Salary advances are very common in workplaces. They are mainly issued to employees who are in short-term financial need. In Bangladesh, both private and public sectors are allowed to request salary advances. But what are the salary advance rules in Bangladesh?
The salary advance rules in Bangladesh are governed by the labor law in Bangladesh. The law says that employees can ask for salary advances which employers can deduct from their salary. However, each organization can have their own rules to issue salary advances. Like, the maximum amount, repayment method, employee’s eligibility, etc. But remember that salary advance is not an employee loan, but a short-term loan without any interest.
What Is a Salary Advance?
Salary advance is a type of loan given to employees from employers or banks. It means, paying a portion of the salary before the date it was about to be paid. As the name says, salary advance is only applicable to those who receive salary in exchange of work. Employees mostly seek salary advance in emergencies. Like, when they have to pay for car repairs, medical bills, tuition fees, etc.
In Bangladesh, salary advance is considered as a short-term loan given to an employee against his salary. Well, the term includes a one-time loan which employees are allowed to pay through adjustments in their salary. A loan is generally provided at a concessional interest rate. But salary advance means just paying a portion of the salary before the paying time. The employee repays the salary through EMI or equal monthly installments (interest-free).
Are Salary Advances Legal in Bangladesh?
Yes, salary advances are legal in Bangladesh. However, there are some norms and labor regulations to follow as per the Bangladesh Labor Act 2006. In Employment Act’s Section 17(9), it is clearly stated that if an employee takes more than his two months salary in advance, the employer cannot recover the excess by the court’s action. He can recover the advance given by deducting from the employee’s salary.
Bangladesh Labor Rules, 2015 also govern the term of salary advances. If employees go for early wage payments, employers are allowed to make deductions from their further salary.
What Are the Rules for Providing Salary Advances in Bangladesh?
As per the financial regulations and government circulars, salary advances in Bangladesh are subject to certain rules. The Finance Division says that the limit of advance is 3000 BDT. But most of the time, it depends on the employer’s policy. For example, an employer can issue a salary advance of maximum 3 times of the employees net salary. Or it can be 90% of the salary that the employee will receive after the completion of work. Some employers don’t even have the policy to issue the salary advance. But it’s true that the advance doesn’t affect an employee’s credit score.
The employee has to submit a formal request for advance salary. Then the employer will review the request and approve it based on the company policy. In 2019 Labor Code, Clause 2, Article 101, it’s stated that the employer must provide the salary advance if the level and time of the advance are mutually agreed.
The public sector not only offers greater stability and job security, but also readily available salary advances. Specifically, the civil servants who go through financial difficulties and emergencies can have easy access to salary advances.
What Should Employers Include in a Salary Advance Policy?
In the salary advance policy, employers must include advance amount, application process, guidelines, repayment, eligibility of the employee, and many more. For example, the eligibility of the employee can be ensured when he has completed the probation period. Then he must have a good standing with the company, and not in termination or suspension. And most importantly, he must have not taken any company-sponsored loan.
Within a written document, the employer should mention if he will recover the advance given salary by deducting from the further salary or by installments. Generally, both parties agree on a fixed installment amount.
It won’t be surprising if disputes arise regarding salary advance deductions. In that case, how will HR handle it? Here are some ways-
- The employee must be provided with a written document of the salary advance.
- Have a written consent or transparent documentation from the employee.
- Regularly reviewing and updating the deductions made on the paychecks.
- The employee should ask and negotiate with the employer to avoid any misunderstanding.
How Is a Salary Advance Recovered in Bangladesh?
In Bangladesh, salary advance or the interest-free short-term loan is recovered from the by deducting from the future paychecks.
The Bangladesh Labor Act (BLA) allows the deduction of 50% from the employee’s monthly salary to recover the advance. But it should not exceed 50%. It means, an employer cannot deduct an employee’s one month salary to recover the advance he took.
How Does Salary Advance Differ From Employee Loans in Bangladesh?
As said before, salary advance is a short-term loan given to employees when they are in urgent financial need. It’s an early release of the payment from the employer without charging any interest. But he can deduct up to 50% from the further paychecks. Salary advances are often offered by public and private sectors, mostly public sectors.
Employee loans, on the other hand, are offered by non-banking and banking financial institutions. It involves lending money beyond the earned income. Employee loans involve interest and their repayment period is longer, i.e. 2 to 3 years. Compared to salary advance, employee loan is more complex. Because here you have to go through tax reporting and legal compliance.
Are There Any Tax Implications on Salary Advances in Bangladesh?
Unlike employee loans, salary advances don’t have tax implications because they are taking a part of their salary. If by any chance the advance is not recovered, it will be a taxable benefit for the employer. So, employers must keep accurate records to comply with the tax requirements.
Can Salary Advances Be Automated in Payroll Systems?
Employers can use payroll systems to automate salary advances or payroll advances. A payroll software helps to automate tax management, salary advance tracking, employee monitoring and audit trails for compliance.
The payroll systems automatically calculate net pay, gross pay, and deductions. Then they generate payroll summaries, year-end statements, and tax reports. Employees easily receive digital payslips from the payroll systems in one click.
In short, payroll softwares reduces the administrative burden and helps maintain transparency in terms of salary advances.
Final Words
If salary advances are managed properly, they can be valuable for employees during their financial hardship. Thankfully, the practice is legal in Bangladesh. But employees and employers have to maintain certain rules to exercise the salary advance term. The employee should show an authentic need to apply for the advance. Meanwhile, the employer should review the request and grant the advance if it meets the company’s policy. But the employer can’t deduct the employee’s further paychecks more than 50% to recover the advance. For better management of payroll advances, it’s better to take help from the payroll softwares.
