When an employee leaves a company in Oman, the final settlement can include several payments, and end-of-service gratuity is one of the most important. Employers need to check the employee’s legal coverage, contract history, service period and final basic wage before calculating the amount. MFN Auditing can help businesses review payroll records and maintain accurate employee settlements.
The rules have received fresh attention in 2026 after the Ministry of Labour clarified how end-of-service gratuity should be calculated for workers who are not covered by the Social Protection Law. The clarification is especially important for companies with employees hired under different Labour Law periods. It also confirms that the employee’s last basic wage is used as the calculation base.
Who Is Entitled to End-of-Service Benefits in Oman?
The first step is to establish if the employee falls within the statutory gratuity rules. Employers should not start with a formula before confirming the employee’s legal position.
Employees Covered by Article 61
Article 61 of Oman’s Labour Law, issued by Royal Decree 53/2023, requires an employer to pay an end-of-service benefit to workers who are not benefiting from the Social Protection Law.
The current statutory minimum is one basic wage for each completed year of service, with a proportional amount for a fraction of a year. The final basic wage is used as the basis for calculation.
Check Social Protection Law Coverage
The Social Protection Fund has clarified that the Social Protection Law does not simply remove employer-paid end-of-service gratuity. Employer payments at the end of service continue to be governed by applicable employment laws and employment contracts. The Social Protection Law also contains a savings system connected with end-of-service benefits for non-Omani workers. Employers should therefore follow the rules that are actually in force when the employee’s service ends.
Verify the Employment Contract and Service Period
Before calculating the amount, confirm the joining date, contract date, amendments and final date of employment. Also check periods of unpaid leave or other circumstances that may affect the service period used for gratuity. A written calculation record can show how HR reached the final amount and give finance a clear basis for processing payment.
What Changed Under Oman’s 2023 Labour Law?
The 2023 Labour Law changed the statutory gratuity framework. The main issue for employers is not only the new rate but also the treatment of employees connected with the previous Labour Law.
The Previous Gratuity Formula
Under the previous Labour Law, the applicable gratuity structure provided 15 days’ wages for each completed year during the first three years and one month’s wage for each subsequent completed year. The Ministry of Labour’s August 2026 clarification restated this approach for workers whose contracts were concluded while the previous Labour Law was in force.
This matters for companies with long-serving employees. HR should identify the relevant employment period instead of automatically applying the current calculation to every employee.
The New Formula Under Royal Decree 53/2023
Article 61 of the current Labour Law provides a minimum of one basic wage for every completed year of service for eligible workers. A fraction of a year is calculated in proportion to the period worked. The current framework therefore provides a straightforward minimum for service governed by the new law. Employers still need to examine the employee’s contract history before completing the calculation.
Why the Contract Date Matters
The August 2026 Ministry clarification confirms different treatment for contracts concluded under the previous Labour Law and contracts concluded under Royal Decree 53/2023.
A company should therefore avoid using one formula for every employee. Employees with older contracts or long service should receive a documented review showing the applicable calculation basis.
How Is End-of-Service Gratuity Calculated in Oman?
The calculation starts with three facts: the employee’s legal coverage, the applicable service period and the final basic wage. Once these are confirmed, HR can calculate the statutory amount and include it in the final settlement.
Use the Employee’s Final Basic Wage
Article 61 states that the employee’s last basic wage is the basis for calculating gratuity. Oman’s Labour Law distinguishes basic wage from comprehensive wage, which includes allowances and benefits. HR should therefore not simply take the employee’s total monthly package and multiply it by the number of years worked. The basic wage shown in the final employment records should be checked carefully.
Calculate Service Under the Current Law
For service governed by Article 61, the statutory minimum is one basic monthly wage for each completed year. A fraction of a year is calculated proportionately. If the eligible service is three years and six months, the proportional amount would be OMR 2,800. This example uses the statutory minimum and assumes the entire period is governed by Article 61.
Review Earlier Service Separately
For workers whose contracts fall under the previous Labour Law, the applicable old formula must be considered. The August 2026 clarification states that the earlier structure provides 15 days’ wages for each of the first three completed years and one month’s wages for each subsequent completed year.
What Counts as Service When Calculating the Benefit?
Service records need careful review because the period used in the calculation directly affects the final amount. Payroll data should agree with HR records and the employment contract.
Completed Years and Fractions
Article 61 provides gratuity for fractions of a year in proportion to the service period. HR should therefore avoid rounding a partial period without a legal basis. Dates should be checked from the employment start date through the actual end of service. The same calculation approach should be applied consistently across employees.
