Employer of Record in Bhutan

Employment Laws and Regulations in Bhutan

Employment Contracts

All employment relationships in Bhutan are governed by the Labour and Employment Act 2007, administered by the Department of Labour under the Ministry of Industry, Commerce and Employment. Written employment contracts are required for every hire and must specify job title, compensation, working hours, leave entitlements, notice periods, and termination conditions.

Contracts may be written in English or Dzongkha, though English is standard practice for international employers. The Act recognises both indefinite contracts and fixed-term contracts, with fixed-term agreements typically used for project or seasonal work.

Working Hours and Overtime

The standard workweek in Bhutan is 48 hours, distributed as 8 hours per day over 6 days, under the Labour and Employment Act 2007. Employees are entitled to at least one rest day per week, typically Sunday.

Work beyond 8 hours per day or 48 hours per week constitutes overtime, which is capped at 12 additional hours per week for a statutory maximum of 60 hours. Overtime between 10:00 pm and 8:00 am is compensated at 1.5 times the ordinary rate, and work performed on rest days or public holidays is compensated at 2.0 times the ordinary rate.

Overtime rules in Bhutan are set by Chapter 8 of the Labour and Employment Act 2007, which caps standard hours at 48 per week and requires additional work to be paid at a premium rate. Employers must secure written consent before assigning overtime, and managerial staff are exempt from overtime pay under the same chapter.

Minimum Wage

Bhutan’s National Workforce Wage Rates were revised by the Ministry of Finance in November 2023, replacing the previous 2014 schedule. The revised rates range from approximately Nu 400 per day (around $4.55 USD) for unskilled workers to Nu 600 per day (around $6.82 USD) for skilled workers.

Most private-sector wages exceed these floors, and professional salaries in Thimphu are typically many multiples of the statutory minimum. For a detailed breakdown of current wage levels by sector, see the Bhutan minimum wage guide.

Probation Period

The Labour and Employment Act 2007 permits a probation period of up to 6-month probation period at the start of employment. During probation, either party may terminate the contract by giving 7 days’ written notice.

NPPF contributions and statutory leave accrue from day one, so probation does not suspend the employer’s contribution obligations. For more detail on how probation periods operate in practice, see the Bhutan probation period guide.

Leave Entitlements

Bhutanese law provides a baseline of statutory leave entitlements under the Labour and Employment Act 2007, covering paid annual leave, sick leave, casual leave, maternity leave, and paternity leave. Civil service leave rules are often extended to private-sector employees through employer policy, particularly for maternity provisions.

Annual Leave

Employees are entitled to 1.5 days per month of service, equivalent to 18 working days per year. Leave accrues monthly from the first day of employment and can typically be carried forward for one year with employer approval. Employees can take annual leave after completing 3 months of continuous service, subject to operational requirements.

Sick Leave

The Labour and Employment Act provides 5 days paid sick leave per calendar year. Employers may require a valid medical certificate for absences of more than two consecutive days.

Sick leave does not roll over into the next year. Additional sick leave beyond the statutory minimum is at the employer’s discretion and is common in larger private-sector firms.

Casual Leave

Private-sector employees are generally entitled to 10 days of paid casual leave per calendar year, which can be used for personal emergencies, family matters, or short absences without a formal reason. Casual leave is separate from annual and sick leave and does not carry forward.

Maternity Leave

Female employees are entitled to 6 months paid maternity leave for the first two children and 3 months for subsequent children, consistent with the policy extended from Bhutan’s civil service rules and widely adopted in the private sector. Leave may be taken before or after delivery.

Eligibility requires confirmation of employment at the time of delivery. Employees cannot be dismissed on grounds of pregnancy.

Paternity Leave

Male employees are entitled to 10 days of paid paternity leave for the first two children and 5 days for subsequent children. Paternity leave is typically taken within the first month after birth and must be requested in writing. This provision originated in Bhutan’s civil service rules and has been widely adopted by private employers as a market standard.

