Payroll in Bangladesh: Employer Obligations, Tax Withholding and Compliance in 2026

Payroll in Bangladesh: what employers must get right in 2026

Payroll in Bangladesh is governed by two statutes that rarely speak to each other: the Bangladesh Labour Act 2006, which decides when wages are paid, what may be deducted and which benefits are owed, and the Income Tax Act 2023, which turns every employer into a tax collector at the point of payment. Add Bangladesh Bank's rules for expatriate salaries and the work permit regime now run by Invest Bangladesh, and a monthly payroll run becomes a compliance exercise with several regulators watching the same payslip.

This guide is for foreign companies paying a first team in Dhaka, regional finance teams inheriting a Bangladesh entity and local businesses updating controls after the 2026 Labour Act and Finance Act changes. It covers wage timing and deductions, salary structure, tax withholding and the 2026 slabs, returns and certificates, bonuses and benefits, records, paying foreign nationals, an audit checklist and outsourced or employer of record payroll.

Summary: An employer in Bangladesh must fix wage periods of no more than one month, pay within seven working days after each period ends, deduct only what the Labour Act permits, withhold income tax at the employee's average rate under section 86 of the Income Tax Act 2023, deposit it within two weeks of the month end, file quarterly withholding returns and issue certificates. Festival bonus, overtime and provident fund contributions are calculated on basic wage, so the salary split is the most important payroll design decision. Foreign nationals need a work permit before the first salary, and their remittances abroad follow an 80:20 rule.

Key point: The 2026 reforms changed the payroll calendar, not just the rulebook. Since Act No 43 of 2026, festival holidays are 13 days and maternity benefit runs for 120 days at gross wage divided by 26, and the Finance Act 2026 replaced disallowance of costs for withholding defaults with an additional tax of 150% of the default. A payroll configured before April 2026 is probably wrong on at least one of these points.

At a glance

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Table of Contents

Who runs payroll in Bangladesh and which laws apply

The legal employer is responsible for payroll, whatever software or provider does the processing. The Labour Act makes the employer liable for all wages due and, outside contractor arrangements, also makes the chief executive, the manager and any person responsible for supervising the establishment liable. Where a contractor fails to pay its workers, the principal employer must pay them and recover the cost from the contractor.[1] Outsourcing labour does not outsource wage liability.

Four bodies of law apply to every run. The Labour Act, as amended most recently by the Bangladesh Labour (Amendment) Act 2026 (Act No 43 of 2026, dated 10 April 2026), sets wage periods, deadlines, deductions and statutory benefits.[1] [2] The Labour Rules 2015 add forms, notices and the festival bonus. The Income Tax Act 2023 governs withholding, deposits, certificates and returns. For foreign staff, Bangladesh Bank's circulars and the work permit regime complete the picture. The 2025 and 2026 reforms also widened the definition of "worker"; our guide to the Labour Act amendment 2025 explains the change. Enterprises in export processing zones follow the separate EPZ Labour Act 2019, which the 2026 amendments do not reach.

The authorities that touch payroll

Wage periods, payment deadlines and method of payment

The timing rules are short and strict. Every employer must fix wage periods, and no wage period may exceed one month. Wages must be paid before the end of the seventh working day after the last day of the wage period, and always on a working day.[1] An October payroll must therefore reach employees within the first seven working days of November.

Final settlement on exit

When employment ends by retirement, retrenchment, discharge, removal, resignation or otherwise, all wages payable must be paid within thirty working days of termination. For this chapter "wages" also includes contractual bonuses, leave and overtime pay, sums due under orders or settlements and amounts payable on termination.[1] The thirty-day clock covers the whole final settlement. Our guide to severance pay in Bangladesh explains the termination amounts after 2026.

