Payroll in Bhutan: Comprehensive Guide for Employers

Various aspects contribute to increasing foreign investment in Bhutan. These aspects are low-emission development, political stability and transparency, a sustainable approach to development, and rapid economic growth. 

Companies seeking to expand their business in Bhutan should be exhaustively accustomed to local rules and regulations defined by the Bhutan government. This knowledge helps administer payroll in Bhutan and attracts a proficient workforce. Also, a company must thoroughly understand the payroll cycle, payroll options, salary structure, tax systems, entitlement and termination terms, social security contributions, etc.

The comprehensive understanding of payroll tax in Bhutan and labor requirements compliance helps you to set up precise payroll. The below guide describes all the major features of payroll in Bhutan. 

How Is Payroll Calculated in Bhutan?

Payroll policies and procedures in Bhutan help disburse payments and administer employees’ working hours. Regularly managing record-keeping helps you to calculate payroll accurately. It is also vital to calculate social security contributions and other relevant deductions compliant with the payroll rules and regulations in Bhutan.

The formula to calculate payroll:

Net Salary = Gross Salary – Gross Deductions

here,

Gross Salary = Bonus + HRA + Basic Salary + All types of Allowances + Arrears + Reimbursements

and

Gross Deductions = Public Provident Fund + Income Tax + Professional Tax + Insurance + Leave adjustments + Loan repayments (if any) 

Important Elements of Salary Structure in Bhutan

The below elements form the salary structure in Bhutan:

Cost to Company (CTC)

The CTC expresses the total amount payable by the employer while hiring and retaining an employee. It entails factors like the total gross, employer PF contribution (if any), social security contribution, payroll deductions in Bhutan, etc.

Net salary

It indicates the amount credited to an employee’s salary account after considering all deductions (like loans, social security, provident fund, taxes, etc.) from their gross salary.

Gross salary

It represents the total amount an employee receives before the employer calculates any taxes and deductions. It covers factors like allowances, overtime pay, health insurance, bonuses, payroll deductions in Bhutan, etc.

Basic salary

It represents the amount employees receive after the employer calculates all additions (like allowance, bonus, health insurance, overtime pay, etc.) and payroll deductions in Bhutan from the annual package. Its value relies on the employer’s job title and business undertakings.

Allowances

The payroll in Bhutan entitles employees to several allowances (like scarcity, uniform, radiation, overtime allowance, house rent allowance (HRA), Daily Allowance (DA), Daily Subsistence Allowance (DSA), difficult area allowance, etc.). These are valid irrespective of the company and the industry. 

Gratuity

Employers with ten or more employees pay an aggregate amount called gratuity to employees who are retiring after working for five or more years under the same company.

Provident fund (PF)

It is an optional pension scheme. The value of PF contribution from the employee’s salary depends on the mutual agreement between the employees and employers. The employees receive tax relief on total PF contributions up to 16.5%. 

How to Set Up a Payroll in Bhutan

The following Bhutan payroll process flow chart assists businesses anticipating setting up payroll in Bhutan:

• Step 1: First register a business in Bhutan with the Corporate Regulatory Authority of Bhutan. The first step also approves your business name’s validity.
• Step 2: Register for the company name, national tax number, and labor and tax registration.
• Step 3: Obtain a local or state business ID (if needed).
• Step 4: List all employee details like their full name, birth date, job title, employment commencement or termination date, mailing address, work location, and tax filing number. Also, the list should contain their bank details, wage or hourly rate data, compensation, employment certificates from their preceding employers, and personal income tax forms. With these details, you can precisely calculate all employee pay amounts per the payroll policies and procedures in Bhutan.
• Step 5: Classify all your employees among categories like part-time, full-time, and independent contractors. You must also specify the exemption status of each employee. 
• Step 6: Compute the income tax from employees’ wages and file.
• Step 7: Get a Taxpayer Number (TPN) from the Department of Revenue and Customs (DRC). Attach documents like a Certificate to commence business, a Certificate of Incorporation, and a Company’s Regulation.
• Step 8: Register for VAT at the Bhutan Chamber of Commerce & Industry. The application must be affixed with a TIN form, a filled-out VAT registration form, and copies of Business Registration documents.
• Step 9: Open a Bhutan bank account with a registered local bank in the country to make payroll-related payments. You will need an identification document (like a passport), an account opening form, proof of residence, a postal address, a previous work experience certificate, and a work permit.
• Step 10: To calculate the payroll amount for each employee, you must gather information such as their hours worked, rate of pay, and any deductions or benefits they are entitled to. After calculating payroll, confirm your company’s payroll method and cycle. There are various methods to choose from, such as bookkeeping, using payroll software, hiring an accountant, or outsourcing to a trusted payroll provider. 
• Step 11: Compensate all employees via a local entity (allowing you to hire and pay employees) or use services from an Employer of Record (EOR) platform in Bhutan. The supported payment methods are direct bank transfers, pay cards, mobile money transfer services, and money orders.

