Key Takeaways

  1. Bhutan’s Labor and Employment Act of 2007 mandates comprehensive benefits, including social security contributions, extensive paid leave, and overtime compensation – reflecting the country’s Gross National Happiness principles.
  2. Companies must establish a legal presence through proper registration with the Ministry of Industry, Commerce and Employment (MoICE) and tax authorities before hiring local employees.
  3. Working with an Employer of Record (EOR) provider helps businesses ensure compliance with Bhutanese labor law while efficiently managing benefits administration and payroll.

Bhutan, officially known as the Kingdom of Bhutan, is a small, landlocked country located in the Eastern Himalayas between India and China. In 2008, it changed from an absolute monarchy to a parliamentary democracy, opening new economic growth doors, even though it is still strongly committed to cultural preservation and environmental stewardship. 

For companies expanding into South Asian markets, Bhutanese professionals bring exceptional value through their cultural insights and multilingual capabilities. With fluency in English, Dzongkha, and 20 other regional languages, they are instrumental in facilitating smooth market entry beyond their technical contributions.

As pioneers of the Gross National Happiness (GNH) framework, Bhutanese professionals bring a unique understanding of sustainable business practices to global teams. And lower labor costs compared to other countries are attractive to businesses seeking to reduce operational expenses, especially in IT.

Bhutan Employment Laws

The Labor and Employment Act of 2007 is the legal framework used in Bhutan to maintain fair labor practices and protect workers’ rights. Enforced by the Ministry of Labor and Human Resources (MoLHR), it outlines clear standards for workplace safety, fair wages, and dispute resolution mechanisms, creating a conducive environment for local and foreign employment. 

There are several steps and requirements to consider when hiring Bhutanese employees. Firstly, your company must establish a legal presence through proper business registration with the Ministry of Industry, Commerce and Employment (MoICE). This entails submitting documentation about the company’s structure, ownership, and intended business activities.

Once registered, the company is expected to comply with Bhutan’s Labor and Employment Act, which includes providing written employment contracts to all Bhutanese employees that clearly specify the terms of employment, including compensation, working hours, leave policies, and other benefits. The contract must be in English and Dzongkha. 

Foreign companies must also register with Bhutan’s tax authorities to obtain the necessary tax identification numbers and uphold tax law. Bhutanese nationals don’t require work permits (unlike when hiring foreign workers). However, companies must maintain proper employment records and register their Bhutanese employees with relevant social security and insurance schemes, as Bhutanese labor laws require.

It’s important to note that Bhutan places significant emphasis on preserving its cultural heritage and sustainable development through its Gross National Happiness philosophy. Companies are expected to respect and incorporate these values into their employment practices. This might entail providing training opportunities for Bhutanese employees and ensuring workplace policies align with local customs and values.

Mandatory Employee Benefits in Bhutan

Bhutan’s labor laws require employers to provide these key benefits to employees:

National Pension and Provident Funds

Each month, 10% of an employee’s basic salary flows into the Social Security Fund (SSF), with the company and worker contributing 5%. This fund provides essential benefits for healthcare needs, supporting new parents through maternity coverage, offering security in case of disability, and building a foundation for retirement. Joining this social protection system is straightforward. Simply register with the SSF and keep clear records of monthly contributions.

Annual Paid Leave

After their first year with an employer, workers receive 30 days of paid earned leave annually, with the flexibility to save unused days for the future – up to a maximum of 90 days. This means employees can build up a substantial leave bank for extended time off when needed. 

The leave system also includes 10 days of casual leave each year, allowing workers to handle unexpected personal matters without stress. For newer employees who haven’t completed their first year, Bhutan’s labor laws ensure they still get time off, providing 1.5 days of paid leave for each month worked after their first six months of employment.

Working Hours

The standard workday is set at 8 hours, with a maximum of 48 hours permitted per week. The traditional six-day workweek pattern was established to accommodate Bhutan’s agricultural sector, where consistent daily attention is needed for farming activities and livestock care. 

However, many businesses in urban areas and sectors like technology, banking, and government offices have adopted a five-day workweek. Companies can arrange their working hours based on industry needs so long as they remain within the legal limits of 48 hours per week.

Overtime Pay

Employees who work beyond the standard 48-hour workweek or 8-hour day are entitled to double their normal hourly wage. For example, someone earning Nu. 100 per hour would receive Nu. 200 for each overtime hour worked. 

The system becomes even more generous for rest day work, where employees receive both the doubled hourly rate and an additional day’s basic wage as premium pay. Daily hours, including overtime, are capped at 12 hours to protect worker well-being.

All employees are entitled to a minimum of nine paid public holidays each year, which include national holidays and local festivals. However, many employers may offer more than the legal minimum, and the specific number can vary by employer. Popular holidays include Losar (New Year), Winter Solstice (Nyilo), Traditional Day of Offering, Birth Anniversary of His Majesty King, and Shabdrung Kuchoe.

After six months on the job, workers receive five paid sick days annually. These days can be taken in full or partial increments, giving flexibility for various health situations. For absences longer than three consecutive days, a medical certificate is required.

Unused sick leave doesn’t expire at year’s end;  it can accumulate for up to 5 years, with some employment contracts allowing even longer accumulation periods.

Maternity Leave

Maternity leave in Bhutan varies significantly across different employment sectors, creating a tiered support system for new mothers. Following a 2018 government directive, state-owned enterprises provide six months of paid leave, matching the benefits given to civil servants. The private sector typically offers three months of paid leave as the standard minimum, though some extend this to six months.

Paternity Leave

Fathers get 10 days of paid leave when their child is born. If the mother passes away during childbirth or within six months after delivery, they can take the remaining portion of what would have been the mother’s maternity leave until the baby reaches six months old.

End of Service Benefits (Severance)

A clear severance pay system protects employees who are terminated without just cause. The calculation is straightforward; workers receive one month’s salary for each complete year they’ve worked at the company. 

For example, if someone earns Nu. 30,000 monthly is let go after seven years; they’d receive Nu. 210,000 in severance pay. This same formula applies whether you’ve worked for a shorter period or longer. Companies must follow these minimum standards regardless of the employee’s position level.

Employment termination in Bhutan requires one month’s notice from either party, with the option to provide salary payment in lieu of notice. Gratuity payments must be processed within 30 days of the employee’s last working day.

Supplementary Benefits in Bhutan

While there’s no mandate in Bhutan for supplementary benefits, many companies choose to offer additional perks. Common offerings include health insurance covering employees and families, housing allowances, transportation support, and meal subsidies. 

Some organizations, like those employing expatriates, provide extra benefits like relocation assistance and cultural integration support. These benefits vary between employers and industries, with larger companies typically offering more comprehensive packages.

Enhance Employee Benefits with Remote People

Looking to hire Bhutanese employees? Remote People’s Employer of Record (EOR) brokerage services can streamline your expansion into this unique Himalayan kingdom. We connect you with trusted EOR partners who navigate Bhutan labor law and manage your workforce needs. 

From handling complex payroll calculations to ensuring alignment with Bhutanese labor regulations and coordinating comprehensive employee benefits, our network of providers maintains full compliance so you can focus on business growth. 

Our EOR partners handle tax obligations, mandatory benefits, and employment documentation under Bhutanese labor law. Whether hiring your first employee in Bhutan or building a larger team, let Remote People guide you through establishing compliant and beneficial employment practices in the Land of the Thunder Dragon.