Payroll in Bangladesh

Bangladesh Payroll at a Glance

Bangladesh payroll is governed by the Labour Act 2006 and involves sector-specific minimum wages, a multi-slab income tax system revised annually, and a 20% late-payment interest penalty for errors.

Before running payroll, foreign companies face a critical decision: establish a local subsidiary through RJSC registration, BIN, and TIN, or use a Global Employer of Record (EOR) to employ workers without a local entity. The subsidiary route gives direct control but requires significant setup time and ongoing compliance overhead. The EOR route enables entity-free employment with local execution and centralized governance. For context on regional payroll structures, see Payroll in Sri Lanka and Payroll in China (Mainland).

This guide covers salary calculation, minimum wages, income tax, employer contributions, leave entitlements, termination rules, onboarding requirements, and work permits for expatriates.

Key Country Facts for Payroll Planning

The table below provides the reference data needed to configure a payroll system for Bangladesh, including currency, fiscal year, time zone, and date format.

The July to June fiscal year means the annual income tax return deadline falls on 30 November each year. Payroll calendars must account for this filing window when scheduling year-end reporting and employee tax submissions.

Payroll Options: Subsidiary vs. Employer of Record

Setting up a subsidiary in Bangladesh requires RJSC name clearance, a Memorandum and Articles of Association, a Business Identification Number (BIN), a Tax Identification Number (TIN), a local bank account, and an encashment certificate to prove foreign currency exchange. The documentation burden is significant, even for a single hire.

An Employer of Record holds the local entity and acts as the legal employer. The foreign company directs the work while the EOR manages payroll calculation, income tax withholding, WPPF contributions, and statutory benefits. No subsidiary is required, which reduces time-to-hire considerably. To understand the mechanics, see how does EOR work and review employer of record cost before committing to either route.

How Payroll Is Calculated in Bangladesh

Net Salary equals Gross Salary minus Deductions. Gross salary includes basic salary, house rent allowance, medical allowance, conveyance allowance, other allowances, reimbursements, and bonuses. Deductions cover income tax withheld at source, provident fund, professional tax, insurances, and entertainment allowance.

The average employer tax burden in Bangladesh is approximately 32.5%, and payroll taxes range from 10% to 30% depending on the employee's income slab. These figures give a reliable starting point for budgeting total cost of employment before running detailed calculations.

Gross Salary Components and Deductions Formula

Gross salary in Bangladesh includes basic salary, house rent allowance, medical allowance, conveyance allowance, reimbursements, and bonuses. Basic salary is the anchor: house rent is calculated at 50% of basic and medical at 10% of basic.

Festival and performance bonuses are included in gross salary. Reimbursements are also included but may receive different tax treatment depending on their classification.

• Gross components: Basic salary, house rent allowance, medical allowance, conveyance allowance, reimbursements, bonuses
• Mandatory deductions: Income tax (withheld at source), provident fund (where applicable), professional tax, insurance premiums, entertainment allowance

Employers must withhold income tax at source under the Tax Deducted at Source (TDS) obligation. Misclassifying allowances leads to over- or under-withholding. Errors attract a 20% late-payment interest charge, so correct component classification directly affects both tax exposure and net pay.

Statutory Allowance Rates: House Rent, Medical, and Conveyance

Bangladesh sets statutory rates for three core allowances, each tied to basic salary. These rates define both the payroll cost and the point at which an allowance becomes taxable income for the employee. Employers must apply the correct rates to avoid under-withholding.

Any allowance paid above the statutory exempt cap is treated as taxable income and must be included in the employee's withholding calculation. For house rent, amounts above BDT 25,000 per month or 50% of basic are added back to taxable income. For medical, amounts above BDT 120,000 per year or 10% of basic are taxable. Conveyance paid beyond 10% of basic is also taxable.

Overtime Pay Rules and Calculation Formula

Bangladesh sets the standard working week at 48 hours: 8 hours per day across 6 days. Overtime begins after 48 hours. The daily cap is 10 hours, the weekly cap is 60 hours, and the annual average must not exceed 56 hours per week.

