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Bahrain takes leap forward in enhancing end-of-service rights for migrant workers
A new provident fund for end-of-service indemnity for migrant workers is established in the Social Insurance Organization as part of GCC-wide reforms to reform social protection systems in the aftermath of the COVID-19 pandemic.
BEIRUT (ILO News) - The government of Bahrain has promulgated a new end-of-service indemnity system (EOSI) provident fund for non-Bahraini workers in the private sector. The new EOSI fund will be managed by the Social Insurance Organization (SIO), the official agency for the social insurance and pension services in the Kingdom of Bahrain.
This reform occurs in the context of a regional momentum as several Gulf Cooperation Council (GCC) countries accelerate reforms of their EOSI systems in the aftermath of the COVID-19 pandemic. Countries in the GCC have shared details of ongoing and planned reform initiatives at a regional workshop on EOSI that was organized in Muscat on 6 and 7 March 2024 by the Executive Bureau of the Council of Ministers of Labor and Ministers of Social Affairs in the GCC States and the ILO Regional Office of the Arab States, and hosted by the Ministry of Labour and the Social Protection Fund of Oman.
“The ILO congratulates Bahrain on this major milestone in enhancing migrant workers’ rights to social protection,” said ILO Regional Director for Arab States Ruba Jaradat. “By embedding end-of-service indemnity benefits for migrant workers within the national social insurance system, migrant workers can now receive the benefits they need in a manner that is timely and enforceable,” Jaradat said.
The decision, taken in December 2023, comes as an ensuing step to Law No. 14 of 2022 which committed to the establishment of a new provident fund for the administration of EOSI benefits. First contributions to the new fund are expected to be collected in March 2024. Under the new system, EOSI entitlements for migrant workers will continue to be the wage of half a month for each year of employment for the three first years, and a full wage for every following year, in line with the set provisions of the Labour Code.
The reforms, however, introduce a new financing mechanism. Instead of paying benefits upon separation, the employer is now required to pay on behalf of the worker a monthly contribution of 4.2 percent of the wage for the first three years of employment and 8.4 percent for the following years and until the end of service.
“Employers will be required to deposit the amounts necessary to fund the employer-paid end-of-service indemnity into the Social Insurance Organization. This will ensure that all employees in the private sector have guaranteed benefits,” commented Nawal Ahmad, Director Of External Affairs, at the SIO of Bahrain.
EOSI benefits are the main social protection mechanism available to migrant workers in GCC countries. EOSI systems tend to operate across GCC countries as employer-liability schemes, whereby employers are individually responsible to finance the gratuity. Employers that do not set aside sufficient resources for EOSI benefits face the risk of being unable to pay workers their benefits at the end of employment, leaving them unprotected.
The non-payment of EOSI benefits to migrant workers is a widespread phenomenon. Recent research conducted by the ILO shows for example that 4 in 10 Nepalese workers returning from GCC countries had not received the end-of-service benefit. Migrant workers’ access to EOSI is also hindered by limited grievance mechanisms, and cumbersome procedures to access legal and justice services.
“Strengthening the legislative and procedural frameworks governing end-of-service indemnities in the GCC countries increases the stability of employment relations and contributes to a fair and sustainable labour market,” said Mohammed Al-Obaidli, Director-General of the Executive Bureau of the Council of Ministers of Labor and Ministers of Social Affairs in GCC States. “The Executive Bureau is collaborating with the International Labor Organization to explore the prospects for developing social protection systems to be well-suited to the economic aspirations and the special features of labour markets in the region.”
The ILO recently participated in a series of regional workshops on reforming EOSI for migrant workers, organized by the Executive Bureau of the Council of Ministers of Labour and Ministers of Social Affairs in GCC States. An ILO policy paper analyses EOSI schemes in the GCC countries and proposes policy reform solutions in line with core principles enshrined in international social security standards. As a result of these regional exchanges the reforms agenda have accelerated in several countries across the region.
Enhancing adequacy of benefits, portability, and greater transparency on investment returns
The new system is expected to set forth adequate compliance and to strengthen transparency and enforcement, as it would allow to monitor payment of contributions and defaults. Employers who are faulty of due contributions or contributions based on the real wage will be subject to the same penalties provided for in the Social Insurance Law. In case the insured is deceased, the indemnity will continue to be paid to the survivors in the country of origin.
“The establishment of the new Provident Fund has great potential to enhance portability of benefits across GCC countries and between countries of origin and destination,” said Luca Pellerano Senior Social Protection Specialist in the ILO regional office for the Arab States. “Only with the engagement of a national institution such as SIO, it is possible to envisage that bilateral social security agreements could be put in place to allow for benefits administration to be better coordinated along migration corridors”.
“The adequacy of EOSI benefits across the region should be progressively enhanced to bring those in line with international social security standards” continued Pellerano. “This will require on one hand to increase contributions by employers and migrant workers themselves, so to bring these in line with national workers, but also to duly recognize investment returns to all workers in a fair and transparent manner.”
In fact, a provision within the recently approved law stipulates that the investment revenue generated from EOSI contributions will be redirected to the primary SIO fund, benefiting Bahraini workers. This may lead to an implicit cross-subsidy across schemes. Furthermore, as employers will still bear the responsibility for covering deficits in the EOSI accounts, this could continue to serve as an obstacle to full salary declaration. Since EOSI benefits are a defined right for the migrant worker, shortfalls can be covered by other measures such as the reserves building up within the fund instead of being covered by the last employer.
“The provident fund cannot be seen as a solution to address the financial sustainability challenges of the national pension system. A more progressive approach could consist of a gradual inclusion of national and non-national workers under a common – and duly reformed – national social protection system. This would at the same time support the financial health of the system, address labour market distortions, and ensure progressive alignment with the principles of international social security standards.” concluded Pellerano.
Reforming end-of-service indemnity systems in the GCC countries
This improvement in Bahrain occurs in the context of a regional momentum whereby several GCC countries have accelerated reforms of the EOSI system which have proven to be especially problematic during COVID-19 pandemic. Mass layoffs coincided with an economic contraction, leading to liquidity issues for companies, and jeopardizing EOSI payments to migrant workers who lost their jobs.
In Oman, newly approved legislation radically reshapes the social protection system in the Sultanate and provides for the gradual inclusion of migrant workers in national social insurance for maternity and paternity, sickness and employment injury insurance on same terms as Omanis. It also establishes a national provident fund to replace the current EOSI system. A new provident fund, which will be managed by the Social Protection Fund, will collect employers’ contributions, and administer benefits to non-Omani workers in case of retirement, death and disability and upon return to countries of origin.
In October 2023, the UAE also announced an optional scheme to the EOSI system for employees in the private sector and free zones. The new scheme will involve the establishment of privately managed savings and investment funds, overseen by the Securities and Commodities Authority in co-ordination with the Ministry of Human Resources and Emiratisation.
Participants in the regional meeting in Muscat highlighted the need to follow-up with the experience of implementation of the EOSI reforms across countries in the region. Close monitoring of the impact of the reforms on workers and employers will allow fine tuning and adaptation considering emerging good practices. In 2023 the ILO has assessed employers’ perceptions on social protection reforms in Kuwait, and further research is planned on mapping workers preferences. The ILO will continue to provide technical support to the GCC bureau, GCC countries and sending countries in South Asia on the extension of social protection to migrant workers as part of a new 4-year commitment.
*** For further information, please contact Luca Pellerano, Senior Social Protection Specialist (pellerano@ilo.org) and Lea Bou Khater, Social Protection Technical Officer (boukhater@ilo.org).
