Key Takeaways

  1. Hiring employees in Bhutan requires understanding local labor laws and cultural expectations to avoid legal issues and fair treatment of staff. 
  2. An Employer of Record (EOR) can help a company recruit and manage employees in Bhutan in compliance with said labor laws.
  3. Before opting for a Bhutan EOR, companies should consider other options, like setting up a legal entity.
  4. Companies must ensure that the EOR used is an expert in Bhutan employment management.

Have you ever considered hiring a Bhutan-based team? Usually, the most cost-effective way to do so is via an Employer of Record solution. This allows companies to hire and pay staff quickly and cost-effectively in Bhutan, without the need to set up a local entity. 

Here we explain how Bhutan EOR services work and how to choose the best Bhutan provider for your needs.

What Is a Bhutan Employer of Record?

A Bhutan Employer of Record (EOR) is a professional HR service provider that takes on the role of legal employer for a company’s staff in Bhutan, allowing businesses to hire in that country without creating a local entity. By working with an EOR, foreign or domestic organizations can bring on Bhutanese employees or assign existing team members, with the EOR handling duties such as preparing employment contracts, running payroll, and ensuring all required contributions are fulfilled.

Meanwhile, the client company retains control over everyday responsibilities and performance, achieving faster market entry and lower overall setup expenses. Bhutan’s labor framework is regulated by the Labour and Employment Act of Bhutan 2007, which outlines employee rights, work hours, leave allowances, and safety protocols.

Employers also need to register for social security and pension plans, like the National Pension and Provident Fund (NPPF), ensuring that contributions are deducted and filed correctly. A Bhutan EOR assumes these administrative obligations—keeping an eye on any shifts in local statutes and guaranteeing legal compliance—so that companies can direct their efforts toward strategic expansion, revenue generation, and building a foothold in the country’s growing market

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Bhutan Employer Of Record vs Bhutan Entity

Companies can either establish a legal entity in the country or use an Employer of Record (EOR) service when expanding into Bhutan, depending on their goals, resources, and the degree of control they require over local operations.

Forming a legal entity in Bhutan, such as a private limited company, involves several specific steps. Businesses must first register with the Ministry of Economic Affairs (MoEA) and obtain a trade license. This requires preparing important documents like the Articles of Incorporation and following the Bhutanese Foreign Direct Investment (FDI) policy if the company is foreign-owned.

Once registered, companies must enroll with the Department of Revenue and Customs (DRC) to ensure compliance with Bhutan’s tax system, which includes corporate income tax and business income tax. Companies operating in Bhutan also need to comply with labor laws set out by the Ministry of Labour and Human Resources (MoLHR) that cover employment contracts, employee benefits, and workplace conditions.

This arrangement gives companies full control and flexibility but comes with challenges like handling changing rules, high costs, and meeting strict labor and environmental laws. For businesses seeking a simpler entry into the Bhutan market, an EOR provides an efficient alternative. The Bhutan EOR will take responsibility for a global company’s workforce in Bhutan, handling employment contracts, payroll, tax filings, and compliance with Bhutan labor regulations.

This model reduces the complexities and time required to launch operations in Bhutan. It allows companies to focus on their core business objectives while the EOR manages administrative tasks. However, using an EOR does come with limitations. The company may face restrictions in its ability to directly influence daily employee interactions or adjust local strategies as needed.

Is Employer of Record Legal in Bhutan?

Yes, using an Employer of Record (EOR) is perfectly legal in Bhutan as long as the EOR complies with local labor laws. These laws cover everything from employment contracts to social security contributions and workplace safety standards.

How Much Does an Employer of Record Cost in Bhutan?

The cost of hiring an EOR in Bhutan depends on a few factors, such as the number of employees, the scope of services you require, and the duration of the partnership. EOR providers typically charge a flat monthly fee or a percentage of employee salaries. To get a better idea of what the services will cost, it is best to reach out directly to an EOR provider for a tailored quote based on your specific needs.

Typically, costs range from $599 per employee per month to 1199 per employee per month, depending on the provider.

How Does a Bhutan Employer of Record Help with Payroll and Taxes?

An EOR in Bhutan can take care of managing payroll by ensuring employee wages are calculated accurately and that all necessary tax and social security deductions are made. In Bhutan, employers are responsible for deducting income tax and contributing to the country’s social security system. The EOR makes sure these deductions are done correctly, keeping your company in compliance with local laws and avoiding any potential legal issues.

How Does a Bhutan Employer of Record Help with Benefits Administration?

Employers are also required to provide certain benefits, including contributions to the National Pension and Provident Fund (NPPF), which is a key part of the country’s social security system. The provident fund helps ensure that employees save for their retirement with the mandatory contributions that employers and employees have to make.

An EOR in Bhutan manages these contributions, ensuring they are deducted from employee wages and paid into the fund as required by law.

In addition to the provident fund, the EOR also ensures that employees receive other benefits, such as paid annual leave and health insurance, helping the business comply with Bhutan’s labor regulations and supporting employee welfare.