The overtime rate is twice the regular hourly pay. Use this formula to calculate it:

Employers must inform workers at least 2 hours before overtime begins, and worker consent is required under Labour Act Section 108. Failure to comply exposes the employer to Labour Act penalties.

Minimum Wage in Bangladesh by Industry

Bangladesh does not have a single national minimum wage. The National Minimum Wage Board sets sector-specific floors, reviewed periodically. The most recent revision, effective 2024, raised the ready-made garments (RMG) minimum from BDT 8,000 to BDT 12,500 per month.

Applying the wrong sector rate is a Labour Act violation. The gap between sectors is significant: Hotel & Restaurant workers earn a minimum of BDT 3,710 per month while Construction & Wood workers earn BDT 16,240. Always verify the current gazette notification for your specific industry before setting payroll floors.

Income Tax Rates and Withholding Obligations

Bangladesh's tax year runs from 1 July to 30 June. Employers must withhold income tax at source on all salary payments. FY 2025-26 introduced a revised six-slab structure with a new 30% top rate, replacing the previous 25% ceiling.

Personal Income Tax Slabs for FY 2025-26 and Beyond

Bangladesh now applies six income tax slabs for FY 2025-26. The top marginal rate increased from 25% to 30%, applying to income above the 25% band. The structure below reflects rates confirmed by PwC and Neeyamo for FY 2025-26.

If total income exceeds the tax-free threshold, a minimum tax of BDT 5,000 applies. New taxpayers pay a reduced minimum of BDT 1,000. Employers must file quarterly withholding returns by 25 October, 25 January, 25 April, and 25 July. Late payment attracts 20% additional interest.

Tax-Free Thresholds by Taxpayer Category

Applying the wrong threshold causes over-withholding or under-withholding penalties. Collect each employee's category during onboarding to apply the correct FY 2025-26 threshold.

Parents or legal guardians of a physically challenged person receive an additional BDT 50,000 deduction per dependent child. Only one parent may claim this per child. Collect supporting documentation at onboarding to substantiate the claim.

Residency Rules and Non-Resident Tax Treatment

An individual is a tax resident in Bangladesh if present for 183 or more days in the tax year. A second test also applies: presence for 90 or more days in the current tax year combined with 365 or more days across the preceding four years establishes residency. Bangladesh determines residential status independently for each tax year.

Non-resident non-Bangladeshi citizens are taxed at a flat 30% on Bangladesh-sourced income only. Income accruing outside Bangladesh is not taxable for non-residents. Non-resident Bangladeshi citizens, by contrast, are taxed at the same progressive rates that apply to residents.

Payroll teams must confirm residency status before applying withholding rates. An expatriate on a short assignment may be non-resident in year one but qualify as resident in year two. Flag residency status in the payroll system at onboarding and review it at the start of each new tax year.

Wealth Surcharge and Minimum Tax Rules

Bangladesh levies a surcharge on top of income tax for individuals whose net wealth exceeds BDT 40 million. This affects senior expatriates and high-earning local executives.

Owning more than one motor car, or house property with an aggregate area exceeding 8,000 sq ft, also triggers the 10% surcharge band regardless of financial net worth. Employers managing expatriate tax planning should account for these non-monetary triggers during annual reviews.

Employer Payroll Contributions and Social Security

Bangladesh does not operate a traditional social security scheme funded by employer and employee contributions. However, qualifying employers are not free of statutory payroll obligations.

Under the Bangladesh Labour Act, employers meeting the profit threshold must contribute 5% of net profits to the Workers' Profit Participation Fund (WPPF). This is a direct payroll cost that affects total employment budgeting and must be factored into workforce planning from the outset. The two sub-sections below cover the WPPF in detail and the corporate tax rates that affect overall employment cost.

Workers' Profit Participation Fund (WPPF)

The Bangladesh Labour Act requires qualifying employers to contribute 5% of annual profits to a Workers' Profit Participation Fund (WPPF). These funds are distributed directly to workers as a profit-sharing benefit.

The WPPF is a profit-sharing mechanism, not a social insurance scheme. No employee contribution is required. Traditional social security costs such as old-age pensions and disability coverage are funded by the government, so neither employers nor employees contribute to those schemes.