Other Statutory Leave

• Public holiday leave: 9 paid national public holidays per year, with additional regional and religious observances recognised in practice (see the public holidays table below).
• Bereavement leave: Not statutorily mandated, though 3 days are customarily granted on the death of an immediate family member.
• Marriage leave: Not statutorily mandated; 3–7 days are commonly granted at the employer’s discretion.

Leave Entitlements Summary

Bhutan’s labour code codifies every statutory leave type employers must grant, from annual leave to maternity, sick, and other protected absences (Labour and Employment Act 2007). The table below summarises each statutory leave category with duration and eligibility so payroll and HR can plan accruals and cover without missing a mandatory entitlement.

Statutory Employee Benefits

Bhutan law mandates participation in the Pension and Provident Fund (NPPF), funded equally by employer and employee contributions. The NPPF provides retirement pensions, provident fund savings, invalidity benefits, and survivor benefits. Private-sector employers and employees each contribute 10% of basic salary, for a combined rate of 20%.

Public health services in Bhutan are free at the point of use for citizens through the government healthcare system, so there is no separate statutory health insurance premium. Private health insurance is optional and is often arranged by employers as a voluntary benefit for senior staff. For more information on how statutory benefits apply to your hires, see the Bhutan employee benefits guide.

Recent Regulatory Updates 2026

Bhutan enacted its most significant tax reform in decades with the Income Tax Act 2025, effective 1 January 2026. The Act raises the tax-free threshold from Nu 200,000 to Nu 300,000, introduces a flat 15% standard deduction on employment income (capped at Nu 150,000), merges the Business Income Tax with Personal Income Tax, removes all surcharge taxes, and sets a flat 22% Corporate Income Tax rate. The reform is designed to increase take-home pay for wage earners and simplify compliance for businesses.

The National Workforce Wage Rates were also revised in November 2023 to a range of Nu 400–600 per day, nearly doubling the previous floor. The NPPF contribution structure for the private sector remains at 10% employer plus 10% employee, with remittance due by the 10th of the following month. For the latest cost and compliance details, see the Bhutan payroll tax guide.

Work Permits and Visas in Bhutan

Work Permit Requirements

Who Needs a Work Permit

All non-Bhutanese citizens require a work permit to be legally employed in Bhutan. Unlike regional neighbours, Bhutan does not grant automatic work rights to citizens of any other country, including India, despite the close bilateral relationship.

Work permits are sponsored by the employer and issued through the Department of Labour. The government prioritises Bhutanese citizens for employment under the National Employment Policy, so employers must demonstrate that no suitable Bhutanese candidate is available before sponsoring a foreign worker.

Eligibility and Required Documents

Work permit applications are submitted by the employer on behalf of the prospective employee. The employer must provide a labour market test, a signed employment contract, the employee’s passport copy and photograph, proof of qualifications, police clearance, a medical certificate, and the statutory application fee.

Foreign workers in hydropower, construction, and technical services are the most common recipients of Bhutanese work permits. Applications are submitted to the Department of Labour under the Ministry of Industry, Commerce and Employment.

Processing Time and Validity

Standard work permit processing takes 6–12 weeks from submission to issue. Permits are typically issued for 1 year and are renewable annually.

Longer-term permits of up to 3 years are granted in specific sectors such as hydropower and managed under bilateral agreements. Permit holders must also obtain a residence permit from the Department of Immigration.

Renewal Process

Work permits may be renewed before expiry with updated employment documentation, a fresh medical certificate, and a renewal fee. Renewal applications should be submitted at least 60 days before the permit expires.

The renewal process typically takes 4–6 weeks. Employees should apply early to avoid any lapse in legal employment status and residence rights.

Common Visa Types for Foreign Workers

Bhutan offers several visa pathways for foreign nationals. The employment visa is issued alongside a valid work permit and allows the holder to reside in Bhutan for the duration of employment. Indian nationals may enter Bhutan on a permit issued at the border but still require a separate work permit to take up employment.

