Bangladesh is a developing country with a large population, providing opportunities for foreign businesses. The country’s economy is dependent majorly on agriculture and garment manufacturing. It has a potential market for US exports and has a comparatively lower labor cost, thus attracting more global companies.
The country is open to foreign ownership in most sectors to attract foreign investments. When establishing a new business here, the company or the employer must follow Bangladesh’s payroll rules and regulations.
How is Payroll Calculated in Bangladesh?
When setting up a payroll in Bangladesh, it is essential to understand the salary computation.
The standard formula for calculating payroll is Net Salary = Gross Salary – Deductions.
The Gross Salary is divided into several components such as –
- Basic salary
- House rent allowances
- Medical allowances
- All other allowances
The Deductions include –
- Professional tax
- Provident fund
- Income tax
- Entertainment allowance
- Other standard deductions.
The average standard employer tax is 32.5%. Payroll taxes range from 10% to 30%.
To begin payroll in Bangladesh, you need to ensure these steps:
- Get a business identification, and local tax ID number
- Create a payroll policy with details including basic pay, benefits, leave policies, etc.
- Collect payroll tax in Bangladesh from the employees, and their bank details
- Decide a payroll date for the company
- Establish overall tracking system
- Update payroll records
Important Elements of Salary Structure in Bangladesh
An essential aspect of payroll policies and procedures in Bangladesh includes understanding the components of a salary structure. Here are a few essential payroll elements in Bangladesh:
- Minimum wage: Although Bangladesh does not have a generalized minimum wage requirement, it generally varies according to the industry. For instance, employees in the garment industry are entitled to a monthly minimum compensation of 8,100 Bangladeshi Taka (BDT). Every five years, the National Minimum Wage Board reviews the minimum salaries of different industries, and the next updated remuneration rates should be in effect by December 2023.
- Overtime: Overtime is common in the garment industry in Bangladesh. Typically an employee should not work more than 60 hours a week. Overtime is paid at double the rate of the employee’s income, including housing and medical payments.
- House rent: This salary component is paid by the employer to meet the accommodation expenses of employees. As per the Bangladesh payroll process, the house rent allowance is 50% of the basic salary or TK. 25,000 monthly, whichever is higher.
- Medical allowance: This is a mandatory fixed allowance paid to the employee irrespective of submitting medical bills. Bangladesh tax laws state 10% of the basic salary or TK. 120,000 yearly for medical allowance.
- Conveyance allowance: This extra allowance compensates for travel between work and residence. Under the tax laws, conveyance allowance is 10% of the basic salary.
- Additional allowances: There are other additional allowances for employees in Bangladesh, such as festival bonuses, overtime allowances, etc. All government employees get 20% of the basic salary as a festival bonus twice a year.
How to Set Up a Payroll in Bangladesh?
To set up payroll in Bangladesh as a foreign company, you must first establish a subsidiary there.
Here’s a step-by-step process of setting up payroll in Bangladesh:
- Establish a company subsidiary and implement your employee hiring process
- Open a bank account to get an encashment certificate
- Submit the certificate to the Register of Joint Stock Companies and Firms (RJSC) for approval.
- Get a Business Identification Number
- Establish the process for state and local tax IDs. Get a Tax Identification Number
- Set up a payroll schedule applicable to your business type – monthly, semimonthly, biweekly or weekly.
- Calculate the gross pay for each employee
- Determine the deductions as per the salary range and taxes
- Calculate the net salary
- Keep records of the entire payroll process, transactions, and payroll compliance
Once a company is set up in Bangladesh, it needs to have a bank account in the country to complete registration for encashment certificates. These certificates prove foreign money exchange in local currency – Bangladeshi taka.
A Step-by-Step Process of Payroll Processing in Bangladesh
Every payroll process is divided into three categories:
- Pre-payroll process
- Payroll calculation process
- Post-payroll process
Let us go over the details of each of these stages.
This includes forming the payroll rules and regulations in Bangladesh, collecting data, and maintaining details. It includes:
- Forming a payroll policy: Every company has its payroll policy that defines the basic pay, leaves, deductions, overtime, and bonuses. The organization’s management wing must approve a payroll policy.