The WPPF applies to companies above a certain size and profit threshold. Because the contribution is 5% of profits, it is a variable cost and must be included in total cost-of-employment calculations.

Corporate Tax Rates Relevant to Payroll Costs

Corporate tax rates in Bangladesh affect the total cost of employing staff, particularly when budgeting for WPPF contributions and other payroll-related expenses.

Publicly listed companies pay corporate tax at 22.5%. Non-listed companies pay 30%. These rates determine the after-tax cost of profit-linked obligations such as the WPPF.

Larger employers should also account for a 10% surcharge on tax payable when net wealth exceeds BDT 40 million. This mirrors the individual wealth surcharge structure and increases the effective tax burden for qualifying corporate entities.

Setting Up Payroll in Bangladesh Step by Step

Payroll setup in Bangladesh follows three phases: pre-payroll registration and data collection, payroll calculation and disbursement, and post-payroll reporting and compliance. The subsidiary route requires completing RJSC incorporation, BIN, TIN, and local bank account setup before the first payroll run. Companies that prefer to skip most of these steps can use an EOR services model, covered in the Payroll Options section above.

Pre-Payroll Phase: Registration and Data Collection

Before any payroll calculation can begin, a company must complete a defined sequence of registrations. These steps are mandatory for both paying employees and remitting taxes to the authorities.

1. Obtain RJSC name clearance and complete company incorporation.
2. Register for a Business Identification Number (BIN) from the National Board of Revenue (NBR).
3. Obtain a Tax Identification Number (TIN).
4. Open a local bank account and secure an encashment certificate. Payments to employees and authorities must be made from an in-country bank account.
5. Complete VAT registration and obtain a trade license.

Once the company is registered, collect the following data for each employee before running payroll: TIN, national ID photo card, three photographs, and bank account details. Establish a payroll schedule (monthly is standard in Bangladesh), along with leave, attendance, and overtime policies.

Allow three to four days to process payroll and registration once all data is in place. Build this lead time into your payroll calendar from the first cycle.

Payroll Calculation and Disbursement Phase

Calculate net salary by applying statutory allowance rates to basic salary, then deduct income tax withheld at source, provident fund contributions, and any other approved deductions.

Salaries must be paid within seven days of the last working day of the pay period. Payment must be made from an in-country bank account. The standard payroll cycle in Bangladesh is monthly.

Post-Payroll: Reporting, Filing Deadlines, and Record Retention

Quarterly withholding returns must be filed with the Deputy Commissioner of Taxes within 15 days after the close of each quarter. Deadlines fall on 25 October, 25 January, 25 April, and 25 July.

The annual income tax return is due by 30 November following the tax year, which ends 30 June. Each quarterly report must include employee names, TINs, and amounts deducted.

Payroll records must be retained for a minimum of three years. Tax records must be kept for at least five years. Late tax payments carry an additional 20% interest penalty.

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Payroll Cycle and Festival Bonus Requirements

Payroll in Bangladesh can run daily, weekly, bi-weekly, or monthly. Monthly is the standard practice. Salaries must be paid within seven days of the last working day of the pay period.

Employers must pay two festival bonuses each year under the Bangladesh Labour Act. Each bonus equals one month's basic salary. These bonuses are typically paid during Eid ul-Fitr and Eid ul-Adha.

Bangladesh has no statutory 13th month salary requirement. The festival bonus is a separate obligation calculated on basic salary only, not gross salary.

Leave Entitlements and Public Holidays

The Bangladesh Labour Act establishes several leave categories: casual leave, sick leave, earned (annual) leave, maternity leave, paternity leave, child care leave, and festival holidays.

Bangladesh observes 21 national holidays each year, but employees are entitled to only 11 paid festival holidays. The employer selects which 11 holidays to observe. The sub-sections below detail entitlements, conditions, and the 2026 public holiday calendar.

Annual, Sick, and Casual Leave Rules

Bangladesh law grants three distinct leave types, each with separate rules. Casual, sick, and earned leave cannot be substituted for one another.