Unpaid Leave
Certain unpaid leave periods receive specific treatment under Oman’s Labour Law. The Ministry states that certain unpaid leave remains part of the employee’s service record but is not counted when calculating the Article 61 gratuity. This distinction matters because an HR record can show continuous employment even though a specific period is excluded from the gratuity calculation.
Salary Changes and Promotions
The final basic wage is important because Article 61 uses the last basic wage as the calculation base. HR should therefore check recent promotions, salary revisions and contract amendments. An outdated salary figure can result in an incorrect gratuity amount. The final payroll record and employment contract should be reconciled before payment is approved.
Which Salary Components Should Employers Include?
Gratuity calculations can go wrong when employers confuse basic wage with the employee’s full compensation package. The two concepts should remain separate during the final settlement review.
| Salary Item | Treatment for Gratuity |
| Basic wage | Main statutory calculation base under Article 61 |
| Housing allowance | Not automatically added to the gratuity base |
| Transport allowance | Not automatically added to the gratuity base |
| Other allowances | Review the applicable legal and contractual treatment |
| Final basic wage | Used as the calculation base under Article 61 |
The safest approach is to take the final basic wage recorded for the employee and verify it against the employment contract and payroll system. Gross salary should not automatically replace the statutory basic wage.
When Must an Employer Pay the Final Employee Dues?
The final settlement should be prepared as soon as employment ends. Oman Labour Law requires the employer to pay the employee’s wage and all amounts due immediately when the employment relationship ends. If the worker leaves voluntarily, payment must be made within seven days from the date the worker leaves. Employers should check:
- Outstanding salary up to the final working date
- End-of-service gratuity, where applicable
- Payment for unused annual leave
- Approved overtime or other outstanding amounts
- Lawful deductions
- Other contractual or statutory entitlements
Annual leave also needs separate attention. Oman Labour Law provides annual leave of at least 30 days with comprehensive wage, and applicable unused leave must be settled when employment ends.
What Should HR Check Before Approving an EOSB Calculation?
A short internal review can prevent errors before the final settlement reaches finance. HR and payroll should work from the same employee record.
Employment Records
Check the joining date, contract date, amendments, salary history, final basic wage, leave records and periods of unpaid leave. Any discrepancy should be resolved before the gratuity calculation is approved. Copies of relevant salary amendments should also be retained.
Legal Status
Confirm the employee’s Social Protection Law coverage and the Labour Law applicable to the employment contract. For long-serving employees, identify the service period connected with the previous and current legal framework. The August 2026 clarification is particularly relevant to this review.
Payroll Reconciliation
Compare the HR service record with payroll data and the final settlement sheet. Check that the calculation uses the correct service period and final basic wage.
What Does the Social Protection Law Mean for Employer EOSB Obligations?
The Social Protection Law has created questions about the future of employer-paid gratuity, especially for non-Omani workers. The current legal position needs to be understood carefully.
The Social Protection Fund states that employer-paid end-of-service gratuity is regulated by employment laws and is separate from insurance rights such as pensions.
The Social Protection Law contains a savings system for non-Omani workers. Article 137 states that the savings system replaces the employer-paid end-of-service grant or gratuity for non-Omanis. Article 138 addresses the service period before savings contributions begin and provides for settlement under the Labour Law or transfer to the savings system or worker. The Social Protection Fund describes this as a defined contribution system intended to cover end-of-service benefits for non-Omani personnel.
Common EOSB Calculation Mistakes Oman Employers Should Avoid
Most errors arise from incomplete employee data or applying a familiar formula without checking the legal position first. A clear review process reduces the risk.
Using Gross Salary Instead of Basic Wage
Article 61 uses the final basic wage as the calculation basis. Adding housing, transport and other allowances without a legal basis can overstate the gratuity.
Applying One Formula to Every Employee
The previous and current Labour Law frameworks have different calculation rules. Employees with older contracts require careful review instead of automatic use of the current formula.
Ignoring Fractions of a Year
A partial service period can affect the final amount. Article 61 requires proportional treatment for fractions of a year.
Forgetting Unpaid Leave Rules
Certain unpaid leave periods are excluded from the gratuity calculation even though they may remain part of the employment service record. Payroll should identify the exact dates.
Using an Outdated Salary
A promotion or salary revision before termination can change the final basic wage used for calculation. Always verify the last basic wage before preparing the final settlement.
