IFCO Oman Employment Law Guide: Key Compliance Requirements (2026)

Oman’s labour framework changed significantly with the introduction of Royal Decree 53/2023, and many employers are still catching up with what it means in practice for contracts, leave, termination, and end-of-service benefits. For any company operating in the Sultanate, understanding current Oman employment law is no longer optional; it is central to avoiding fines, resolving disputes fairly, and protecting the company’s reputation with both regulators and staff. This IFCO Oman Employment Law guide breaks down what employers and HR teams need to know to stay compliant in 2026, from contract structuring to gratuity calculations and termination procedures.

Legal Framework Governing Employment in Oman

Employment in the Omani private sector is primarily governed by the Labour Law issued under Royal Decree 53/2023, which repealed the older Royal Decree 35/2003. The new law came into force on 31 July 2023 and gave employers a six-month grace period, until 30 January 2024, to bring their policies and contracts in line with its requirements.

Alongside the Labour Law, employers also need to track:

The Social Protection Law (Royal Decree 52/2023), which restructures pensions, disability and end-of-service savings
Ministerial decisions issued by the Ministry of Labour that fill in operational detail not covered in the primary law
The Law of Expatriate Residence, which governs work permits and residency for foreign staff
Sector-specific rules for regulated industries such as oil and gas, healthcare and education

The Labour Law applies to private sector employers and employees, including foreign branches operating in Oman, but does not cover domestic workers, civil servants, or military and police personnel, who fall under separate regulations.

Who Does Oman Labor Law Compliance Apply To?

Every employer with staff in Oman, whether an LLC, a branch of a foreign company, or a free zone entity, must comply with the Labour Law. This includes:

Wholly Omani-owned companies
Companies with mixed Omani and foreign ownership
100% foreign-owned companies operating under the Foreign Capital Investment Law

Foreign employees must obtain a work permit and residence visa sponsored by their employer before they can legally work in Oman. GCC nationals are exempt from this requirement and can work on the strength of their employment contract alone.

Omanisation Requirements

Employers are required to prioritise hiring Omani nationals wherever possible. The percentage of Omanis required varies by sector and is set through ministerial decisions rather than a single fixed rate across the economy. Since April 2024, fully foreign-owned companies have also been required to employ at least one Omani national within one year of starting commercial activity and register that employee with the Social Protection Fund.

Employment Contracts Under the New Law

A written employment contract is mandatory under Omani law. It should set out the job title, salary, working hours, leave entitlements and termination conditions clearly, since disputes are often resolved by reference to the contract text itself.

Types of contracts permitted:

Unlimited-term contracts, which continue indefinitely until terminated according to the law
Fixed-term or project-linked contracts, which are now renewable but capped at a combined maximum duration of five years

If a fixed-term contract continues to be honoured by both parties after its stated end date, it generally converts into an unlimited contract, so employers should track contract expiry dates carefully rather than letting them lapse informally.

Probation Periods

Employers can include a probation period in a new contract to assess an employee’s suitability for the role. During probation, termination procedures are generally simpler than for confirmed employees, but the exact conditions should be spelled out in the contract to avoid ambiguity later.

Working Hours, Leave and Benefits

The new law introduced several changes to working patterns and leave entitlements that HR teams need to build into their policies.

Working hours. Standard working hours remain regulated, with overtime pay required for hours worked beyond the standard limit. Overtime rates were increased under the new law compared to the previous framework.

Annual leave. Every worker is entitled to 30 days of annual leave with full gross wage, meaning salary plus allowances. An employee must complete at least six months of service before taking their first annual leave, after which leave is granted based on the employer’s operational needs and approval.

Special and family leave. The new law introduced or expanded a range of short leave entitlements, including:

Seven days of paternity leave, provided the child is born alive and the leave is taken before the child turns 98 days old
Three days of leave for the death of a parent, grandparent, sibling
Ten days of leave for the death of a spouse, son or daughter
Fifteen days of leave once during service to perform Hajj, provided the worker has completed one continuous year of service
Study leave of up to 15 days per year for an Omani worker enrolled in a school, institute, college or university

Non-compete clauses. Employers and employees can now agree to a non-compete period of up to two years after the contract ends, but only where the employee’s role gave them access to trade secrets or client information. A blanket non-compete clause with no such justification is unlikely to hold up.

End-of-Service Gratuity: What Changed

This is one of the most significant shifts under Oman employment law 2026 compliance planning, and it affects nearly every foreign employee on the payroll.

Under the old law, expatriate employees were entitled to 15 days’ salary for each of the first three years of service, then 30 days’ salary for every year after that. Under Royal Decree 53/2023, this changed:

Workers now receive one full month’s basic salary for every year of service, from day one
The old minimum one-year service requirement before gratuity applies has been removed
Gratuity is calculated on a pro-rata basis for partial years of service
The calculation is now unified for Omani and expatriate workers alike

A new Social Protection Fund savings-based end-of-service system is also expected, under which accrued gratuity may eventually transfer into individual savings accounts rather than being paid as a lump sum by the employer. Until the Ministry issues the effective date for this new system, the current gratuity arrangement under the Labour Law continues to apply. Employers should not assume their existing gratuity calculations are automatically correct; verifying the basic wage used for the calculation, and whether allowances are included, is a common area of dispute.