- Collect information: Before beginning the payroll processing, the company must gather the bank details of their employees. This also includes identity documents, local tax IDs, and bank account details.
- Manage data: An employee’s attendance details have to be stored and considered at the time of payroll. As an employer, you must effectively manage this data on employee attendance and performance to know if any employee has earned a bonus or due for raise.
Payroll calculation process
This is the actual process of calculating the employee payroll based on the data. Payroll processing can be done manually or outsourced to a specialized company. You can register on payroll software to calculate the net pay after deductions. In manual processing, the values need to be rechecked for any errors in calculations.
The payroll process does not end with paying the employees, but the company must ensure due diligence and compliance with the industry regulations. The post-payroll process includes:
- Accounting: All the transactions regarding payout and deductions need to be accounted for. You can use trusted accounting software to store this data.
- Payout: Before the actual disbursal of salaries, the main company account needs to be deposited with a sufficient amount.
- Reporting and compliance: Employees need to have details on their tax deductions and salary slips to maintain a record. Management has to generate these payroll reports regularly. The company also needs to comply with the payroll policies and pay related government employment taxes within the due dates.
The payroll tax in Bangladesh requires certain contributions from employers and employees.
For employers: The Bangladesh government does not impose mandatory social security contributions on employers or employees. However, the country has a social security scheme to support retirees and disabled people. Social Security contribution for an employer is 5% of their profits into a Workers Profit Participation Fund.
As per the latest revisions, the corporate tax is 22.5% for publicly listed companies. For non-listed companies, the corporate tax is 30%.
For employees: Every employee has to file annual tax returns. The income tax rates are as follows:
For non-residents, the income tax rate is 30% of the total income.
The payroll in Bangladesh follows a weekly or a monthly cycle, depending on the employer and the sector. Employers must pay salaries within seven days of the last working period. In addition, employees also receive annual bonuses.
Bangladesh Payroll Options for Companies
There are four main options for payroll procedures in Bangladesh:
- Remote: This option lets you include your employees in the parent company’s payroll. Groups of employees will have to follow differing laws, tax codes, and regulations.
- Internal: Suited for larger businesses committed to the country requires a larger team. The company must have a dedicated HR staff, higher budgets, and more resources to best understand the country’s tax code and employment laws.
- Payroll processing company: You can employ a local payroll processing company to handle employee payroll. While they’ll handle payroll management, your firm will be liable for their errors.
- Outsourcing payroll: You can outsource your payroll to a foreign company that knows how to do payroll in Bangladesh. It will take the hassles of payroll policies off your shoulders and ensure complete payroll compliance for your company.
Entitlement and Termination Terms
Employee entitlement, termination, and severance pay are essential aspects of payroll rules and regulations in Bangladesh. Companies must draft written employment contracts that include entitlement and termination terms for each employee. It should specify essential information, including –
- The probation period differs according to the industry. However, the standard probation period for an employee is three months. For clerical jobs, the probation is six months.
- A working week in Bangladesh is 48 hours – eight hours for six days. But working overtime is common in the garment industry. However, employees should not be allowed to work more than 60 hours.
- Employees can be terminated for different reasons, including physical or mental issues. However, they must be given formal written notice.
- A worker fired without prior notice is entitled to one month’s salary and 30 days’ salary for each year worked.
- Issue a prior notice of 120 days for monthly employees. For all other employees, the notice period is of 60 days.
Bangladesh Payroll Processing Company
Expanding to Bangladesh as a subsidiary involves a fair amount of documentation. The labor laws here are strict with non-compliance, so a local team well-versed with payroll in Bangladesh can help you set up everything.
You can reduce the burden on the payroll process by working with an experienced payroll processing company such as Multiplier. We can take care of all the challenges and nuances associated with employee payroll processing, leaving you to focus on the more important administrative business functions.
How Can Multiplier help With Global Payroll?
Multiplier is a global EOR company with local entities in over 150 countries. With a trained team aware of local laws and compliances, you can partner with Multiplier to manage the hiring and payroll of your remote employees. Our payroll management services cover documentation, computing salaries, and final payment disbursement. In fact, our EOR service can help you set up and run payroll in Bangladesh even without opening a subsidiary.
Do get in touch with our experts for more details!