Business visas support short-term commercial visits of up to 30 days and do not authorise paid employment. Tourist visas are issued through registered Bhutanese tour operators and strictly prohibit any form of work. All foreign workers must also register with the Department of Immigration upon arrival and secure a residence permit that matches the duration of their employment.

Foreign workers enter Bhutan under one of five main visa categories administered by the Department of Immigration, with the employment visa being the primary route for EOR hires. Each category has distinct duration limits, sponsorship requirements, and work authorisation rules, and none of them currently leads to permanent residency under Bhutanese law.

How an EOR Handles Work Permits

When you hire through an EOR in Bhutan, the EOR manages the entire work permit and residence permit process on your behalf. The EOR prepares the labour market test, gathers and notarises all documentation, submits the application to the Department of Labour, and tracks processing.

Renewals are handled before expiry so employment stays legal without interruption. For Bhutanese national hires, no permit is required and onboarding completes within 1–2 weeks. This eliminates the compliance burden from your HR team.

Payroll, Taxes, and Social Security in Bhutan

Employer Contributions

Employers hiring in Bhutan owe mandatory contributions on top of gross salary, funding social security, health, pensions, and other statutory schemes (National Pension and Provident Fund). The table below lists the employer-side contribution rates so you can calculate the true all-in cost of each hire.

Employee Contributions

Alongside income tax, employees in Bhutan pay statutory payroll deductions that fund social security, health cover, and other state schemes (National Pension and Provident Fund). The table below summarises the employee-side contribution rates payroll must withhold from gross pay each month.

Income Tax

Personal income tax in Bhutan is levied on a progressive basis, with the rate rising as taxable income crosses statutory thresholds (Income Tax Act 2025). The table below sets out the current income-tax brackets that apply to resident employees so you can model net-of-tax compensation before making an offer.

Payroll Cycle

Employers run payroll monthly in Bhutan, typically on the last working day of the month. Pay is transferred to employee bank accounts by electronic transfer, with Bank of Bhutan and Bhutan National Bank handling most salary payments.

Employers must remit NPPF contributions and withheld personal income tax to the relevant authorities by the 10th of the following month. Late remittance incurs interest charges and penalties. An EOR handles all monthly payroll processing, withholding, and statutory remittance on your behalf.

13th Month Salary and Bonus Pay

A 13th-month bonus is not legally required under Bhutanese labour law. Civil servants receive annual performance-based bonuses under the Royal Civil Service Commission framework, and many larger private-sector employers voluntarily match this practice with Losar (Bhutanese New Year) bonuses or year-end performance pay.

These payments are discretionary unless explicitly written into the employment contract, in which case they become a contractual entitlement. Employees have no automatic right to a 13th-month salary unless the contract specifies one.

Cost of Hiring Through an EOR in Bhutan

EOR Service Fees

$300 to $600 per month, depending on the complexity of the hire, benefits package, and EOR provider. Fees cover employment contract drafting, payroll administration, statutory remittances, benefits coordination, work permit sponsorship where applicable, and compliance support.

Some providers charge flat monthly fees; others use tiered pricing based on salary. An EOR fee replaces the cost of hiring in-house HR staff, accountants, and immigration specialists, which is typically a much larger investment for small teams.

Total Employment Cost Breakdown

The all-in cost of employing someone in Bhutan goes well beyond gross salary. The table below walks through a realistic cost build-up for a typical hire, layering mandatory employer social contributions, statutory benefits, and payroll taxes on top of base pay so finance teams can budget accurately before an offer goes out.

In this example, the total employer cost is $1,500 per month, approximately 50% above the gross salary of $1,000. The employer contribution to the NPPF is $100 (10% of basic salary).

The EOR service fee of $400 covers all administrative, compliance, payroll processing, and statutory remittance obligations. Contact us to discuss your specific hiring needs and exact costs.

