Understanding New Gratuity Calculation Methods in Oman: Implications for Employers and Employees
The Ministry of Labour has provided clarity on how gratuity (end of service benefits) for both Omani workers and expatriates will be calculated in accordance with Article 61 of the Labour Law, pending the introduction of the new savings system.
Omani Workers
For workers whose employment contracts are terminated and who are not covered by the Social Protection Law, employers are required to pay a gratuity equivalent to no less than the basic wage for each year of service. Gratuity will also be granted for partial years, with the last basic wage serving as the basis for calculation. Importantly, any service prior to the law’s enactment will be included in the gratuity calculation.
These provisions will remain in effect until the savings system outlined in the Social Protection Law is implemented. Employers may either directly settle the worker’s gratuity in accordance with the previous law before the savings system begins or transfer these benefits to the savings system, calculated at the basic wage on the settlement date.
Entitlements and Calculation of End-of-Service Gratuity
If a worker’s entitlement arose under previous laws but service continued under the new law, gratuity will be calculated at a rate of 15 days’ wages for each of the first three years, and one month’s wages for each subsequent year. If the entitlement arises solely under the new law, it will be no less than one basic salary for each completed year of service, referencing the employee’s latest basic salary.
For instance, an expatriate with a start date of August 1, 2021, and a basic salary of RO500 will have their gratuity calculated based on their service duration. From August 1, 2021, to July 31, 2023, it will be calculated under previous law provisions as RO250 per year. Post-enactment of the new law, the gratuity will be RO500 for each succeeding year, aligning with the new legal requirement.
New Savings System
According to Article 135 of the Social Protection Law (Royal Decree 53/2023), further details on the savings system will be specified in the executive regulation. A decision regarding the date of implementation, which must not extend beyond July 2026, will be made by the Board of Directors of the Social Protection Fund.
Application for Expatriate Employees
The Social Protection Law mandates that the savings system applies to expatriate employees. Article 136 stipulates that expatriates must be registered in the savings system within 30 days of employment. Retroactive registration is permitted if employees are found unregistered, but this will only apply after the savings system is operational.
Under previous regulations, expatriates received a gratuity calculated as 15 days’ wages for each of the first three years and one month’s wage for each subsequent year. Article 137 indicates that the introduction of the savings system will eventually replace these gratuity provisions.
The savings system will be funded by 9% of the monthly basic wage of expatriates, to be paid by employers. Each expatriate must have a personal savings account, with minimum savings of RO100 and payment due within 15 days of the following month. Late payments incur an 8% annual penalty on the total due.
According to Article 141 of the Social Protection Law, savers are entitled to their savings plus investment returns, with a minimum return on investment (ROI) of 2% annually. The yearly ROI will be announced by the Social Protection Fund by the end of the first quarter of the subsequent year.
Withdrawals from the Savings
The savings may be withdrawn in specific circumstances detailed in Article 143, like the end of employment unless another contract is entered into within a stipulated three-month period. Should the expatriate leave Oman or not secure another job within this timeframe, they can access their savings.
In instances of death or permanent disability, savings are payable to legal heirs. Article 142 allows savers to choose between a one-time payment or annual/monthly installments for withdrawals.
Exiting the Savings System
Article 144 states that if a saver exits the savings system, they must notify the Social Protection Fund as directed in the regulations. Failure to do so will result in fines, and after one year without ROI, a minimum ROI will apply to their savings. Notification must occur within one month of leaving the system.
Special Analysis by Omanet | Navigate Oman’s Market
The recent clarification by the Ministry of Labour on gratuity calculations signifies a pivotal shift in Oman’s labor landscape, impacting both Omani and expatriate workers. Businesses must adapt to comply with new regulations while strategically planning for the upcoming savings system, which potentially reduces financial liabilities associated with end-of-service payments. Investors and entrepreneurs should closely assess this evolving framework, tapping into emerging opportunities while mitigating risks associated with non-compliance and transitional adjustments.
