will remain responsible for paying the lump sum indemnity to workers for the duration of their service before the implementation of the new resolution.

Typically, migrant workers only have a month from the termination of their work permits to either find a new job or leave the country. Most migrants are unable to recover their benefits in such a short window of time. They often lack the resources to take legal action, such as hiring a lawyer to represent them.

The new decision, approved by Bahrain’s Council of Ministers on 13 November 2023, mandates that employers contribute an amount equal to 4.2% of migrant workers’ salaries for the first three years, increasing to 8.4% in subsequent years. Employers of workers employed for more than three years before March 2024 will have their contribution automatically set at 8.4%. 

Employers have to submit salary data for insured employees to the GOSI ahead of the implementation of the new system. According to GOSI, the “salary must be in consideration specified in the employment contract that is paid to the worker periodically, in addition to any salary increases and social allowances.” If employers fail to submit salary data, GOSI will calculate contributions based on the monthly salary which is submitted for the Work Injury Insurance contributions, which employers already pay into. 

Given the widespread abuse, various stakeholders, including the General Federation of Bahrain Trade Unions, have argued in recent years that the SIO should collect EOS contributions directly and distribute them not only to better protect workers’ rights but also to boost SIO’s coffers. The new decision comes amidst Bahrain’s GOSI grappling with significant financial challenges, marked by a substantial reduction in assets by half a billion dinars and investment losses totalling approximately 92 million dinars in 2022.

The new regulation does not introduce any changes regarding the calculation of the end-of-service indemnity. This indemnity is calculated based on the employee’s last-drawn salary and length of service at the rate of 15 days’ monthly wage per year for the first three years and one month’s wage per year from then on. According to the new resolution, the payout amount shall not exceed the proceeds of the contributions paid. Furthermore, employers have the right to recover the difference in contributions in the event of reduction in wages.  

The new policy has been portrayed in local media as an attempt to alleviate the financial burden on employers by transitioning from a lump-sum indemnity payment at the end of service to monthly contributions. However, in reality, many employers fail to make the lump sum payment altogether. Consequently, this policy has encountered resistance from some employers and officials. For instance, Shura Council member Darwish Ahmed Al Mannai voiced disapproval of the policy, arguing that while it may extend the lifespan of pension funds, [the new system] “would strain the private sector and curtail its trade activity.”

The move is a positive step toward better guaranteeing the rights of migrant workers. Bahrain will join Oman as the only two Gulf countries where the social insurance organisation will distribute EOS benefits  (with the latter’s reform set to be implemented in three years). However, questions remain about its implementation and the ease of accessibility for migrants to claim their benefits. Importantly, domestic workers are not included in this reform, considering that they are entirely excluded from the SIO law. 

One challenge to the system’s implementation is that migrant workers’ actual salaries and allowances often differ from the figures registered in the SIO and LMRA. This is because many employers submit contracts with lower wages and allowances to reduce contribution fees. In August of this year, the LMRA and the SIO signed an agreement to unify data related to private sector wages for more transparency, granting both entities access to the worker database. However, the progress made on this initiative remains unclear.

More time is necessary to thoroughly evaluate the effectiveness of the new indemnity system. Additionally, there is a risk that migrants with terminated permits may encounter difficulties in accessing their benefits. This issue is particularly pertinent for migrants who contribute to unemployment insurance with GOSI. Despite being eligible for unemployment benefits on paper, those who lose their jobs and subsequently fall into irregular status may find themselves ineligible to receive the benefits they are due.

In any event, the new system fails to address the plight of the numerous migrants currently stranded in Bahrain awaiting their indemnity. In recent months, hundreds of migrant workers from Awal Gulf Industries, a well-established company providing air conditioning and refrigeration equipment with over 50 years of operation, became redundant after the company liquidated due to financial challenges. These workers, many of whom had dedicated many years of service, were abandoned without receiving their rightful salaries and indemnity, amounting to tens of thousands of dinars. Sources close to the matter reveal that the company allegedly falsified signatures of workers to indicate receipt of their dues.