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The Ministry of Labour’s continued emphasis on employers’ compliance with statutory employment entitlements highlights the importance of properly calculating and settling end-of-service benefits (EOSB) when an employment relationship comes to an end.

For employers operating in Oman, end-of-service gratuity remains an important statutory obligation, particularly during the transition towards the Savings/Provident Scheme under the Social Protection Law.

1. What does the Labour Law provide?

Under Article 61 of Royal Decree No. 53/2023 issuing the Labour Law, an employer must, upon termination of the employment relationship, pay an end-of-service benefit to a worker who is not covered by the Social Protection Law, at a rate of not less than one basic wage for each completed year of service.

Any fraction of a year is calculated proportionately. The employee’s last basic wage is used as the basis for calculating the benefit. Importantly, service that commenced before the current Labour Law came into force is also included when determining the employee’s qualifying period.

In practical terms:

EOSB = Last Basic Wage × Years of Qualifying Service

The calculation is based on the basic wage, rather than the employee’s total or gross remuneration.

2. Who is currently entitled?

The statutory gratuity under Article 61 applies to workers who are not beneficiaries of the Social Protection Law.

Employers should therefore assess each employee individually, taking into account:

• Nationality and applicable social protection coverage;
• Date of commencement of employment;
• Total qualifying service;
• Last basic wage;
• Applicable employment contract and company policies; and
• Whether the employee falls within the transitional arrangements for the Social Protection Fund’s Savings Scheme.

The Social Protection Fund has confirmed that the new savings system is intended to cover end-of-service benefits for non-Omani workers, replacing the employer-paid gratuity for the period covered by the scheme.

3. The transition to the Savings/Provident Scheme

The Social Protection Law introduced a defined-contribution Savings System for non-Omani workers.

Under Articles 135–138 of the Social Protection Law, the scheme is intended to replace employer-paid end-of-service gratuity for non-Omani workers for the period following commencement of the relevant contribution provisions.

However, service accrued before the commencement of the savings contributions remains subject to separate treatment. The employer must settle the earlier gratuity entitlement in accordance with the applicable Labour Law provisions, or may settle it through the Savings System or directly with the worker in accordance with the statutory framework.

The implementation is being phased. Current Social Protection Fund material identifies the mandatory provident arrangement for non-Omani workers as part of the phased rollout, while the latest ILO/Social Protection Fund summary places its implementation within the fourth year of the Social Protection Law's rollout.

Accordingly, employers should not assume that the future provident mechanism eliminates their present obligations in respect of accrued gratuity.

4. Employer-funded savings or supplementary schemes

Employers may have internal gratuity, savings or supplementary benefit arrangements.

Article 48 of the Labour Law recognizes certain employer savings programmes where the programme is approved in accordance with the applicable requirements and the employer's contribution is intended to discharge its statutory gratuity obligation.

Where the programme does not provide an amount equivalent to the employee's statutory entitlement, the employer may remain liable for the difference. Where the employee has personally contributed to such a programme, additional rights may arise under the applicable arrangement.

Employers should therefore review existing benefit schemes rather than assuming that an internal provision automatically satisfies the statutory obligation.

5. What happens when employment ends?

A proper final settlement should identify and calculate all outstanding employee entitlements, including, where applicable:

• End-of-service gratuity;
• Outstanding salary;
• Accrued leave entitlements;
• Contractual benefits and allowances;
• Any other statutory or contractual amounts due.

Employers should also maintain accurate employment records. The Labour Law requires employers to maintain employee files containing, among other matters, the employee’s commencement date, remuneration, leave records and termination details.

The Government’s current digital services also provide mechanisms for recording termination of service and accessing employment records and end-of-service documentation.

6. Key compliance risks for employers

Failure to properly calculate or settle end-of-service entitlements can result in:

• Employee complaints and labour disputes;
• Claims for unpaid statutory benefits;
• Additional financial exposure arising from incorrect calculations;
• Increased scrutiny during employment-related proceedings; and
• Reputational and employee-relations risks.

Employers should particularly avoid relying on outdated gratuity formulas or calculating benefits solely by reference to gross salary.

7. What should employers do now?

Employers in Oman should consider undertaking an EOSB compliance review covering their workforce.

Recommended actions:

1. Audit employee records
Verify joining dates, basic wages, contracts and periods of service.

2. Recalculate accrued gratuity
Identify potential EOSB liabilities using the applicable statutory methodology.

3. Separate historical and future liabilities
For non-Omani employees, distinguish gratuity accrued before the applicable Savings Scheme contribution period from benefits arising under the new system.

4. Review employment contracts and policies
Ensure contractual provisions do not inadvertently understate statutory entitlements.

5. Review internal savings schemes
Confirm whether any employer-funded scheme has the necessary approvals and provides benefits sufficient to satisfy statutory requirements.

6. Prepare for the Social Protection Fund transition
HR, finance and legal teams should monitor implementation requirements and ensure payroll and employee-record systems can accommodate the new framework.

Conclusion

Oman’s evolving employment and social protection framework requires employers to take a proactive rather than reactive approach to end-of-service obligations.

While the Social Protection Fund’s Savings/Provident Scheme represents a significant shift in the way end-of-service benefits for non-Omani workers will be funded, existing accrued rights and current Labour Law obligations remain important during the transition.

For employers, now is an appropriate time to audit gratuity liabilities, review employment documentation and prepare for the next stage of the Social Protection Law’s implementation.

YLAW Perspective:
A structured end-of-service audit can help employers identify historic liabilities, correct calculation practices and align HR and payroll systems with Oman’s evolving labour and social protection framework before disputes arise.

This article is intended for general information only and does not constitute legal advice. Specific employee entitlements should be assessed based on the applicable law, employment contract, employee status and relevant Social Protection Fund provisions.