How to Reduce Payroll Costs in Bangladesh

In Bangladesh, managing payroll efficiently is crucial for the success and sustainability of any business. Payroll expenses include a variety of costs ranging from wages to mandatory benefits, which can heavily impact a company's bottom line. For many businesses, reducing payroll costs can result in improved financial health and increased competitiveness. However, achieving these savings requires a good understanding of the unique payroll structure and regulations in Bangladesh.Businesses must navigate through complex laws and consider innovative strategies to optimize their payroll expenses.

Reducing payroll costs in Bangladesh requires a mix of strategic planning, legal insight, and technological support. Balancing cost efficiency with employee satisfaction and compliance is vital. By employing proven strategies, such as outsourcing, leveraging payroll software, and tapping into government incentives, businesses can achieve significant savings. Platforms like Deel offer a practical solution for managing global payroll efficiently, further optimizing payroll processes and costs.

In this article, we'll explore some of the main factors that determine the cost of payroll management in Bangladesh, and outline proven cost-saving strategies, common employer errors, and legal considerations.

Key factors impacting payroll costs in Bangladesh

In Bangladesh, local labor laws, tax rates, and mandatory employment benefits contribute to payroll costs. Employers must ensure they remain compliant with these regulations while reducing payroll expenses, or risk severe financial, legal, and reputational repercussions.

Wage regulations

Bangladesh enforces a national minimum wage that varies by industry. For example, the garment sector has a different minimum wage from agriculture.

Regional differences

Companies in the Export Processing Zones (EPZs) may follow different regulations, which can affect overall payroll costs.

Tax

Employers must deduct tax and other payments at source from employees’ salaries.For example, employers are required to calculate and withhold employees’ income tax, which is charged at a progressive rate, and remit it to the National Board of Revenue (NBR).

Mandatory social contributions:

Employers are responsible for funding and remitting the following social contributions. Eligibility criteria, conditions, and exemptions apply.

• Bangladesh Labour Welfare Foundation (BLWF): The BLWF provides financial assistance to workers and their families in case of death, injury, or other hardships. Employers contribute a percentage of their employees' wages to the BLWF, but specific rates vary.
• Employees' Provident Fund (EPF): The EPF is a retirement savings scheme for employees. Employers must match each employee's contributions to the Provident Fund, which is usually around 5% of wages
• Gratuity Fund: Employers must also contribute to the Gratuity Fund, which provides a lump sum payment to employees upon retirement or termination.
• Workers' Profit Participation Fund (WPPF): Eligible employers are required to contribute 5% of their net profits to the WPPF, a profit-sharing scheme.
• Group insurance scheme Employers contribute to the group insurance scheme, which provides insurance coverage for employees in case of death or disability. Rates depend on the employer's insurancepolicy and the number of employees covered.
• Maternity benefit: Employers are responsible for paying maternity benefits to eligible employees. The specific amount and duration of the benefit are outlined in the Bangladesh Labour Act.
• Workers' Welfare Foundation: Employers contribute a percentage of their payroll to the Workers' Welfare Foundation, which provides various welfare services, including education, healthcare, and housing.

Employment benefits

Employee benefits such as bonuses, paid leave, and health insurance contribute significantly to payroll expenses. Many companies offer two annual bonuses, commonly given as Eid bonuses.

Proven strategies to reduce payroll costs in Bangladesh

Employers looking to lower payroll expenses in Bangladesh can implement the following proven strategies:

• Optimizing workforce structure: Companies can evaluate their current workforce structure and consider using part-time or contractual workers. This flexible staffing model can help reduce costs associated with full-time employment.
• Flexible work arrangements: Embracing remote working or flexible schedules can lead to significant savings. It reduces the need for large offices and the associated overheads, and may expand employers' talent pools.
• Outsourcing non-core functions: Businesses can reduce costs by outsourcing non-core functions to third-party vendors. This allows them to concentrate on core business areas while benefiting from the expertise and efficiency of specialized service providers.
• Automation and payroll software: Investing in payroll software can streamline payroll management, reducing costly errors, and ensuring compliance with local labor and tax laws. Global payroll solutions, such as Deel, enable companies to efficiently manage payroll across 100+ countries.
• Government incentives and tax breaks: Incentives such as tax holidays and reduced tax rates for investing in certain sectors lower eligible organizations' overall payroll expenses.

Legal considerations for cutting payroll costs in Bangladesh

When implementing payroll cost reduction strategies, businesses must be aware of potential legal implications:

• Wage laws: Any effort to reduce wages and compensation must comply with Bangladesh's industry-specific minimum wages and laws.
• Termination procedures: Bangladesh has specific procedures that employers must follow when terminating an employee, including serving notice and providing severance pay.
• Compliance with employment contracts: Modifications to payroll or employment conditions must not breach existing contracts.
• Employee rights and benefits: Employers must be able to legally justify any reductions or alterations to an employee's benefits or terms of employment. Changes must be mutually agreed upon by the employer and employee.

Common payroll mistakes employers make in Bangladesh

Employers in Bangladesh often make the following common payroll mistakes, which can incur significant penalties for non-compliance.

• Misclassifying employees, leading to incorrect tax payments and potential fines.
• Failing to accurately track overtime, which is particularly important for compliance in industries with fluctuating workloads.
• Miscalculating taxes, wages, social contributions, or bonuses, leading to compliance issues.

To prevent these issues, companies should ensure compliant payroll management by regularly auditing their payroll processes, outsourcing non-core operations to specialized third parties like Deel, and continually monitoring changes to laws and regulations in the regions they operate in.

Industry-specific payroll reduction tactics in Bangladesh

In Bangladesh, different sectors benefit from tailored strategies to cut payroll costs while increasing workforce agility and meeting operational demand:

• Technology: Many tech companies employ skilled freelancers for short-term projects. This significantly reduces payroll costs, compared to hiring full-time employees.
• Manufacturing: Manufacturers often use lean management techniques and process automation to optimize productivity, while reducing reliance on excessive labor.
• Retail: Retailers may use flexible schedules and part-time employment to manage fluctuating customer demand.

Outsourcing payroll services to reduce costs in Bangladesh

Outsourcing payroll services to a specialized payroll service provider saves global companies time and money. Third-party providers like Deel offer international organizations comprehensive solutions that handle payroll processing, compliance with local laws, and tax calculations at competitive prices.

Deel's automation capabilities and localized, in-house expertise ensure businesses' adhere to legal and regulatory changes and strealine operations. This cost-effective solution offers the flexibility and scalability businesses need to grow without increasing internal payroll overheads.

Optimize payroll with Deel

Deel’s global payroll management platform is a cost-effective solution that integrates with your existing HR systems to streamline local and global compliance. Deel automates payroll processing, boosting efficiency, and minimizing errors and administrative burdens. The solution centralizes global payroll operations and leverages insights from localized experts.