Understanding Payroll in Bangladesh: What Global Companies Need to Know About Bangladesh’s Payroll

Although agriculture remains a huge part of the Bangladeshi economy, its garment manufacturing has driven its consistently strong growth in recent decades. At the time of writing in 2020, the global economic impact of COVID-19 was about to cause what would be Bangladesh’s first annual drop in GDP for around 40 years. Nonetheless, it is a developing country with a large population of more than 160 million, and opportunities for incoming foreign businesses are substantial.

As exporting has grown in Bangladesh, so has demand for other goods and services, and this is where opportunity may lie. However, Bangladesh is off the pace in terms of the technological and automation elements of its financial systems, and allied to previous wariness about foreigners in the country, navigating payroll, finance and taxes can be very difficult. It is always worth considering a payroll partner to help you work your way through the complexity, but in any case, it’s important to know these basics about payroll in Bangladesh:

 

Getting Started

Businesses setting up in Bangladesh should start by obtaining a company name and the associated clearance certificate, and then draft the Memorandum and Articles of Association for their company. There are three main types of company: limited by shares, limited by guarantee, and unlimited liability.

After this, companies will need to open a bank account in Bangladesh to get the encashment certificates required to officially complete registration. These certificates prove that foreign money has been exchanged for the local currency, the Bangladeshi taka. Then all required documentation can be submitted to the Register of Joint Stock Companies and Firms (RJSC) for approval, which should take around 28 days.

Foreign business entities may find it difficult to handle the banking system in Bangladesh, but Bangladesh is gradually modernizing its systems and online bank services are now offered by the major banks. 

 

Employment Considerations

Collective bargaining is the oldest form of employee negotiation in Bangladesh, but in practice, it's not used very often. However, as the garment industry continues to grow, employers may start to see greater involvement from unions. 

The maximum working week is 48 hours, normally spread over six eight-hour days. The weekly day of rest is generally Friday as Bangladesh is a majority Muslim country. Full-time workers are entitled to one hour of breaks each day, which can be divided into two half-hour breaks or taken in one go. Probation periods vary between industries.

Overtime is common in Bangladesh, especially in the garment industry. Workers must not work more than 60 hours in total in any given week, and their average weekly hours over a whole year must not exceed 56. Overtime is paid at double the rate of the employee’s total income, taking extras like housing and medical payments into account. The formula to work out the hourly rate is to take monthly total income and divide by 208 (i.e. 26 eight-hour days). This calculates the hourly rate which should then be doubled to reach the overtime rate.

 

Compensation and Severance

Minimum wages in Bangladesh vary significantly depending on industry, but in any case, are low. Garment workers are entitled to a minimum of 8000Tk per month (approx. £70; $95; €80), for example, while workers in sectors not entitled to an industry-specific rate have their minimum set at just 1500Tk per month (approx. £13; $18; €15). The National Minimum Wage Board reviews all minimum wage rates every five years, and the next set of rates should come into force in December 2023.

It should be noted that wages generally comprise a basic salary and other allowances for rent, food, transport and healthcare. Employees who have been with a company for at least one year also receive two festival bonuses annually.

Employees can be terminated for either physical or mental ailments (including chronic health issues) but must be paid 30 days of wages for each year worked at the company. If they are terminated without notice, workers typically receive one month’s salary in addition to 30 days of wages for every year worked. 

 

Tax and Social Security

Income tax rates are progressive, although the first 250,000Tk per year (approx. £2200; $3000; €2500) is exempt. Above this, there are five bands, starting at 10% and reaching the highest band of 30% for earnings above 4,750,000Tk (approx. £42,000; $56,000; €47,000). Employers are required to withhold income tax from employees and make payments on a Pay-As-You-Earn (PAYE) basis, and the tax year runs from July 1 to June 30. 

Although Bangladesh has a social security system that supports pensioners and the disabled, neither employers nor employees are required to make any contributions to it.

Corporate tax is levied at 25% for companies that are publicly listed and 32.5% for those that aren’t. However, there are a number of sector-specific exemptions in place, especially for the garment industry, where the rate is 15%, or even 14% if certain requirements around environmentally-friendly buildings are met. With a number of different federal and local rules in place alongside these, taxation can be a very complex area in Bangladesh.

 

Holidays and Leave

Paid leave runs on an accrual basis: most workers earn one day for every 18 worked, but as with many other employment arrangements in Bangladesh, rates vary by industry: for example, workers on tea plantations earn one day for every 22 worked. Although Bangladesh has 21 days of national holidays each year, employees are only entitled to take 11 of them off as paid holiday, and it is the employer’s choice as to which ones. However, employees who are then required to work on one of their designated holiday days must be compensated by two additional days off at another time.

Maternity leave entitlement is 16 weeks on full pay, eight weeks either side of the birth. There is no entitlement to paternity leave at the time of writing, although introducing it has been discussed by the Bangladeshi government. Sick leave entitlement is 14 days per year on full pay, but requires a medical certificate.

 

In Summary

Bangladesh’s sustained growth makes it an obvious candidate for incoming foreign investment, but as this guide makes clear, it is by no means a straightforward undertaking. The tax system, banking structure and general payroll requirements vary hugely between areas and between industries, and combined with some relatively outdated procedures, it can be bewildering for companies to know where to start. This is where a global payroll solution, combined with up-to-date local expertise, can help keep you on the front foot with all things payroll in Bangladesh, and keep you there as your business grows.

 

This article is for informational purposes only and not intended to convey or constitute legal or any other advice. It is not a substitute for advice from a qualified professional.