Termination Rules Employers Must Follow

The new law expanded and clarified the grounds on which an employer may terminate an employment contract, while also capping compensation for unfair termination.

Termination for cause, without notice or gratuity, is permitted where the employee:

Used a false identity or forged documents to obtain the job
Caused serious material loss through a mistake, provided the employer reports it to the relevant authority within 30 working days of becoming aware
Ignored written safety instructions after a prior written warning, causing serious harm
Was absent without an acceptable excuse for more than seven consecutive days, or ten intermittent days in a year, following a written warning after five days of absence

Termination for poor performance. An employer can now terminate an employee for underperformance, but only after giving the employee written notice of the areas needing improvement and a genuine six-month window to improve.

Redundancy. For the first time, the law expressly recognises redundancy as a valid ground for termination due to economic reasons or a reduction in business size. A dedicated committee reviews redundancy requests and can either approve the termination or propose alternative solutions to avoid job losses.

Arbitrary termination. Where a termination is found to be unjustified, compensation is now capped at 12 months’ gross salary, giving both employers and employees more certainty than under the previous, more open-ended framework.

Payroll, Wages and Social Protection Obligations

Beyond contracts and termination, employers need ongoing payroll compliance in place.

Wages must be paid on time and in accordance with the terms set out in the contract
Employers must register eligible employees with the Social Protection Fund under Royal Decree 52/2023
Foreign-owned companies must register at least one Omani employee with the fund within the required timeframe
Records of wages, hours and leave should be maintained in a form the Ministry of Labour can inspect if required

Practical Compliance Checklist for Employers

Use the points below as a quick internal audit before year-end or before onboarding new hires.

Confirm every employment contract is in writing and matches current legal requirements under Royal Decree 53/2023
Check fixed-term contracts against the five-year cumulative cap and flag any nearing conversion to unlimited status
Recalculate end-of-service gratuity provisions using the one-month-per-year formula
Review termination files for proper documentation, including written warnings where required
Confirm Omanisation ratios for your sector and headcount against the latest ministerial decision
Verify Social Protection Fund registration for all eligible employees, including any Omani hire required under the foreign-ownership rule
Update leave policies to reflect the expanded family and special leave entitlements
Review any non-compete clauses to confirm they meet the trade-secret justification requirement

Common Compliance Mistakes to Avoid

Relying on old gratuity formulas. Payroll systems that still use the pre-2023 tiered gratuity calculation will underpay or overpay departing staff.

Letting fixed-term contracts run indefinitely. Failing to track the five-year cap can inadvertently convert a contract to unlimited status without the employer realising it.

Skipping written warnings before performance-based termination. Terminating for poor performance without the required documentation and improvement window can turn a lawful termination into an arbitrary one, triggering compensation liability.

Treating Omanisation as a one-time check. Quotas are reviewed periodically and can change by sector, so a policy that was compliant a year ago may not be compliant now.

Overlooking the Social Protection Fund deadline for foreign-owned companies. The one-Omani-hire requirement within a year of starting operations is easy to miss for smaller foreign-owned entities.

Staying Compliant With Oman’s Evolving Labour Law Requirements

Oman’s 2023 labour law reforms reshaped how employers manage contracts, leave, termination, and end-of-service benefits, and the practical effects are still working their way through payroll systems and HR policies in 2026. Staying compliant means more than knowing the headline changes; it requires updating contract templates, gratuity calculations, termination procedures, and Omanisation tracking on an ongoing basis.

Given that implementing regulations and Social Protection Fund timelines are still being finalised, employers should treat this as a live compliance area rather than a one-time fix. Finsoul Network Oman works with businesses to review contracts, recalculate end-of-service obligations, and align HR policies with the latest requirements under Royal Decree 53/2023, so that compliance stays current as the rules evolve.

FAQ’s

What is the main law governing employment in Oman?

The Labour Law issued under Royal Decree 53/2023 is the primary legislation. It repealed the previous law from 2003 and introduced changes to contracts, leave, termination and gratuity.

How is end-of-service gratuity calculated in Oman now?

Employees receive one month’s basic salary for every year of service, calculated from the first day of employment, with pro-rata payments for partial years. This applies equally to Omani and expatriate workers.

Can an employer terminate an employee for poor performance?

Yes, but only after giving written notice of the specific performance issues and allowing the employee six months to improve. Termination without this process can be treated as arbitrary.

Is redundancy a valid reason for termination in Oman?

Yes. The new law recognises termination for economic reasons or business downsizing, subject to review by a dedicated committee that can approve the redundancy or suggest alternatives.

Do foreign-owned companies have extra compliance obligations?

Yes. Since April 2024, wholly foreign-owned companies must employ at least one Omani national within one year of starting commercial activity and register that employee with the Social Protection Fund.

How long can a fixed-term employment contract last in Oman?

Fixed-term and project-linked contracts can be renewed, but the combined duration is capped at five years. Continuing to honour the contract beyond its term can convert it into an unlimited contract.