Benefits of Using an EOR in Bhutan

An EOR eliminates the 3–6 month incorporation timeline and $10,000–$25,000 upfront cost of establishing a local legal entity in Bhutan. You hire your first employee in days rather than months.

The EOR bears all legal employment obligations, from contract compliance to statutory remittance deadlines, reducing your exposure to penalties and labour disputes. Changes to Bhutanese tax law and NPPF regulations are managed by compliance specialists at the EOR, not by your finance or HR team.

Using an EOR also provides cost efficiency through shared infrastructure. Instead of hiring dedicated payroll and HR staff or paying accountants to manage PIT and NPPF filings, you pay a fixed monthly fee that covers everything.

For companies with fewer than 15 employees in Bhutan, this model is far cheaper than in-house administration. An EOR also gives you flexibility to scale: if you decide to exit the market, you wind down employment cleanly without dissolving a local entity.

Finally, an EOR handles all work permit sponsorship and immigration compliance, navigating the Department of Labour on your behalf. If you later decide to transition to a local subsidiary, the EOR can support the handoff, or you can continue using the EOR model as your team grows. Remote People specialises in guiding new entrants through Bhutan’s unique regulatory environment.

Termination and Offboarding in Bhutan

Notice Periods

Notice periods in Bhutan depend on the employee’s length of service, as set out in the Labour and Employment Act 2007. Employees with less than 6 months of service require 1 week of notice. Those with 6–12 months require 2 weeks.

Employees with 1–3 years of service require 1 month, and employees with more than 3 years of service require 2 months. Notice must be given in writing, and during the notice period the employee continues to work and receive full pay. Payment in lieu of notice is permitted if agreed between the parties.

Statutory notice periods in Bhutan scale with tenure under Chapter 12 of the Labour and Employment Act 2007. During probation (capped at 6 months) either party may terminate with 24 hours notice, and pay in lieu of notice is permitted after probation if both parties agree in writing.

Severance Pay

Severance in Bhutan follows a simple formula: one month of basic salary for each completed year of service, payable from the completion of the first year onward. The base figure excludes allowances, overtime, and bonuses, and summary dismissal for just cause under Section 123 forfeits the entitlement entirely.

Calculation Method

Severance pay under the Labour and Employment Act 2007 is calculated as one month of basic salary for each completed year of service, payable to employees terminated without cause after at least 1 year of continuous employment. There is no statutory cap on the number of years counted. Severance is calculated on the basic monthly wage at the time of termination, excluding allowances and bonuses unless the contract specifies otherwise.

Caps and Exceptions

Severance is not payable if the employee is terminated for gross misconduct, voluntarily resigns, or completes a fixed-term contract on its scheduled end date. In cases of collective redundancy, the employer must notify the Department of Labour in advance and may be required to consult with employees before issuing termination notices. NPPF withdrawals are handled separately and depend on the employee’s contribution history with the fund.

Grounds for Termination

Employers may terminate for cause (breach of contract, serious misconduct, absenteeism, insubordination) or without cause (redundancy, restructuring, business closure). Terminations for cause do not trigger severance obligations but must be documented with written warnings and evidence to withstand Department of Labour scrutiny.

Terminations without cause require notice and, if the employee has 1 or more years of service, severance pay. Summary dismissal without notice is only permissible for gross misconduct such as theft, violence, or serious breach of confidentiality, and must be well documented to defend against wrongful termination claims.

EOR vs. Other Hiring Models in Bhutan

EOR vs. Setting Up a Local Entity

Choosing between an Employer of Record and setting up your own legal entity in Bhutan comes down to timeline, upfront cost, ongoing administrative burden, and how quickly you can scale up or wind down. The table below lays out both paths side by side across setup time, cost, compliance risk, and flexibility so you can match the right model to the size and duration of your Bhutan hiring plan.

