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ALERT / OCTOBER 14, 2025
Oman increases mandatory annual performance-based compensation
3 MIN READ
Oman has increased the mandatory annual performance-based compensation for Omani employees from 3% of basic salary to a tiered structure ranging from 2% to 5% of basic salary, based on individual performance ratings. The new rates will apply from 1 January 2026.
Background
Ministerial Decision No. 317/2025 (the “Decision”) was published in the Official Gazette on 27 July 2025 and took effect on 28 July 2025. The Decision replaces the previous Ministerial Decision No. 541/2013 and applies to annual performance-based compensation due on 1 January each year, starting in 2026.
The mandatory annual performance-based compensation applies only to Omani nationals working in the private sector with at least six months of service. It does not apply to Omani employees with less than six months of service or to non-Omani employees.
Key details
Under the previous rules, Omani employees with a performance rating above “poor” were entitled to an annual performance-based compensation of 3% of basic salary on 1 January every year. Employees rated “poor” were excluded.
The Decision amends the flat rate of 3% of basic salary to the following tiered structure based on the employee’s individual performance rating for the prior year:
Performance Rating | Rates (of Basic Salary) |
Excellent | 5% |
Very good | 4% |
Good | 3% |
Acceptable | 2% |
Poor | No performance-based compensation |
The Decision also introduces the following new provisions:
Employee transfer
If an Omani employee is transferred between employers during the year as part of a business transfer under Article 50 of the Labor Law:
The employer for whom the employee worked the longest is responsible for completing the performance evaluation report.
The new employer must pay the performance-based compensation based on that report.
Reduction of performance-based compensation
Employers may reduce the performance-based compensation if there is an economic reason for it, subject to approval from the Ministry of Labor.
Suspension of performance-based compensation
Employers may suspend the performance-based compensation if:
The employee is under investigation for a misdemeanor or felony within the workplace. If the employee is acquitted under a final judgment, the performance-based compensation must be paid retroactively.
The employee has been absent from work or on unpaid leave for more than six months during the year.
Appeal
Employees may appeal their performance evaluation ratings through the Ministry of Labor, which has a service for submission of labor complaints here (opens a new window).
Penalties
An administrative fine of OMR 50 for every affected employee shall be imposed on employers that violate the provisions of the Decision.
Employer action: ACT
Employers should review and update their performance evaluation policies, practices and procedures, as needed, to comply with the Decision. The new annual performance-based compensation rates must be applied starting 1 January 2026, based on performance evaluation reports conducted for the 2025 calendar year.
Further Information
