Payroll in Bangladesh is a calculated way of dispensing salaries and payments along with any allowances, deductions, and bonuses. Payroll management involves understanding the labor laws and wage structures. There are certain rules for payroll governed by labor laws of Bangladesh. Understanding these regulations and complying with them is necessary to avoid penalties. Employers often face challenges with the payroll processing and complex calculations. Organizations can utilize payroll software to simplify the process and overcome challenges.
What Is Payroll?
Payroll is a system of calculating and disbursing salaries to employees. In Bangladesh, payroll must obligate the tie to the Bangladesh Labor Act 2006. Which consists of the rules for wage payments, minimum wage standards, taxation, bonus distributions as well as on time payments.
What Are the Payroll Rules and Regulations in Bangladesh?
The payroll rules in Bangladesh are based on the Bangladesh Labour Act 2006 and follow-on amendments. Below are the details of the regulations that a business must comply with for payroll management:
- For organizations with workers less than 100 needs to credit wages within seven working days from the close of the wage period. It is extended to ten working days for those with 100 or more workers.
- The minimum wage is set by the government on a sector-specific basis. Like, in the garment industry the minimum wage is 8100 BDT as per the law.
- The normal hourly wage is doubled for the overtime hours worked.
- In Bangladesh, payroll taxes range from 10% to 30%. Employers should deduct the applicable tax based on the employee’s income bracket.
- Employees who have completed one year of service period must contribute to the provident fund. The amount can not be less than 7% and more than 8% of the monthly basic salary. Each contribution made shall be recorded by the employer.
- The unused annual leaves can be encashed by employees.
- Employees working in a company for at least one year are eligible to get two festival bonuses each year. This applies for both public and private sectors. The amount of bonus cannot exceed the amount of the basic salary.
- Employers are required to keep accurate records of payrolls with a detailed salary breakdown.
What Is the Payroll Structure in Bangladesh?
The payroll structure for Bangladesh usually consists of the following parts.
Basic Salary
The basic salary is determined based on the employment contract. It is an agreement between employee and employer. Generally, the basic salary is around 50-60% of gross salary.
Allowances
Companies often provide allowances based on their internal policies.
- House Rent Allowance (HRA): Usually 50% of the basic salary.
- Medical Allowance: 10% of the basic salary.
- Conveyance Allowance: Allowance for travel between work place and home is generally 10% of the basic salary.
- Other Allowances: There can be other types of allowances depending on various organizations.
Bonuses
Organizations can have their own internal policies in terms of providing bonuses to employees.
- Festival Bonus: Festival bonus is the amount an employee receives before any major religious or cultural events.
- Performance Bonus: This is provided based on the performance of the employee and the organization’s policies.
Gross Salary
Gross salary comes by adding all the benefits and allowances with the basic salary.
Deductions
Employers are required to deduct taxes and other contributions from salaries of employees.
- Income Tax: Deducted at source applicable by specific income tax rates.
- The Provident Fund: Contribution to the provident fund is deducted from employees’s salaries who are eligible.
- Loan Deductions: A type of deduction to pay off loans or advances taken by the employee.
Net Salary
Net salary is the amount after subtracting all the deductions from gross salary. It is the amount that will be paid to the employee.
How Is Payroll Processed in Bangladesh?
The payroll process in Bangladesh has different steps in place before the final salary is paid out to employees. They are as follows.
1. Employee Data Collection
The employee information for payroll processing includes records of attendance, working hours, allowances, bonuses, overtime and leaves. Other notable information are deductions like taxes & provident fund contributions. Employers also need to collect Bank details of employees.
2. Salary Calculation
Based on the recorded data, payroll is calculated for each employee. Here, all the allowances, benefits, overtime pay is added with basic salary to find the gross salary amount. Then, all the deductions like contributions and taxes are subtracted from gross salary to calculate net salary.
3. Payroll Approval
Before disbursing, the payroll data goes for review and approval by the finance or HR department.
4. Salary Disbursement
The net salary amount is paid to employees. Companies can provide salaries to employees through electronic channels, bank transfer, cheque, or cash.
5. Record Keeping & Compliance
Employers are required to maintain accurate payroll records for future reference and possible audits. They may provide salary slips to employees with a detailed breakdown.
What Are the Salary Deduction Rules in Bangladesh?
Employers must consider the following salary deduction rules to remain compliant with the labor laws of Bangladesh.
- Salary deductions must comply with Bangladesh labor act, 2006.
- An employee must be eligible for deducting taxes and provident fund contributions.
- Employers are required to maintain detailed records of all deductions.
- Salary deduction is permissible for salary advances or loans taken.
- Unpaid leaves will be deducted from salary.
- Total deductions from an employee’s wages shouldn’t go over 50% of their total salary.
- Written consent from the employee is mandatory for voluntary contributions.
- Employers must record all kinds of fines.
- The amount of fines shall be used only for the welfare of the employees.
What Are the Challenges in Managing Payroll in Bangladesh?
Managing a huge workforce with a manual payroll management system is a real challenge in Bangladesh. There are also other notable challenges that employers face. This includes:
- Manual Errors: Most companies still have a manual payroll system. They have been predisposed to the possibility of errors in payroll calculations.
- Manage Huge Workforce: Attendance tracking and salary calculations against a large number of employees is a very difficult job. Consequently, it becomes a challenge to pay salaries with accurate payroll calculations.
- Compliance with Labor Laws: Sometimes it is challenging for businesses, especially SMEs to abide by the labor laws and wage regulations.
- Overtime Calculations: Overtime wages are calculated as twice the standard hourly rate. This adds a layer of complexity in payroll calculations for businesses with shifting work culture.
- Performance Reviews and Appraisal Processes: It is difficult to assess yearly performance and make data-driven decisions on salary increments if the system is managed manually.
- Data Management: The major challenge is handling huge chunks of employee data, such as attendance records, allowances, leaves, overtime and payroll history.
How Can Businesses Automate Payroll Management in Bangladesh?
An efficient HR & payroll management software can automate the entire cycle of payroll process. The software automates repetitive tasks like attendance tracking and payroll calculations. Thus, accurate data recording and calculation are ensured. It helps to comply with the payroll and tax laws in Bangladesh by calculating payrolls with predefined rules. Also, payroll software like PiHR offers reporting features for real-time payroll insights and detailed report generation.
Final Words
Bangladesh is facing consistent economic growth. Foreign investors are attracted to invest as product cost is comparatively low. Payroll management is also evolving to meet this growing demand. The Bangladesh government is committed to improve labor standards over time. Current payroll rules differ based on various industries. Also, the changing rules, accurate recording & calculation and on time disbursement are challenging. Adopting technologies like payroll software helps to automate payroll calculations, maintain accurate records and abide by the changing labor rules.