Earned leave can be encashed once per year, but no more than half the accrued balance may be cashed out at year-end. Eligibility for paid leave requires at least six months of continuous service with the same employer.

Maternity, Paternity, and Child Care Leave

Female employees are entitled to 16 weeks (112 days) of fully paid maternity leave. Two conditions apply: the employee must have worked at least six months with the employer, and the benefit does not apply if she already has two living children.

Paternity leave is not mandated by law. Company policy governs the entitlement; one paid day is the statutory minimum referenced in practice. Female employees also hold a right to unpaid child care leave for a child under six years of age, for up to six months at a time, and for up to three separate periods throughout their employment.

In cases of miscarriage, a female worker is entitled to four weeks of leave with wages for sickness.

2026 Bangladesh Public Holiday Calendar

Bangladesh observes 27 public holidays in 2026. Several are moon-dependent, meaning their exact dates shift with lunar sighting. Payroll planners should build contingency into schedules for these dates.

*** Date subject to moon sighting confirmation. Employers should monitor official announcements before finalising payroll schedules for these holidays.

Employers must select 11 paid festival holidays from the national list and communicate the selection to employees at the start of each calendar year.

Termination, Notice Periods, and Severance Pay

The Bangladesh Labour Act recognises four distinct termination scenarios: employer-initiated termination, employee resignation, removal for misconduct, and dismissal for serious offences.

Each scenario carries different notice period obligations and severance entitlements. Written notice is mandatory in all cases except dismissal for serious offences, where the employer may act without advance notice. The sub-sections below set out the specific rules for each scenario.

Notice Period Requirements by Worker Type

Bangladesh law sets different notice periods depending on worker classification. Payment in lieu of notice is permitted in all cases.

For temporary workers, these periods apply only when termination is not due to the natural completion or discontinuance of the temporary work. For misconduct dismissal, the employer must provide the allegation in writing and give the worker an opportunity to be heard before dismissal takes effect. No prior government approval is required.

Severance Pay Formula and Conditions

The standard severance rate is 30 days' wages per completed year of service, or gratuity (whichever is higher). A minimum of one year of continuous service is required to qualify.

This rate applies to terminations under Labour Act sections 26 (termination), 20 (retrenchment), and 22 (discharge on medical grounds).

When a worker is removed under section 23(3) rather than formally dismissed, severance falls to 15 days' wages per year. Dismissal for theft, fraud, or similar serious offences carries no severance entitlement at all.

Even when severance is zero due to serious misconduct, the dismissed worker retains entitlement to provident fund and WPPF benefits accrued during service. This is a common compliance oversight for employers managing terminations in Bangladesh.

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Hiring, Onboarding, and Probation Requirements

The Bangladesh Labour Act 2006 sets specific document and record obligations from the moment of hire. Employers must issue an appointment letter, provide an identity card with a photograph, and maintain a service book at their own cost.

Mandatory Appointment Letter and Service Book

Under Labour Rules Rule 19, every appointment letter must include the worker's name, parents' names, spouse name (if applicable), and present and permanent addresses.

The letter must also state the worker's designation, type of work, joining date, and worker class. Financial terms must be specified: wage or pay scale, annual increment rate, and all applicable benefits including house rent, medical, education, food, conveyance, festival allowance, and gratuity.

The appointment letter must reference the establishment's service rules and the Labour Act itself.

• Worker's full name, parents' names, and spouse name (if applicable)
• Present and permanent addresses
• Designation, type of work, joining date, and worker class
• Wage or pay scale and annual increment rate
• Financial benefits: house rent, medical, education, food, conveyance, festival allowance, gratuity
• Reference to establishment's service rules and the Labour Act

Every employer must provide a service book at their own cost. The service book records the worker's name, parents' names, date of birth, identification particulars, and previous employer details. An identity card with a photograph must also be issued to every worker before employment begins.

Background checks, medical examinations, and drug and alcohol testing are all legally permissible. The Labour Act and Labour Rules place no restriction on carrying out pre-employment checks on applicants.

