Employment Law in Bhutan

Contracts

In Bhutan, employment contracts can be fixed-term or permanent, depending on the nature of the job and the agreement between the employer and employee. Permanent employment contracts must include benefits such as social security (National Pension and Provident Fund), paid leave, severance pay, and occupational injury coverage. Fixed-term employees are entitled to the same benefits as permanent employees for the duration of their contract. 

Bhutan also has apprenticeship contracts, mainly for training, which are governed by the Bhutan Labour and Employment Act (BLEA) of 2022 and the Vocational Education and Training (VET) Policy of 2024. Employers in designated priority sectors are required to hire apprentices per national training directives.

Termination and notice periods

In Bhutan, labor regulations generally require one month’s written notice for termination or salary in lieu of notice. In most cases, terminated employees are entitled to a documented warning and hearing.  

Employees with at least one year of continuous service are entitled to severance pay (gratuity) at a rate of one month’s wage for every year of service. This payment is a mandatory benefit under Bhutanese law. As your EOR (employer of record) in Bhutan, we can work with you to quickly handle the unforeseen event of an employee termination, providing legal guidance and a personalized process that ensures you stay out of labor court and in compliance with the unique principles of the Bhutanese legal system.

Probation periods

In Bhutan, probation periods are directly addressed in the Bhutan Labour and Employment Act (BLEA) of 2022, typically ranging from three to six months for most private sector roles, and can be extended for specialized or senior positions.

Working hours and overtime

Bhutan has a longer work week than most other countries, with most employees working roughly 54 hours per week, according to the ILO.

For work performed on rest days (Saturdays) or on the 11 designated National Holidays, the overtime pay rate is 200% of the regular hourly rate, as specified by the Bhutan Labour and Employment Act.

Taxes

In Bhutan, withholding tax is known as Pay-As-You-Earn (PAYE) and is deducted by employers before paying salaries to employees. Employers must deduct PAYE from employee salaries based on applicable income tax slabs and submit it to the Department of Revenue and Customs (DRC). 

Employers in Bhutan must adhere to various taxation and regulatory compliance requirements to operate legally and avoid penalties. 

• Corporate tax: Domestic companies are taxed at a standard rate of 30%. Businesses in the primary sectors (e.g., agriculture, forestry) may qualify for tax exemptions or reductions under the Economic Development Policy.
• Business Income Tax (BIT): BIT applies to businesses with an annual turnover exceeding 1,000,000 BTN. Employers must register, file monthly/quarterly returns, and pay BIT on taxable income.
• Withholding Tax (WHT): Employers must deduct WHT from employee salaries (PAYE), vendor payments, and contractor fees. WHT must be deposited by the 15th of the following month, and quarterly returns must be filed.
• Income Tax Returns (ITR): ITRs are filed annually based on company profits. Companies must also file annual financial statements with the DRC and maintain a Taxpayer Identification Number (TIN).

Employer payroll contributions

Bhutan’s social security system, the National Pension and Provident Fund (NPPF), requires fixed employer and employee contributions that cover pensions and retirement savings. In addition, workers’ compensation for occupational injuries is managed through the NPPF’s occupational insurance scheme.