Cash, cheque or bank transfer

Section 124 allows wages to be paid in currency notes or by bank cheque and, at the worker's request, by electronic transfer to the worker's bank account.[1] Tax law pushes the other way: section 55 of the Income Tax Act 2023 makes any payment under the head income from employment made other than by bank transfer inadmissible as a business deduction.[4] Cash salaries are lawful but expensive, so bank transfer should be the default. Sections 120 to 125 were not among the provisions amended in 2026, so these rules are stable.[2]

Lawful deductions from wages

The default rule is prohibition. No deduction may be made from a worker's wages except those the Labour Act authorises, and deductions from basic wage are limited to a closed list in section 125(2).[1]

• Discipline and absence: fines under section 25 and deductions for unauthorised absence.
• Loss and damage: loss of goods or money entrusted to the worker and directly caused by the worker's neglect or default.
• Housing and services: employer accommodation, and government-approved facilities or services other than tools and materials needed for the work.
• Advances and overpayments: recovery of loans or advances and adjustment of overpaid wages.
• Tax and orders: income tax payable by the worker and deductions ordered by a court or competent authority.
• Funds and unions: provident fund contributions, approved co-operative and insurance payments, consented welfare schemes and check-off union subscriptions.

Anything outside the list, such as a deduction for a laptop, a training bond or a notice shortfall, needs a separate agreement or claim, not a payroll deduction. Map every recurring deduction code in the system to a clause of section 125.

Salary structure: basic, house rent, medical and conveyance

Bangladeshi salaries are usually expressed as a gross figure split into basic wage, house rent allowance, medical allowance, conveyance and, in some sectors, food allowance. The split decides the cost of nearly every statutory payment and the employee's tax position.

The garment structure as a benchmark

The garment minimum wage gazette shows the classic pattern. For an entry-level worker the minimum monthly wage of Tk 12,500 comprises a basic wage of Tk 6,700, house rent of Tk 3,350, a medical allowance of Tk 750, conveyance of Tk 450 and food of Tk 1,250.[9] House rent is 50% of basic, and basic wage is a little over half of gross. Office employers commonly follow the same logic at higher levels.

Why basic wage matters for statutory cost

Overtime, deductions and provident fund contributions are tied to basic wage by statute, and the festival bonus is capped by reference to it.[1] [3] A package with a 60% basic share costs materially more in bonuses, overtime and retirement benefits than the same gross with a 50% share. Keeping basic artificially low carries its own risk: a structure that looks engineered to defeat statutory benefits, or falls below a sector minimum, is hard to defend before the Labour Court.

Basic salary, salary and perquisites for tax

The Income Tax Act 2023 defines basic salary as the pay on which other allowances and benefits are determined, excluding allowances, perquisites, bonuses and employer fund contributions. Salary includes wages, allowances, leave encashment, bonus, overtime, gratuities and perquisites, and termination compensation is profit in lieu of salary. A perquisite is any payment or benefit other than basic salary, arrears, advance salary, festival allowance, leave encashment, overtime and contributions to recognised or approved funds, so house rent, medical and conveyance allowances are perquisites.[4] The Finance Act 2026 raised the employer's deductible perquisite limit from Tk 2 million to Tk 2.5 million per employee.[5] Employer cars are valued for the employee at Tk 15,000 to Tk 50,000 a month by engine capacity.[6]

Income tax withholding on salaries under the Income Tax Act 2023

Salary withholding is the core tax obligation of payroll in Bangladesh. Section 86 requires the person paying income from employment to deduct tax at the time of payment, at a rate representing the average of the rates applicable to the employee's estimated total income under that head. Any surplus or deficit must be adjusted through later deductions, and the Deputy Commissioner of Taxes may certify, on the employee's application, that no tax or tax at a lower rate is to be deducted for the rest of the year.[4]

How the monthly calculation works

The income year runs from 1 July to 30 June.[6] Payroll estimates each employee's annual taxable salary, applies exemptions and slabs, subtracts the expected investment rebate and spreads the result over the remaining months. Every pay change, bonus, mid-year joiner or new investment declaration requires a recalculation, which keeps the June true-up small.

The 2026-27 income tax slabs

For assessment years 2026-27 and 2027-28 a general taxpayer pays nil on the first Tk 400,000, then 10% on the next Tk 300,000, 15% on the next Tk 400,000, 20% on the next Tk 500,000, 25% on the next Tk 2 million and 30% on the balance. The threshold is Tk 450,000 for women and senior citizens aged 65 or above, Tk 525,000 for persons with disabilities and third-gender taxpayers, and Tk 550,000 for war-wounded gazetted freedom fighters and July fighters. A 35% top rate is legislated from 2028-29.[5] Our guide to income tax rates in Bangladesh covers the history.

