City squares articles

Why the gratuity sum on the final payslip is so often wrong

A worker leaves after six years and the payroll team pulls up a formula they inherited from 2019. It pays 15 days for the first three years and a month for each year after. That was the rule under the old 2003 law. It has not been the rule since 31 July 2023, and the difference on a six year exit is more than a month of pay.

This guide works through the end of service gratuity Oman rule in Article 61 of the Labour Law issued by Royal Decree 53/2023. It shows which wage counts, how part years are handled, two worked calculations, the cases where gratuity is lost, and the savings scheme that is set to replace gratuity for expatriates. Every figure comes from the law text on qanoon.om or from the Social Protection Fund.

Who is owed gratuity and who pays it

Article 61 applies to workers who do not benefit from the Social Protection Law. Omani staff are covered by the social insurance branches of that law, so the employer pays contributions for them instead. In practice, the gratuity rule covers expatriate workers in the private sector. The employer pays it at the end of the employment relationship, whatever the reason for ending, except in the dismissal cases set out below.

The law is explicit that service started before the 2023 law counts in full. The whole period is paid at the new rate, using the final basic wage. For the wider rules on contracts, notice and leave, see our Oman labour law guide for employers.

End of service gratuity Oman: the formula under Article 61

One basic wage per year. The gratuity may not be less than one basic wage for each year of service. The law sets a floor, so a contract can promise more, never less.

Part years are paid pro rata. A worker who served four years and six months is owed four and a half basic wages. There is no minimum service period in Article 61. The 2003 law paid nothing for service under one year, and that condition is gone.

The final basic wage is the base. The calculation uses the last basic wage the worker received, not an average over the years of service. Pay rises therefore lift the whole gratuity, not only the years after the rise.

The formula in one line is: gratuity equals final monthly basic wage multiplied by years of service, with months counted as fractions. You can read the full text of Royal Decree 53/2023 on the Omani laws database. Article 61 sits in the chapter on the end of the employment relationship.

Which wage counts: basic against total

Article 1 of the law defines two wages. The basic wage, item 17, is the cash amount agreed in the contract plus the periodic increment. The total wage, item 18, is the basic wage plus all allowances and bonuses paid for the work. Gratuity is calculated on the basic wage only.

This is where employers overpay or end up in a dispute. Housing, transport, phone and food allowances are not part of the base. A worker on a total wage of OMR 1,500 with a basic wage of OMR 1,000 is owed OMR 1,000 per year, not OMR 1,500. The reverse mistake also happens: some contracts set a low basic wage and load the rest into allowances. The gratuity follows the basic figure in the contract, so both sides should check that figure before signing.

Our article on the Oman work permit and employment visa explains how the contract filed with the Ministry of Labour sets the wage on record.

Two worked examples

Example one: a short service with a part year. An accountant joined on 1 September 2021 and leaves on 28 February 2026. Her final basic wage is OMR 800. Her housing allowance of OMR 250 does not count. Her service is four years and six months, which is 4.5 years. The gratuity is 800 multiplied by 4.5, which comes to OMR 3,600. Under the repealed 2003 formula the same exit would have paid 15 days for each of the first three years plus one month for the remaining 1.5 years, which is OMR 2,400. The 2023 law adds OMR 1,200.

Example two: a long service with pay rises. A site engineer started on 1 January 2019 on a basic wage of OMR 900. He had two rises and his final basic wage is OMR 1,200. His total wage with allowances is OMR 1,650. He leaves on 31 March 2026, so his service is seven years and three months, or 7.25 years. The gratuity is 1,200 multiplied by 7.25, which is OMR 8,700. The years before July 2023 are paid at the same rate as the later years, and all of them use the final OMR 1,200, not the OMR 900 he started on.

In both cases, round the service period to the month, apply it to the final basic wage, and pay the result with the final settlement. Unused annual leave is paid separately under Article 81 and is not part of end of service gratuity Oman employers owe.

When gratuity is lost, kept or increased

Dismissal under Article 40. The employer may dismiss without notice and without gratuity in nine listed cases. They include forged documents used to get the job, serious loss caused by the worker's fault and reported within 30 working days, absence without excuse for more than 7 consecutive days or 10 separate days in a year after a written warning, disclosure of company secrets, a final conviction for a crime of dishonour, intoxication at work, assault at the workplace, and a serious breach of the contract. Outside these nine cases, the gratuity is owed.

