Oman payrollend of service gratuityOman labour lawGCC compliancepayroll 2026

Oman gratuity law 2026: the split explained

26 October 20268 min readAxion ERP Team — GCC Finance & Compliance

Oman's end of service gratuity law splits at 30 July 2023, adds a 2027 savings system and a 2028 personal income tax with employer withholding.

An Oman gratuity calculator has to apply two different formulas to the same employee once their service crosses 30 July 2023, the date Royal Decree 53/2023 took effect. Service completed before that date is worked out under the previous Labour Law's reduced rates, and service after it is paid at a full basic wage for every year, so one leaver's final settlement can blend both. This guide sets out the Oman gratuity law mechanism, the Ministry of Labour's August 2026 clarification, and the savings system and personal income tax changes that will alter end of service pay from 2027 and 2028. Once you know the dates and the final basic wage, you can run the numbers with the Oman gratuity calculator.

The legal minimum: article 61 of Royal Decree 53/2023

Royal Decree 53/2023 is Oman's current Labour Law. Article 61 requires employers to pay any worker who is not covered by the Social Protection Law a gratuity of not less than one basic wage for each year of service, calculated on the worker's final basic wage. Partial years are paid pro rata, and the article makes clear that service completed before the decree took effect still counts towards the total, even though it is valued under different rules.

The Oman gratuity law and the 2023 cutoff

Because Article 61's one-basic-wage-per-year minimum only binds from the Labour Law's commencement, an Oman Observer report on the Ministry of Labour's guidance set out a transitional split for employees whose service straddles the change. Service up to 31 July 2023 is calculated at half a basic salary for each year, and service from that date onward is calculated at one full basic salary for each year, matching Article 61's minimum. Payroll records need to store each employee's start date, their final basic wage, and the 30 July 2023 boundary so both rates can be applied to the same tenure and the results added together.

Worked example: service spanning 30 July 2023

Take an employee on a basic wage of OMR 500 a month whose service began on 1 August 2021. For the two years up to 31 July 2023, the ministry's guidance values each completed year at half a basic salary, OMR 250 a year, because that period falls under the previous law. From 31 July 2023 onward, each completed year is valued at one full basic salary, OMR 500 a year, matching Article 61's minimum. The two periods are added together, using the employee's final basic wage, to reach the total gratuity.

The Oman gratuity calculator applies this split automatically once you enter the start date, leave date and final basic wage.

Ministry clarification: old-law and new-law contracts (6 August 2026)

A Ministry of Labour circular reported by Oman Observer on 6 August 2026 refined the picture by looking at when the employment contract was concluded, not only the date service falls on. Workers whose contracts were concluded while the previous Labour Law was in force are entitled to 15 days' wage for each of the first three completed years of service, then one month's wage for each year after that. Workers whose contracts were concluded under Royal Decree 53/2023 are entitled to a minimum of one basic wage for every completed year from day one, calculated on the last basic wage.

In practice, both approaches converge after three years of service, where the rate settles at one month per year regardless of which law the contract sits under. The difference matters mainly for the first three years of an old-law contract, where the lower 15-day rate applies rather than a full month.

The savings system for expatriates: deferred to 19 July 2027

Oman's Social Protection Law set up a compulsory savings system intended to eventually replace the employer-paid gratuity for non-Omani workers. Under Article 139(1), the employer contribution is set at 9% of the insured non-Omani worker's monthly basic wage, reported by Oman Observer.

Royal Decree 60/2025, issued 13 July 2025, extended the window for Article 139(1) to take effect from three years to four years after the Social Protection Law's issuance, meaning the savings system must start no later than 19 July 2027, on a date the Social Protection Fund's board still has to set. DLA Piper's briefing on the same decree also notes that work injury cover for non-Omani workers was pushed back from 19 July 2026 to 19 July 2028, while sick and unusual leave insurance took effect on 19 July 2026 as planned.

Until the savings system commences, employers remain responsible for gratuity on the usual Labour Law terms. The law requires that gratuity earned before the system starts be paid directly to the worker under Labour Law rules, or settled by transferring it into the savings system, but it does not fix a single date by which every employer must complete that settlement.

Personal income tax from 2028: what payroll teams need to track

Royal Decree 56/2025, issued on 22 June 2025 and published in the Official Gazette on 30 June 2025, introduces Oman's first personal income tax. KPMG and EY both confirm the headline terms: a flat 5% charge on an individual's annual gross income above OMR 42,000, effective from 1 January 2028.

Employers do not simply hand this liability to the employee. Deloitte's review of the law notes that employers will be required to withhold tax at source on salaries, pensions, end-of-service benefits and board remuneration, with penalties of up to 1% of unpaid amounts for late payment. Because end-of-service gratuity sits on that list, any gratuity settlement processed after January 2028 for an employee whose total annual income exceeds the threshold will need tax withheld alongside the gratuity calculation itself.

What this means for Oman payroll teams

Record each employee's basic wage history, start date and contract date so the split at 30 July 2023 (or the old-law versus new-law distinction) can be applied correctly at settlement.
For old-law contracts, check whether the employee has passed the three-year mark, since the rate for completed years beyond that point moves from 15 days to one month.
Watch for the Social Protection Fund board's announcement of the savings-system start date, which must fall on or before 19 July 2027, and update the 9% contribution calculation once it does.
From 2028, build personal income tax withholding into any leaver calculation once the employee's combined annual income clears OMR 42,000.

For a wider comparison of how end-of-service rules differ across the region, see end of service gratuity across the GCC in 2026 and GCC payroll compliance: WPS, GOSI and end-of-service gratuity in 2026.

Axion's People box keeps a worker's basic wage, start date and contract record on file, which is exactly the data an Oman gratuity calculation, and later the savings-system contribution and tax withholding, will need to run correctly. The full set of Axion boxes, including Finance and Platform, is listed on features, with pricing available on request.

Frequently asked questions

How is Oman gratuity calculated for service before and after 30 July 2023?

Service completed before 30 July 2023 is valued at half a basic salary per year under the Ministry of Labour's transitional guidance, and service from that date is valued at a full basic salary per year under Article 61 of Royal Decree 53/2023. Add the two amounts together using the employee's final basic wage to get the total gratuity.

Does the Oman savings system replace gratuity straight away?

No. The 9% employer contribution under Article 139(1) of the Social Protection Law only starts once the Social Protection Fund's board sets a commencement date, which under Royal Decree 60/2025 must fall no later than 19 July 2027. Gratuity earned before that date is still payable or settled under the Labour Law.

Who pays Oman's new personal income tax and when does it start?

Individuals with annual gross income above OMR 42,000 pay a flat 5% tax from 1 January 2028 under Royal Decree 56/2025. Employers are required to withhold the tax at source on salaries, pensions, end-of-service benefits and board remuneration.

What did the Ministry of Labour's August 2026 clarification change?

It confirmed that workers on contracts concluded under the old Labour Law get 15 days' wage for each of their first three years of service and one month's wage for each year after that, while workers on contracts concluded under Royal Decree 53/2023 get a minimum of one month's wage for every completed year of service.

Is there a fixed deadline for employers to settle old gratuity into the new savings system?

The Social Protection Law requires that gratuity earned before the savings system starts be paid to the worker under Labour Law rules or transferred into the savings system, but it does not set a single fixed date by which every employer must complete that settlement. Employers should confirm the practical timing directly with the Social Protection Fund once the system's start date is announced.

Sources

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