Exemptions and rebate

Employment income benefits from an exemption of one-third of income from employment or Tk 500,000, whichever is lower, and employer-paid group insurance premiums and group policy reimbursements are excluded.[6] Conveyance, travel and daily allowances spent wholly on duties are also excluded.[4] The investment rebate is now the lowest of 3% of taxable income, 10% of eligible investment or Tk 750,000.[5]

Residence, the 30% rate and proof of return

An individual is resident if present for 183 days or more in the income year, or 90 days or more after 365 days in the four preceding years.[6] A non-resident other than a non-resident Bangladeshi is taxed at 30%.[5] Section 264 requires proof of submission of a tax return before salary is received by anyone employed in a management, administrative or supervisory role, and section 55 disallows payments to such a person who fails to furnish it at the time of payment.[4] Collect managers' proof of return every year.

Deposits, withholding returns and employee tax certificates

Section 146 requires every sum deducted to be deposited within the prescribed time.[4] For deductions from July to May the deadline is two weeks from the end of the month; for 1 to 20 June seven days; for 21 to 29 June the following day; and for 30 June the same day.[6] June payroll must be closed and deposited inside those shortened windows.

The withholding tax return

Section 177 requires companies other than specified public bodies, firms, associations of persons, private hospitals, clinics and diagnostic centres to file returns of tax deducted at source.[4] The return is filed quarterly, within 25 days of the month after each quarter ends, with no extension.[6] Our guide to withholding tax in Bangladesh covers the non-salary sections that share the return.

Certificates for employees

Section 145 requires a certificate to each payee stating name and taxpayer's identification number, the amount deducted, the section applied and the deposit particulars.[4] Employees need it to claim credit in their own returns, and early filers between 1 July and 30 September earn a rebate of 5% of tax, up to Tk 25,000.[6] Issue annual certificates promptly after June.

What a default costs

An employer that fails to deduct, under-deducts or fails to deposit is an assessee-in-default under section 143, liable for the tax, up to Tk 10 lakh for other failures, and an additional amount of 2% a month.[4] From 2026-27, withholding defaults on business payments attract additional tax of 150% of the default instead of disallowance of the expense.[5]

Festival bonus, overtime and leave pay

These items cause most of the payroll in Bangladesh errors found in inspections, because each has its own base, trigger and timing.

Festival bonus

Rule 111(5) of the Labour Rules 2015 requires two festival bonuses a year for workers with one year of continuous service, each not exceeding the monthly basic wage. The rule sets a ceiling, not a floor, but one month's basic per bonus is the market standard, and a contract that states the amount binds the employer.[3] For tax, festival allowance is salary but not a perquisite.[4]

Overtime

Section 108 pays overtime at twice the ordinary rate of basic wage, dearness allowance and any ad hoc or interim wage; piece-rate workers are excluded.[1] House rent, medical and conveyance are outside the base. The Act fixes no hourly divisor, so service rules should state one.

Festival holidays and maternity benefit

Workers are entitled to 13 days' paid festival holiday a year, and a worker asked to work on one must receive a substitute day off and two days' compensatory wages. Maternity benefit is payable for 60 days before and 60 days after delivery to a woman with at least six months' service and fewer than two living children, at her last monthly gross wage divided by 26, in cash, into a bank account or by electronic transfer.[1] On a gross wage of Tk 52,000 the daily rate is Tk 2,000 and the 120 days cost Tk 240,000.

Provident fund, gratuity and group insurance

Retirement benefits are the main long-term liability on the payroll. Our guide to the provident fund and gratuity in Bangladesh covers governance; here is what payroll calculates.