What Labor Laws Apply to Hiring in Bhutan?

Bhutan has a strong legal framework aimed at ensuring fair treatment for employees while also protecting the interests of employers. The Labor and Employment Act of 2007 is the primary piece of legislation that governs employment relations, covering aspects like working hours, wages, employment contracts, and safety standards. Employers must comply with these laws to ensure their operations are legally sound and employees are treated fairly.

Employment Contracts

In Bhutan, employment agreements can be entered into by employers and workers who are 18 years old or older. Contracts can be verbal or written, though written contracts are highly recommended to reduce misunderstandings and legal risk. They can be indefinite or be made for fixed terms.

Fixed-term contracts can be renewed and extended to a total duration of five years, after which time, the employee’s contract, if continued, automatically becomes permanent.

Contracts must be made in English or Dzongkha, Bhutan’s national language. They must include details of the job title and responsibilities, start date, salary and payment, leave policies, and procedures for termination and dispute resolution.

Working Hours

Workers in Bhutan generally work six days a week and eight hours a day for a regular 48-hour workweek. Workers must be given 12 hours of rest between working days and one period of 24 hours of rest each week. They are also entitled to at least one hour of unpaid break time after working for four hours.

If they work overtime, Bhutanese employees must not be paid any less than their normal wages. Individual contracts will dictate overtime wages, which are frequently 150% of their normal wages. When they work overtime between the hours of 10:00 pm and 8:00 am, employees must be paid 150% of their normal wages.

Employees cannot be required to work overtime – instead, all overtime must be formally agreed to by employees. They are also limited to working only 12 hours of overtime per week.

Social Security

Since the year 2000, Bhutan has been running a social security system to care for its citizens. The National Pension and Provident Fund (NPPF) is the main focus of this system and provides old-age, disability, and survivors’ benefits to qualifying people in the country. This is a contributory system with funds coming from both employers and employees.

Employers are responsible for calculating contributions and making them monthly to the NPPF. The total contribution is 10% of each employee’s salary, with the employer and employee each paying 5% of the employee’s gross earnings equally.

Employers and employees can also agree to pay these contributions to a private provident fund with a registered financial institution instead of to the NPPF.

Healthcare is not part of this system as it is already universal and free in Bhutan. The healthcare system is largely funded through taxes from tourism and the export of hydroelectricity.

Working Hours and Paid Holidays

The standard working hours are typically 48 hours per week, with employees receiving one day off. When employees work overtime, they are entitled to additional compensation. Employees who work beyond the regular hours of 9 a.m. to 6 p.m. are entitled to overtime payment, which is typically Nu. 25 per hour.

However, if the overtime work extends from 10 p.m. to 8 a.m., the employee is entitled to 50% more than their regular overtime rate. The maximum allowed overtime is 12 hours per week, and the Labor and Employment Act ensures these regulations are followed, with the Ministry of Labor monitoring compliance. 

Bhutanese employees are also entitled to at least 10 days of paid annual leave each year, in addition to public holidays. The EOR ensures that both overtime pay and leave entitlements are managed correctly, ensuring compliance with labor laws and fair treatment of employees.

Probation Periods

Probation periods in Bhutan are mandatory in the public sector, but not in the private sector, where they are used at the discretion of employers. 

For civil servants, probation automatically lasts one year. During this time, the employee is regularly assessed and given feedback and assistance in order to improve their performance. If their performance is not satisfactory, they can be dismissed at any time during the period.

In the private sector, probation periods in Bhutan can last up to six months, and the period’s duration must be stated in an employee’s contract. During this time, both the employer and the employee have the right to terminate their agreement by providing the other party with seven days’ notice.

Payroll and Income Taxes in Bhutan

According to the Department of Revenue and Customs, workers in Bhutan are required to pay taxes on their employment income, which includes salary, fees, commissions, profit sharing, and leave encashments. The income tax rate in Bhutan is progressive and ranges from 0% to 30% of gross earnings. 

Employers must calculate and withhold pay-as-you-earn (PAYE) taxes from their employees’ salaries. They must remit these funds to the tax authority at least monthly, as all employees in Bhutan must be paid at least once a month.

The fiscal year in Bhutan runs from 1 July to 30 June. However, the tax year for individuals follows the calendar year, and individuals must therefore file their income tax returns by the end of February.

Minimum Wage

Bhutan recently updated its minimum wage on 1 January 2025. It is now mandatory to pay workers at least 3,750 BTN (Bhutanese ngultrum) per month (around 44 USD). This wage protects all workers regardless of their location, position, industry, or probationary status. The minimum wage is based on a standard 48-hour workweek.

13th-Month Pay in Bhutan

Bhutan does not mandate a 13th-month salary, nor require any other bonuses. Employers may choose to pay 13th-month bonuses at their discretion. If they do, they normally pay them either at the end of the calendar year (December) or the fiscal year (June).