Worker walks out under Article 41. If the worker ends the contract because of an employer breach listed in Article 41, the worker keeps full rights including gratuity.

Unfair dismissal under Article 11. If a court finds a dismissal arbitrary, it orders reinstatement or compensation of 3 to 12 months of total wage. On top of that, the worker receives the gratuity due by law or by contract, whichever is greater, plus notice pay.

Company savings plans under Article 48. An employer that runs a savings or supplementary programme can count its own contributions in place of gratuity, if the programme rules say so and the amount is equal to or more than the gratuity. If the worker also paid into the plan, the worker gets both. The programme needs prior approval from the Ministry of Labour and the Social Protection Fund.

Penalty for not paying. Article 147 lists Article 61 among the provisions whose breach carries a fine of OMR 500 to 1,000. The fine is multiplied by the number of workers affected and doubled on repeat.

The savings scheme that will replace gratuity

Article 61 has a built in expiry. Its second paragraph says the gratuity rule applies until the savings system in the Social Protection Law comes into force. That law was issued by Royal Decree 52/2023 on 19 July 2023. Article 136 makes the savings system mandatory for non-Omani workers. Article 137 states that it replaces the end of service grant or gratuity paid by employers to non-Omanis. Article 139 sets the mandatory contribution at 9 percent of the non-Omani worker's basic wage each month.

The start date has moved. The original decree said the Fund's board would set the date within three years of 19 July 2023. Royal Decree 60/2025, published on 13 July 2025, changed that limit to four years, so the outer deadline is now 19 July 2027. In a media briefing reported by the Oman News Agency on 10 March 2026, the Social Protection Fund said it aims to launch the mandatory savings scheme for non-Omanis during 2027, with the 9 percent of basic wage paid by the employer.

Service before the start date is not wiped out. Article 138 of the Social Protection Law and the second paragraph of Article 61 both say the employer must settle gratuity for the period of service before contributions begin. The employer may pay that settlement to the worker or into the savings account, and the settlement is calculated on the basic wage at the settlement date. Article 143 lets the worker withdraw the savings balance when the employment relationship ends, unless the account is tied to a new contract within the period set by the regulations.

What employers should do before the switch

Audit the basic wage on every expatriate contract. The gratuity liability and the future 9 percent contribution both run off this figure. Make sure the contract on file matches the wage actually paid.

Book the accrued liability now. Multiply each expatriate's current basic wage by their years of service to date. That is the sum you will owe either on exit or as a settlement when the savings scheme starts.

Decide how to handle the pre-scheme settlement. The law allows payment to the worker or into the savings account. A business with many long serving staff should model the cash impact of each option before the Fund fixes the date.

Keep the records that a dispute will need. Contract, wage transfers under the Wage Protection System, and any written warnings relied on for an Article 40 dismissal. Businesses that outsource this work often use PRO services in Oman for the ministry side of the filings.

Frequently Asked Questions

Is gratuity calculated on basic salary or total salary in Oman?

On the basic wage only. Article 61 of Royal Decree 53/2023 uses the worker's last basic wage as the base. Allowances for housing, transport and similar items are excluded by the definitions in Article 1.

Does a worker with less than one year of service get gratuity?

Yes. The 2023 law pays part years pro rata and has no minimum service period. The one year minimum in the repealed 2003 law no longer applies.

Can an employer refuse to pay gratuity when a worker resigns?

No. Resignation does not cancel gratuity. The only cases where gratuity is lost are the nine dismissal grounds in Article 40, and the employer must be able to prove the ground.

When does the 9 percent savings scheme start?

Royal Decree 60/2025 requires the Fund's board to set a date no later than 19 July 2027. The Social Protection Fund told the Oman News Agency on 10 March 2026 that it aims to launch during 2027. Until the board announces the date, Article 61 gratuity continues to apply.

Do years worked before July 2023 count at the old rate?

No. Article 61 counts service that began before the law took effect as part of the service period, and the whole period is paid at one basic wage per year using the final basic wage.

City Squares is an authorised agent of the Ministry of Commerce, Industry and Investment Promotion, based in Muscat, and helps with post company formation services such as labour filings, payroll setup and employee records. Gratuity and savings rules change by royal decree and by decisions of the Social Protection Fund, so confirm the current figures and the scheme start date before committing to a settlement.