Provident fund

Where a fund exists, each permanent worker with a year's service contributes at least 7% and at most 8% of monthly basic wage, matched by the employer. Under section 264(10) as replaced in 2026, an establishment with at least 100 permanent workers must form a fund if two-thirds of them apply in writing, unless it enrols interested workers in the Progoti universal pension scheme with a 50% employer contribution.[1] Contributions to a recognised fund are not perquisites.[4]

Gratuity and group insurance

Gratuity under the Act is at least 30 days' wages at the last rate for every completed year of service, or 45 days' for each year where service exceeds ten years, payable on termination.[1] Where a scheme exists, accrue it monthly. Group insurance is compulsory from 100 permanent workers; the claim is additional to other dues and must be settled within 120 days.[1] The premium is an employer cost, not a payslip deduction.

Workers' participation and welfare fund for qualifying companies

Chapter XV applies to a company whose paid-up capital on the last day of an accounting year is at least Tk 1 crore, or whose fixed assets are worth at least Tk 2 crore. It must set up a participation fund and a welfare fund within a month and, within nine months of each year end, pay 5% of the previous year's net profit in the ratio 80:10:10 to those funds and the Bangladesh Workers Welfare Foundation Fund.[1] Section 88 of the Income Tax Act 2023 requires 10% tax to be deducted on payments to the three funds.[4] Many foreign-owned subsidiaries cross the capital threshold at incorporation, so the fund is often due from the first profitable year.

Payslips, registers and payroll records

Inspectors, Labour Court judges and tax auditors start from the same documents, so payroll in Bangladesh should be designed around them. The Labour Rules 2015 require a wage record for every worker and a wage slip each wage period; a good payslip shows each salary component, every deduction and its basis, tax withheld, provident fund on both sides and year-to-date totals that match the annual tax certificate. On the tax side keep deduction workings, deposit challans, section 145 certificates, quarterly returns, managers' proof of return and investment declarations. Appointment letters and service rules must state basic wage, allowances, the overtime divisor, bonus policy and payment date. See our guides to employment contracts in Bangladesh and our labour law compliance checklist.

Paying foreign nationals through Bangladesh payroll

Expatriate payroll in Bangladesh adds work authorisation, tax residence and exchange control. Each can block a salary on its own.

Work permit before the first salary

Invest Bangladesh, formed by merging BIDA, BEZA and the Public-Private Partnership Authority, began operating after the Invest Bangladesh Act 2026 was gazetted and runs the BanglaBiz platform.[8] It approves employment contracts and permits for most companies, alongside BEPZA, BHTPA and other competent authorities.[7] Section 19 of the Income Tax Act 2023 charges an employer that lets a non-Bangladeshi work without prior government approval additional tax of 50% of its tax payable or Tk 5 lakh, whichever is higher.[4] Expatriates also need a work permit to register for tax.[6] Do not pay a foreign national before the work permit is issued.

Tax on expatriate salaries

The residence tests and the 30% non-resident rate apply as above. Housing, cars and school fees are perquisites valued under section 33, and tax-equalised packages must be grossed up correctly.[4] Salary paid abroad for work done in Bangladesh is still Bangladeshi employment income, so shadow payroll is needed where part of the package sits offshore. Our guide to employment law for expatriates in Bangladesh covers exit clearance.

Remitting salary under Bangladesh Bank rules

FEPD-1 Circular No 40 of 30 September 2026 consolidates outward current account remittances and is valid for one year. Banks may remit up to 80% of a foreign national's net income after tax during the year and the remaining 20% at year end after income tax assessment, against a tax authority certificate. The employer's supporting certificate must reflect all monetary and non-monetary benefits specified in the work permit, and a bonus counts only once paid, spread over the next twelve months unless remitted in one go after tax.[7]

Up to 80% of net monthly income may instead be credited to an expatriate's foreign currency account under Form TM procedures. On permanent departure, genuine savings from salary and benefits stated in a contract approved by Invest Bangladesh, BEPZA, BHTPA or another authority may be transferred, with provident fund, pension and gratuity.[7] The work permit, contract and payroll must show the same package. See also our guide to outward remittance from Bangladesh.

Minimum wages and the 2026 wage board cycle

The current garment minimum wage is Tk 12,500 a month, and in October 2026 the Department of Labour sought nominations for a new garment wage board after the law moved reviews from five years to three.[10] A new basic wage resets overtime, bonuses and provident fund contributions at once, so covered employers should model a 2027 revision. Our guide to the minimum wage in Bangladesh tracks sector rates.