Work Permits/Work Visas in Bhutan

If you want to recruit foreign nationals to join your organization in Bhutan, you’ll need to help them obtain the appropriate work authorization. To enter the country, they’ll need to obtain an employment visa from the Department of Immigration, which they can only get after your business has been granted permission from the Department of Labor to hire foreign employees. This Employment Visa is issued for 12 months.

They’ll also need to obtain a valid work permit once they’ve entered the country. The application for the work permit can be made by the employee or by the employer on their behalf. Work permits are also issued for one year, and are only granted to skilled or technical workers if they can prove that their work will benefit the country.

If you need support, Remote People can provide you with visa and work permit services in Bhutan. Our experience in processing applications will help you get your international employees working in the country as soon as possible.

Hiring Contractors in Bhutan

Many employers in Bhutan choose to hire independent contractors for some of their labor needs, rather than hiring employees. In doing so, they’re able to access specific skills and knowledge that may not otherwise be readily available on the labor market. They can also leverage the skills and experience that contractors possess for limited periods.

Finally, they can reduce their administrative burden by hiring contractors who manage their own tax and social security payments. Contractors are not required to contribute to the NPPF, but may choose to do so and pay the full 10% contribution to this fund that normally comes from both employers and employees.

Workers' Compensation in Bhutan

Employers are required to pay for workers’ compensation insurance for all of their employees, unless they run micro-enterprises with fewer than five employees. While they can choose to pay premiums to a private insurer, most employers pay a premium of 87 BTN/year for each worker to the social security authority.

Their insurance, public or private, must cover workplace accidents, injuries, illnesses, and death, and pay compensation to employees who are temporarily or permanently disabled, or their survivors.

Employee Leave in Bhutan

According to the Regulation on Working Conditions, 2022, Bhutan mandates a variety of leave opportunities for workers to help them balance their personal and working lives. These leaves include:

Paid Annual Leave

After completing probation, Bhutanese employees become entitled to accumulate an annual paid leave allowance. They accrue this leave at the rate of 1.5 working days per month worked, for a total of 18 days annually. Workers must be paid in full for this leave. If public holidays, of which there are 16, fall during the leave, they are treated separately and not included in annual leave.

Paternity Leave

In the private sector, new fathers are entitled to three days of paternity leave upon the birth of a child. This leave is fully paid by the employer. Some private employers may offer employees more leave. In the public sector, fathers receive ten days of fully paid paternity leave.

Maternity Leave

In 2016, maternity leave in the public sector was doubled from three to six months in duration. In the private sector, however, new mothers are entitled to only two months of maternity leave after having worked for their employer for a full year.

While social security funding for this leave is expected in the future, it is currently paid in full by the employer. Mothers can also take an extended leave if desired, but it will not be paid.

Other Leave

Workers are entitled to at least five days of sick leave per year. This leave is fully paid by the employer. It can be rolled over for up to five years, but if not used, it is forfeited.

Bhutanese employees also receive an entitlement of at least five days of casual leave annually once they complete probation. Again, this leave, usually used for bereavement or family obligations, is fully paid by the employer.

Employee Termination and Severance in Bhutan

If employees are terminated for gross misconduct, they are not entitled to receive notice, severance pay, or gratuity. For other reasons for dismissal, the employer must provide the employee with at least 30 days’ notice, and their reasons for the dismissal must be justified.

In the case of redundancy or downsizing, the employer must give the employee seven days’ notice for each year of continuous service, to a maximum of 42 days. Employees also need to give 30 days’ notice if they resign.

Employees who have worked for an employer for at least ten years are entitled to a gratuity payment when they are dismissed or retire. This payment is equal to one month’s wages for each year of service given to the employer.

Engage a Bhutan Employer of Record, with Remote People

Expanding into Bhutan is easier with a trusted Employer of Record (EOR) by your side. Navigating local regulations, cultural nuances, and administrative tasks can be complex—but with the right partner, you can stay compliant and focus on growing your business.

Looking to grow your team in Bhutan? Follow these easy ways to hire seamlessly and stay fully compliant with the help of an Employer of Record (EOR).

Contact us today to discuss how an EOR can support your business expansion in Bhutan.

Frequently Asked Questions

An EOR in Bhutan helps simplify compliance with local labor laws and eliminates the need to set up a legal entity in the country. It allows companies to hire employees quickly and efficiently. However, using an EOR may result in less control over the administrative aspects of employment, as the EOR manages payroll, taxes, and benefits.

To use an EOR in Bhutan, you need to partner with an EOR provider who will legally employ your workers in Bhutan. The EOR takes care of all employment-related tasks while you manage your business operations. You will collaborate with the EOR to ensure day-to-day activities are running smoothly, with the EOR handling compliance, payroll, and benefits.

A Bhutan EOR is a third-party provider that legally employs workers on behalf of a company, taking on full responsibility for compliance, payroll, and benefits. A Bhutan PEO (Professional Employer Organization), on the other hand, shares employment responsibilities with the client company, allowing the client to maintain more control over employee management and other operational aspects.