Employee benefits play a crucial role in shaping your organization’s growth, satisfaction, and productivity. Among all HR entitlements, leave salary and leave encashment remain one of the most important components of compensation—especially for companies operating in Bahrain.
This comprehensive guide explains how leave salary is calculated in Bahrain, the legal framework, types of leave eligible for encashment, sample calculations, and how HR software like Artify 360 simplifies the entire process.
Overview: Leave Salary Calculation in Bahrain
Leave salary in Bahrain is governed by the Bahrain Labour Law, which mandates that employers must compensate employees for unused annual leave. This includes:
Annual paid leave
Sick leave (in specific cases)
Privilege / earned leave
Certain compensatory and special leaves depending on company policy
Leave salary is typically calculated based on the employee’s gross monthly salary, inclusive of basic pay and allowances.
Who must comply?
All Bahrain based employers, private sector companies, and employees are required to follow the leave encashment provisions under the Labour Law.
What Is Leave Salary or Leave Encashment?
Leave salary (leave encashment) refers to the monetary compensation an employee receives for unused paid leaves. This may be:
At the end of the financial year,
During full and final settlement,
Upon resignation or termination, or
As per company approved encashment cycles.
In Bahrain, employees are eligible to encash accumulated leave days based on their gross salary, following the formula prescribed by HR best practices and compliant with Labour Law guidelines.
When is leave encashment calculated?
End of employee service
End of annual leave cycle
Company approved encashment period
During resignation / termination
For carried forward leave balances
Modern HR solutions like Artify 360 payroll software automatically calculate this amount based on employee records.
How Leave Encashment Is Calculated in Bahrain
Leave Salary Formula in Bahrain
Leave Encashment = (Gross Salary ÷ 30) × Number of Unused Leave Days
Where:
Gross salary = basic salary + allowances (HRA, travel, etc.)
30 = standard monthly working days applied in Bahrain
Leave days = earned paid leave eligible for encashment
Example: Leave Salary Calculation
Gross Monthly Salary =BHD 600
Unused Paid Leaves =10 days
Calculation =600 ÷ 30 × 10
Leave Encashment Payable= BHD 200
Step by Step Process: Leave Encashment in Bahrain
1. Verify Employee Eligibility
Check:
Annual leave balance
Carry forward leave policy
Leave entitlements as per Bahrain Labour Law
HR policy / contract provisions
2. Employee or HR Initiates Encashment Request
Requests can be made:
Through HR
Through company HR portals
Using digital leave management systems
3. Calculate Leave Encashment
Use:
Gross salary
Leave balance
Approved calculation formula
4. Approval by Payroll / HR Authority
Approval ensures:
Compliance with labour regulations
Verification of salary components
HR validation of leave balance
5. Crediting the Amount
Payment can be issued:
Along with monthly salary
With final settlement
As a one time encashment
6. Employee Communication & Feedback
Share:
Calculation sheet
Leave balance
Payroll breakdown
Types of Leave Eligible for Leave Salary Calculation in Bahrain
1. Paid Casual Leave
Unused casual leave may be:
Carried forward
Encashable (as per company policy)
2. Sick / Medical Leave
Usually not carried forward, but may be encashed based on policy and tenure.
3. Privilege / Earned Leave
Eligible for encashment at year end or separation.
4. Official Holidays
Not typically counted as encashable but considered in annual leave balance.
5. Compensatory Leave (Comp-Off)
Encashable if not utilized.
6. Maternity / Paternity Leave
Encashment depends on company policies and contract terms.
7. Reimbursement / Sabbatical Leave
Eligible only if specified by HR policies.
8. Unpaid Leave
Not encashable unless converted into paid leave with HR approval.
Challenges Employers Face in Leave Salary Calculation
Ensuring compliance with Bahrain labour regulations
Manual errors in payroll calculations
Incorrect salary breakdown
Miscalculating leave balances
Delayed approvals
Tracking multiple employee leave types
Why Companies Should Use HRMS for Leave Salary Calculation
HR teams benefit from using platforms like Artify 360 HRMS because:
Leave balances auto sync with payroll
Leave encashment calculated instantly
Labour law compliance is built-in
Errors are minimized
Complete audit trails are maintained
Approvals are automated
Manage Leave Salary Calculation Easily with Artify 360 HR Software
Managing leave encashment manually is time consuming and prone to errors. Artify 360, a cloud based HR and payroll software in Bahrain, streamlines the entire process through automation.
Key Features of Artify 360 for Leave Encashment
Automatic leave balance tracking
Payroll integrated calculations
Bahrain compliant salary structure
Documented approval workflows
Real-time reports and analytics
Easy onboarding, offboarding & full and final settlement
Whether you’re calculating annual leave encashment, handling full and final settlements, or managing paid leave balances, Artify 360 ensures accuracy and compliance.
Ready to Simplify Leave Salary Calculation?
Request a demo of Artify 360 HRMS and streamline your entire payroll and leave processing workflow.