How payroll in Bangladesh compares with India, the UAE, Singapore and the UK

The main difference is that Bangladesh has no general state social security contribution on salaries; statutory cost comes from basic-wage benefits, the participation fund and employer schemes. On a phone, scroll the table sideways.

India requires provident fund contributions of 12% of salary from both sides in establishments with 20 or more employees, deposited by the 15th of the following month.[11] Singapore's CPF applies to citizens and permanent residents at 17% from employers and 20% from employees up to SGD 8,000 of monthly ordinary wages, and excludes foreigners.[12] UK employers pay national insurance at 15% on earnings above GBP 5,000 a year.[13] The UAE has no personal income tax, and its social security applies only to UAE and GCC nationals.[14]

Payroll audit checklist for Bangladesh

This is the sequence we use when reviewing or setting up a payroll.

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Common payroll in Bangladesh mistakes to avoid

• Old parameters: eleven festival holidays, or maternity benefit for 112 days on basic wage.[1]
• Flat-rate tax: a fixed percentage instead of the section 86 average rate.[4]
• Late June deposits: missing the shortened June windows.[6]
• Unpermitted deductions: recovering equipment or bonds without a section 125 basis.[1]
• Expatriates paid early: salary before the permit, triggering section 19 additional tax.[4]

Outsourcing payroll and employer of record payroll with TRW

A foreign company can pay staff in Bangladesh by running payroll in its own subsidiary or branch, by outsourcing processing for that entity, or by engaging an employer of record. Where the client has its own entity, an outsourced provider calculates pay, tax and benefits and prepares payslips, deposits and returns, but the entity and its officers keep legal liability, so the engagement must give the entity full access to workings, challans and returns.

TRW offers an employer of record service. TRW employs staff in Bangladesh on the client's behalf, runs payroll and statutory filings, and handles employment contracts, work permits and terminations under Bangladesh law. The client directs the work; TRW holds the employment relationship and its compliance duties, from section 86 withholding and quarterly returns to festival bonuses and final settlements. An employer of record suits a small team, a market test or a hire needed before an entity exists; an own entity suits a larger permanent operation. See our employer of record governance and global mobility and business immigration practices, and our employment and labour practice.

What to watch in late 2026 and 2027

Watch the garment wage board and any revised gazette;[10] the reissue of Circular No 40 by late September 2027;[7] labour rules implementing the 2026 amending Act; and the next Finance Act, although the 2026 Act already fixes individual slabs to 2030-31.[5] To discuss your payroll, an employer of record arrangement or a first hire in Dhaka, contact TRW.

Frequently asked questions

When must salaries be paid in Bangladesh?

Within seven working days after a wage period of no more than one month, and final dues within thirty working days of termination.[1]

What deductions can an employer make from wages?

Only those in section 125 of the Labour Act, such as fines, absence, proven loss, housing, advances, income tax, court orders, provident fund and check-off subscriptions.[1]

How is income tax deducted from salary?

Under section 86 of the Income Tax Act 2023, at the average rate on estimated annual income, adjusted for earlier surpluses or deficits.[4]

What are the 2026-27 income tax slabs?

Nil on the first Tk 400,000 for a general taxpayer, then bands of 10% to 25%, and 30% above Tk 3.6 million.[5]

When must salary tax be deposited?

Within two weeks of the month end for July to May, with shorter windows in June.[6]

How often is the withholding return filed?

Quarterly, within 25 days of the month after each quarter, without extension.[6]

How much is the festival bonus?

Two a year after one year's service, each capped at one month's basic wage.[3]

How is overtime calculated?

At twice the ordinary rate of basic wage, dearness allowance and any ad hoc or interim wage.[1]

Which companies pay into the workers' participation fund?

Those with paid-up capital of Tk 1 crore or fixed assets of Tk 2 crore at year end: 5% of net profit within nine months, split 80:10:10.[1]

How much salary can a foreign employee send home?

Up to 80% of net income after tax during the year and the remaining 20% after tax assessment.[7]