Probation Periods by Role Type

Clerical workers serve a six-month probation period. All other workers serve three months. Skilled workers may receive an extension of up to three months if the quality of their work cannot be assessed within the initial period.

A worker becomes permanent automatically once the probation or any approved extension ends. No confirmation letter is required for permanent status to attach. Employers cannot extend probation beyond the statutory period for non-skilled workers, and failing to issue a confirmation letter does not delay or prevent permanent employment status.

Employee Benefits and Compensation in Bangladesh

Bangladesh law mandates a defined set of benefits. Statutory entitlements include the festival bonus (paid twice per year), maternity benefit, Workers' Profit Participation Fund (WPPF) contributions, and gratuity where applicable.

Beyond statutory minimums, employers commonly offer Provident Fund, Gratuity Fund, Medical Insurance, Annual Leave Encashment, Leave Fare Assistance (LFA), Pick-and-Drop Services, Subsidized Lunch Facilities, and Compensation for Disability, Death, or Retirement.

Travel expenses and income tax gross-up are also common employer-provided benefits. Depending on company policy and applicable labour rules, these may be excluded from payroll and processed as separate expense claims.

In Bangladesh's growing RMG and technology sectors, professional workers increasingly expect benefits such as LFA and medical insurance as standard. A competitive package supports talent attraction and retention in a tightening market.

Work Permits and Visas for Expatriate Employees

Hiring an expatriate in Bangladesh follows a two-stage process managed through the Bangladesh Investment Development Authority (BIDA).

1. The employer files a work permit application with BIDA to obtain an e-visa recommendation.
2. The Bangladesh Embassy issues a three-month e-visa on receipt of that recommendation.
3. On arrival, the employee applies to BIDA for the formal work permit. The application stage takes approximately two weeks.

The following documents are required for the work permit application:

• Employer's incorporation certificate with Memorandum and Articles of Association
• Board resolution stating the employee's salary and benefits
• Passport photos and a copy of the passport
• Service contract or appointment letter
• Academic and professional qualification certificates
• Copy of a local recruitment advertisement
• Company manpower statement listing local and expatriate personnel

An employment visa is granted for a maximum of five years from the date of initial issue and is extended year by year. All new expatriate starters must be registered with the Board of Investment and included in the company's annual returns.

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Frequently Asked Questions About Bangladesh Payroll

The five questions below address the most common compliance queries on Bangladesh payroll, covering festival bonuses, employer contributions, the Employer of Record option, minimum wage, and overtime.

Is the festival bonus mandatory in Bangladesh?

Yes. Employers in Bangladesh must pay two festival bonuses each year under the Bangladesh Labour Act. Each bonus equals one month's basic salary. Bonuses are calculated on basic salary, not gross salary, and are typically paid at Eid ul-Fitr and Eid ul-Adha.

What are the employer payroll contribution obligations in Bangladesh?

Bangladesh has no mandatory employer or employee social security contributions. Qualifying employers must contribute 5% of net profits to the Workers' Profit Participation Fund (WPPF). Statutory obligations also include two festival bonuses per year, 16 weeks of maternity pay, and gratuity where applicable.

Can a foreign company run payroll in Bangladesh without a local subsidiary?

Yes. A foreign company can employ and pay workers in Bangladesh through an EOR services provider. The EOR holds the local entity, acts as the legal employer, and handles payroll, tax withholding, and Labour Act compliance. The foreign company directs the work. No subsidiary registration is required.

What is the minimum wage in Bangladesh in 2025?

There is no single national minimum wage in Bangladesh. The ready-made garment (RMG) sector sets the most widely cited figure: 12,500 BDT per month, effective from the 2024 Minimum Wage Board decision. Rates across other sectors range from approximately 3,000 BDT to 16,240 BDT per month. See the full industry breakdown in the minimum wage section above.

How is overtime calculated in Bangladesh?

Overtime in Bangladesh is paid at twice the regular hourly rate. The formula is: Basic Salary ÷ 208 × 2 = overtime hourly rate. Workers may not exceed 10 hours per day or 60 hours per week, with an annual average cap of 56 hours per week. Employers must give at least 2 hours' advance notice before overtime begins.