A Step-by-step Process of Payroll Processing in Bhutan

The procedure of payroll in Bhutan contains three stages. Here are their details.         

1. Pre-payroll stage

This phase helps you stipulate mandatory business requirements and comply with Bhutan’s legal requirements.  Here are the details of its components.

Business profile

Firstly, register your business as a legal body at the Corporate Regulatory Authority of Bhutan and get a unique business number from them. Don’t forget to specify this number on all authorized payroll communications, including auditing for payroll tax in Bhutan and reporting and compensation auditing.

Attendance policy

Irrespective of how you choose to record attendance, the attendance policy must be accurate, flexible, and transparent. The attendance policy should obey compliance and regulatory requirements defined as per the payroll policies and procedures in Bhutan. Make sure to consider parameters like overtime compensation, half-days, and more in your attendance policy. 

Work location

Make sure the work location policy is customized as per the location. Each should stipulate an explicit set of payroll policies compliant with each jurisdiction.

Leave Policy

The leave policy enables promotion and improves employees’ performance. It assists in payroll calculation and compliance with leaves (like annual, paternal, maternal, sick, etc.). The leave policies must be transparent because the types of leaves and corresponding compensation affect the payroll calculation.

Statutory components

Conforming to the Labour and Employment Act of Bhutan, 2007 helps you meet legal requirements and enhance your competitive advantage in the market. This component mentions the existing and new statutory compensation laws and regulations assisting employees with salary and leave benefits.

Payment schedule

It aims to avoid payment delays by defining a fixed payment schedule. You can improve the flexibility of factors like increments and bonuses to attract and sustain skilled personnel.

Salary components

It covers various factors like deductions, allowances, leave types, extra benefits, and payroll tax in Bhutan. You can define the mandatory salary components to satisfy each employee’s professional and personal requirements.

Employee details

You must amass professional and personal details about all your employees. These details cover employees’ names, nationalities, departments, job designations, etc. Subsequently, you must upload the details into the payroll software. When any payroll-related dispute arises, these details work as proof and promise timely employee payments.

2. Payroll calculation stage

This stage of the payroll compliance checklist in Bhutan involves adding the collected data from the earlier stage into the payroll process. Make sure to check employees’ working hours and compute deductions and taxes. You should also compute each employee’s net salary and print payslips to set up an accurate Bhutan payroll process.

Calculate and retain payroll records either manually or automatically. So, it benefits you with regular payment processing and also fulfills the payroll policies and procedures in Bhutan.

3. Post-payroll stage

You can confirm the payroll process using the following components of the third stage of the Bhutan payroll compliance checklist.

Statutory compliance

During the processing of payroll in Bhutan, the payroll administrator should strictly conform to legal compliances. They must calculate deductions from the payroll, such as social security, income tax, insurance premiums, etc. 

Payroll accounting

It focuses on tracking payments, and controlling a company’s payroll-related expenditures. It assists you in fulfilling compliance and reporting requirements. Use either internal payroll accounting or appoint a reliable external auditing service.

Payroll reporting and compliance

Prepare all statutory reporting and compliance forms to submit to local regulatory bodies. The procedure of payroll in Bhutan will independently calculate all contributions, compensations, deductions, statutory taxes, and other details being inquired in your compliance and reporting forms.

Payroll Contributions

According to the wage, the employees and employers should make social security contributions in Bhutan to fulfill the Bhutan payroll requirements.

Employer contribution

The employer should make at least 5% of the payroll contribution towards social security.