Treating EOSB as the Only Final Due
Salary, unused leave and other amounts may also be payable. A complete settlement review should cover every applicable entitlement.
How Can Companies Build an EOSB Compliance Process?
A simple process helps HR and finance use the same records and reduces last-minute disputes. It also makes the calculation easier to review during internal checks.
Keep a Separate EOSB Record for Each Employee
Maintain joining dates, contract history, salary revisions, unpaid leave and previous settlement information in one accessible record. This creates a clear audit trail.
Review the record whenever an employee receives a significant salary change or changes employment terms. Accurate records make final calculations easier.
Review Accrued Benefits During Payroll
Companies with a large workforce can review employee liabilities periodically instead of waiting until termination. Regular checks can identify outdated salary or service information.
This approach also helps finance recognise employee-related liabilities more consistently in the accounting records.
Reconcile HR and Accounting Records
HR records should match payroll and accounting records. Differences in employee dates, salary amounts or leave balances should be investigated before final payment.
MFN Auditing can help companies review payroll data, employee benefit records and accounting entries to identify inconsistencies before they create settlement problems.
Review Employees Affected by Labour Law Changes
Employees whose contracts or service periods span different Labour Law periods deserve specific attention. The calculation should clearly show which rule applies to the relevant period.
The August 2026 Ministry clarification provides useful guidance for employers reviewing contracts concluded under the previous and current Labour Law.
Obtain Final Settlement Approval
Before payment, an authorised person should review the calculation, supporting documents and total final dues. The approval should be retained with payment evidence.
A documented approval process also gives finance a clear record for the payment and accounting entry.
Employer Checklist for an Employee Leaving Oman
Use this checklist as a final review before releasing the employee’s settlement. It can also be added to the company’s HR exit procedure.
- Confirm the final employment date
- Confirm Social Protection Law coverage
- Review the contract date and applicable Labour Law
- Verify service and excluded unpaid leave
- Confirm the final basic wage
- Identify the applicable gratuity calculation period
- Calculate gratuity and any proportional fraction
- Calculate unused annual leave
- Check salary and other outstanding amounts
- Review lawful deductions
- Obtain internal approval
- Process payment within the required period
- Retain calculation and payment evidence
- Provide the end-of-service certificate when requested
Final Takeaway for Oman Employers
End-of-service benefits should be treated as part of a controlled employee exit process, not as a simple payroll calculation. Employers need to confirm legal coverage, service dates, applicable Labour Law provisions, final basic wage, unpaid leave and other final dues before approving payment. MFN Auditing can help businesses review the calculation process, reconcile records and strengthen payroll compliance.
The August 2026 Ministry clarification is a useful reminder that employers need accurate employment records and the correct legal formula. Companies should review long-serving employees carefully, document the calculation and retain evidence of the final settlement.
Get End-of-Service Benefit Support in Oman
Correct gratuity calculations require accurate HR records, payroll data and knowledge of the applicable Oman Labour Law provisions. A proper review can reduce calculation errors and help finance teams process employee settlements correctly.
MFN Auditing can assist businesses with payroll reviews, employee benefit calculations, accounting records and compliance support. For guidance on your company’s end-of-service obligations, contact the team.
Email: info@mfnauditing.com
Frequently Asked Questions
Is end-of-service gratuity mandatory in Oman?
For workers who are not benefiting from the Social Protection Law and fall under Article 61, the Labour Law requires the employer to pay the statutory gratuity when employment ends. The applicable contract and legal period should be checked before calculation.
How is end-of-service gratuity calculated in Oman in 2026?
For eligible service under Article 61, the minimum is one final basic wage for each completed year, with a proportional amount for a fraction of a year. Service connected with the previous Labour Law period should be reviewed under the applicable previous rule.
Is EOSB calculated on basic salary or gross salary?
Article 61 uses the employee’s last basic wage as the calculation basis. Gross salary should not automatically be substituted for basic wage.
What happens to service completed under the previous Labour Law?
The Ministry of Labour’s August 2026 clarification states that contracts concluded under the previous Labour Law are subject to the earlier 15-day and one-month calculation structure, while contracts under Royal Decree 53/2023 follow the new minimum of one basic wage per completed year.
Does the Social Protection Law remove the employer’s EOSB obligation?
The Social Protection Fund states that employer-paid gratuity remains governed by applicable employment laws. The Social Protection Law also contains a savings system intended to replace employer-paid gratuity for non-Omani workers when the relevant system applies.