By Oman will replace the end-of-service gratuity system for expatriate and non-Omani workers with a Provident Fund Scheme from July 19, 2027, according to the Oman Observer. The scheme, introduced under the Social Protection Law, requires employers to contribute 9% of each worker’s basic wage every month.
The Social Protection Fund will administer the scheme. From the implementation date, the Provident Fund will replace end-of-service gratuity for the period of service covered by the scheme. Workers’ savings and accrued returns will be disbursed according to the Social Protection Law.
How the transition from gratuity will work
The shift from gratuity to a Provident Fund creates a practical question for HR and payroll teams: what happens to gratuity accrued before July 19, 2027? The Oman Observer reports that employers will have three options for settling previous service periods.
The first option allows the employer to retain the gratuity and pay it at the worker’s end of service, calculated using the worker’s basic wage at that time, in accordance with the Labour Law. The second option requires the employer to pay the gratuity directly into the worker’s bank account upon implementation of the scheme. The third option lets the employer deposit the gratuity into the worker’s account with the Social Protection Fund.
Each option carries different cash flow and administrative implications. Retaining the gratuity preserves employer liquidity but leaves a growing liability on the books. Paying directly to the worker settles the obligation immediately but requires a significant cash outlay in 2027. Depositing with the Social Protection Fund transfers the liability to the fund while keeping the money earmarked for the worker.
What the 9% contribution means for payroll
The 9% employer contribution is calculated on basic wage, not total remuneration. This distinction matters in Oman, where many expatriate packages include allowances for housing, transport and other costs that sit outside basic wage. Payroll teams will need to confirm which components of each worker’s package count as basic wage under the Social Protection Law.
The contribution is monthly, which differs from the traditional gratuity model where the liability accrued silently and was paid as a lump sum at end of service. Monthly contributions create a recurring payroll cost that finance leads should model into workforce budgets well before the 2027 start date.
For employers with large expatriate workforces, the 9% contribution represents a structural shift in employment costs. Under the old system, an employer could defer gratuity payments until a worker left. Under the Provident Fund, the cost lands every month.
Options for previous service periods compared
| Option | Timing of payment | Who holds the funds | Key consideration |
|---|---|---|---|
| Retained by employer | At end of service | Employer | Preserves liquidity; liability remains on books |
| Paid directly to worker | Upon scheme implementation | Worker | Immediate cash outlay; obligation settled |
| Deposited with Social Protection Fund | Upon scheme implementation | Social Protection Fund | Transfers liability; funds earmarked for worker |
What HR teams should do before July 2027
The implementation date is fixed, but the preparation window is not unlimited. HR and payroll leaders in Oman should start by auditing expatriate worker records to calculate gratuity liabilities accrued up to July 19, 2027. That calculation should use the Labour Law formula and each worker’s basic wage.
Next, employers should decide which of the three settlement options suits their financial position and workforce profile. The decision may differ by worker category or tenure. A worker nearing retirement may prefer direct payment, while a long-serving employee may be comfortable with funds held by the Social Protection Fund.
Payroll systems will need configuration changes to handle the monthly 9% contribution. This includes mapping basic wage correctly, setting up contribution calculations and ensuring remittance to the Social Protection Fund happens on time. Employers should also update employment contracts and HR policies to reflect the new scheme and remove references to end-of-service gratuity for periods covered by the Provident Fund.
The Social Protection Law governs disbursement of savings and accrued returns. Employers should familiarise themselves with those disbursement rules, as they determine when and how workers receive their accumulated funds. The Oman Observer report does not detail those disbursement conditions, so payroll and HR teams should seek guidance from the Social Protection Fund or legal advisers on the specific triggers and processes.
Sources: Oman Observer
Photo: Oman 2014 (16221139401) by Luca Nebuloni, CC BY 2.0