Employee contribution

Employee payroll contribution

The employee should make at least 5% of the payroll contribution towards social security.

Employee income tax

Payroll Cycle

Bhutan follows a monthly payroll cycle. 

Bhutan Payroll Options for Companies

From various options available in the Bhutan payroll guide, employers can pick a suitable option based on their requirements and budget. Let’s go through the details of various HR payroll in Bhutan options.

• Internal payroll: This option of the Bhutan payroll guide is applicable for large firms that sign long-term agreements with Bhutan. It involves hiring a skilled workforce to set up payroll accurately.
• Remote payroll: Using remote payroll with your company is the primary focus of this HR payroll in Bhutan option. The remote payroll pays the employees. 
• Bhutan payroll processing company: In-depth market research is inevitable if you wish to use this option of the Bhutan payroll guide. It focuses on using services from a reliable payroll processing company well-versed in creating payroll and complying with payroll rules and regulations in Bhutan.
• Bhutan payroll outsourcing: In the Bhutan payroll guide, this option represents a simple, flexible, and cost-effective method for managing HR payroll in Bhutan. It eliminates the challenges you may encounter during the processing of payroll in Bhutan and keeps you focused on the company’s development. You can use services from a worldwide PEO provider like Multiplier, which maintains compliance with Bhutan payroll requirements and smoothly processes payroll in Bhutan.

Entitlement and Termination Terms

Entitlement terms in Bhutan

Employees are eligible for the following benefits per the payroll rules and regulations in Bhutan.

Paid time off

1 – Employees who have worked for at least six months under the same employer are entitled to 1.5 days of paid leave per month or 18 working days per year.

2 – Employees can use the paid time off only after completing a year of employment in the particular company.

Sick leave

1 – Full-time employees who have worked for at least six months under the same employer are entitled to at least five days of sick leave per year.

2 – Employees can use the sick leave only after six months of employment in the particular company.

Maternity leave

Employees in Bhutan are entitled to six months of paid maternity leave.

Paternity Leave

Employees get paternity leave of ten working days.

Public holidays

The employees in Bhutan receive 16 public holidays per year.

Other leave

1 – Employees who have completed at least six months in a company are entitled to five days of paid casual leave.

2 – Employees in Bhutan get leave for their marriage, a marriage in their family, child’s birth, death in the family, to take care of family members during sickness, self-care, family emergency, and other reasons when negotiated with the employer.

Termination terms in Bhutan

• An employer should provide at least two weeks of written notice to an employee. The notice should specify the employer’s purpose for terminating the employment. Subsequently, the employer should pay the employee two weeks’ wages at a standard rate.
• Federally regulated employees don’t have to provide notice to their employer if they decide to quit.
• According to labor laws, an employer can terminate an employee in the following cases:

1. 1. Fraud
   2. Theft
   3. Willful disobedience
   4. Wilful absence
   5. Stealing of property
   6. Assault
   7. Sabotage
   8. Sexual harassment
   9. Causing harm
   10. Violating the Tsa Wa Sum (disrespecting the King)
   11. Other serious crimes

Severance pay

Bhutan Payroll Processing Company

Foreign investors must adequately understand employment, local tax, compensation requirements, and reporting if they plan to oversee timely, perfect, and compliant payroll in Bhutan. Also, they must understand compliance with Bhutan Labor and local employment laws before generating payroll in Bhutan. If you aim to discover the supreme benefits of payroll rules and regulations in Bhutan, you can use services from a worldwide PEO company like Multiplier.

How Multiplier Can Help with Global Payroll

Bhutan’s payroll management involves facets extending from payroll calculation to entitlement and termination terms. It may seem laborious for businesses to autonomously administer the payroll rules and regulations in Bhutan. You can acquire the maximum benefits of the services from a worldwide PEO platform like Multiplier to dismiss these concerns and implement the Bhutan payroll process efficiently.

Multiplier is prominent for providing EOR solutions to global firms present in 150+ nations. Our expert team handles the Bhutan payroll process, payroll calculation, contributions, employee onboarding, entitlement and termination terms, and several other related tasks. Moreover, our SaaS-based PEO services confirm that payroll processing operates flawlessly in the country.