An EOR is ideal for companies testing the Bhutanese market, hiring fewer than 15 employees, or wanting to avoid months of incorporation. You pay higher per-employee costs but avoid large upfront capital and the Foreign Direct Investment approval process required for a local entity.

A local entity is better suited for long-term operations with 15+ employees, companies planning to bid for government contracts, or businesses investing in hydropower or infrastructure projects. For most startups and remote hiring pilots, an EOR delivers faster time-to-hire and significantly lower risk.

EOR vs. Hiring Independent Contractors

Classifying a Bhutan-based worker as an independent contractor rather than an employee can expose you to back-taxes, unpaid social contributions, and reclassification penalties if the working relationship looks like employment in practice. The table below contrasts EOR employment with contractor engagement across legal relationship, tax and benefits treatment, IP ownership, and misclassification risk so you can pick the right model role by role.

Contractors appear cheaper upfront because you avoid NPPF contributions and statutory benefits. Independent contracting is only appropriate in some cases, such as genuinely project-based work, short-term specialist engagements, or consulting relationships where the contractor retains control over methods and schedule.

When a contractor is integrated into your team, supervised, assigned regular hours, or treated like an employee, the Department of Labour may reclassify the relationship as employment and assess back NPPF contributions and penalties. For ongoing, role-based hiring, an EOR is the safer path. For true project-based contracting, Remote People contractor solutions with proper structuring and compliance documentation.

EOR vs. PEO

EORs and PEOs both simplify international hiring, but only an EOR becomes the legal employer of record in Bhutan — a critical distinction when you don’t have a local entity of your own. The table below maps the practical differences across legal employer status, entity requirement, liability allocation, and scope of coverage.

A Professional Employer Organisation (PEO) is a rare model in Bhutan because there is no formal regulatory framework for co-employment. PEOs work well in mature markets with established liability rules and insurance structures, but Bhutanese labour law does not recognise co-employment arrangements.

An EOR is the clear, legal model for outsourced employment in Bhutan. The EOR is the sole legal employer, bearing all obligations and liability, and you maintain full control over the work and performance of the employee.

Public Holidays in Bhutan

Bhutan observes a defined set of official public holidays on which most private-sector employers must give staff a paid day off (Office Holidays Bhutan 2026). The table below lists the statutory holidays employers need to build into payroll calendars and leave planning for the year, along with the date rule for each.

Bhutan observes a mix of fixed and lunar-calendar holidays, with most religious and cultural observances tied to the Bhutanese lunar calendar. Employees are entitled to paid leave on all statutory holidays.

Work performed on a public holiday is compensated at double the ordinary rate (2.0 times). An EOR automatically tracks public holidays and ensures correct payroll coding and scheduling so that employees are paid correctly on these days. For cultural context, Losar (Bhutanese New Year) in February is one of the most important festivals and many businesses close for several days around the celebration.

How to Get Started with an EOR in Bhutan

Getting started with an EOR in Bhutan takes just a few straightforward steps:

• First, contact your EOR provider and request a service agreement. Share your hiring timeline, the number of employees you plan to hire, salary expectations, and any specific roles or skill requirements.
• Second, once the agreement is signed, provide your employee’s personal information, including full name, date of birth, email, phone number, home address, banking details for payroll, and a copy of their Citizenship Identity Card or passport.
• Third, the EOR drafts a compliant employment contract, reviews it with you, and sends it to the employee for signature. This typically takes 2–3 days.
• Fourth, the EOR registers the employee with the National Pension and Provident Fund and configures payroll in their banking system. They also enrol the employee in any benefits programmes and set up tax withholding (2–5 days).
• Fifth, the employee officially starts work on the agreed date and receives their first salary on the next monthly payroll cycle, typically within 30 days of onboarding.

If you are hiring a non-Bhutanese national, add 6–12 weeks for work permit and residence permit processing. Contact Remote People today to start your Bhutan hiring journey.