Ranked as South Asia's second-largest economy, it’s no wonder global companies are looking to Bangladesh to enlist the services of Bangladeshi contractors. However, when it comes to paying them, what steps should you take to comply with Bangladesh's employment laws and taxation regulations?
Before you onboard your new Bangladeshi contractor, read on to learn how to properly categorize freelancers and compensate them in accordance with Bangladesh's labor laws.
Step #1: Classify your workers in Bangladesh
The Labor Act of Bangladesh doesn't explicitly address how to differentiate employees from independent contractors.
As a result, whether an individual is categorized as an employee or a contractor depends on common legal rules (like how much control they have, how payment happens, who owns the tools, and who decides the work hours).
Nevertheless, you still need to accurately classify your workforce to avoid misclassification issues.
In general, independent contractors are individuals who work on a per-project or task basis, typically maintaining a higher degree of control over their work and schedule. On the other hand, full-time employees are engaged in a more traditional employer-employee relationship, often with a set schedule and benefits provided by the employer.
To help you decide how to classify your worker, here are a series of tests you can use:
High level of worker control. Contractors usually have more freedom to decide how and when they complete their tasks.
More direction from the employer. Employees typically receive direction from their employer, including instructions on how to do the job and specific work hours.
Contractors use their own equipment and tools.
Employees use equipment and tools provided by the company.
Less integrated. Contractors are more independent, often working remotely and using their own resources.
Highly integrated. Employees are more integrated into the company's structure, often working at the company's location.
No entitlement to benefits. Contractors don't have the same benefits and legal protections as employees. They're responsible for their taxes.
Entitled to benefits. Employees are entitled to various benefits and legal protections, such as minimum wage, overtime pay, and paid leave.
Time-bound contract. Contractors are usually hired for a particular project or time period.
Indefinite engagement. Employees are typically hired indefinitely.
Risk of loss. Contractors may face more responsibility and risk for their work.
No risk of loss. Employees are usually not personally liable for work-related issues.
Subcontracting. Contractors can delegate their work to others freely.
No subcontracting. Employees are supposed to complete their workload themselves. Delegating responsibilities is only allowed with company approval.
Step #2: Determine the best way to pay your contractors in Bangladesh
The next step in paying contractors in Bangladesh is to determine a suitable payment method.
In today's era of global workforces and remote operations, you have a wider array of choices for disbursing payments to Bangladeshi contractors. Here are several options to consider:
- Bank transfer: You can open a Bangladeshi bank account and use it to deposit funds directly into the accounts of Bangladeshi contractors. Or, you can use your own bank to initiate a global wire transfer for payment.
- International money orders: Although widely adopted, this method can be slow because it requires obtaining a physical money order. Additionally, the contractor must deposit the money order manually upon receiving it. Other drawbacks include possible fees and unfavorable exchange rates.
- Digital wallets or payment platforms: While some digital payment platforms are unavailable in Bangladesh (such as Venmo and PayPal), certain employers turn to platforms like Wise and Payoneer for cross-border money transfers. However, keep in mind that exchange rates tend to fluctuate, making it difficult to predict your outgoing expenses.
- Global payroll services: Contractors generally aren’t integrated into the payroll system, given that they aren't subject to the same withholdings as regular employees. Typically, they invoice for their services, and this process is managed through accounts payable for many companies. But, with Rippling, you can streamline payments for both Bangladeshi employees and Bangladeshi contractors, regardless of their location, all in a single pay run.
Step #3: Use global payroll software to process payments for Bangladeshi contractors
As we described in Step #2, there are several ways to pay Bangladeshi contractors. But if you're looking for a fast and straightforward method, global payroll software is your best bet.
With Rippling, you have the capability to pay both employees and contractors worldwide, in a single payroll cycle. Here's a glimpse into how Rippling's global payroll system works:
Step #4: Ensure your Bangladeshi contractor has the right tax information
In Bangladesh, contractors handle their own tax filing and payments, relieving you of the responsibility for withholding and processing taxes. If your company is located in the United States, it's advisable to have your Bangladeshi contractors (as well as any other international contractors) complete an IRS W-8BEN, verifying their foreign contractor status for the US government.
Bangladesh's income tax rates range from 0 to 30 percent, so ensuring correct placement within the appropriate tax brackets is important. Here are the guidelines for contractors filing their taxes in Bangladesh:
- Get an e-TIN (Tax Identification Number): Contractors should complete and submit an application form at the official website to their local tax office in order to receive an electronic TIN number. They should include their existing 12-digit TIN and National/Corporate ID Card.
- Set up an online account: Upon successful registration, the tax office will provide them with an online account certificate containing their username and password, which they will use to file their taxes.
- File taxes: Contractors can then file taxes by filling out the relevant forms and inputting their personal data, such as National ID Number, TIN, and family members' names.
Frequently asked questions about running payroll for contractors in Bangladesh
Do you need to withhold taxes when paying contractors in Bangladesh?
No, foreign companies aren't obligated to deduct payroll taxes from payments made to contractors in Bangladesh. In this arrangement, contractors bear the responsibility of handling their own tax payments and filing procedures.
Does the Bangladeshi minimum wage apply to independent contractors in Bangladesh?
In Bangladesh, the concept of minimum wage doesn't extend to independent contractors. As self-employed citizens, the contractors have the autonomy to establish their own pricing or come to agreements on their rates.
Do Bangladeshi contractors get benefits?
No, they don't. Unlike regular employees, independent contractors in Bangladesh don't receive benefits like paid time off, maternity leave, or sick leave.
Can you pay contractors in Bangladesh in your home currency?
It's recommended to pay international contractors in the currency they favor or in their local currency, which, in the case of Bangladesh, is the Bangladeshi Taka (BDT). If you intend to pay contractors using a different currency like USD, this should only be done if they explicitly consent to it. In such instances, ensure this arrangement is clearly documented within the contract agreement.
Can you manually pay contractors in Bangladesh?
Yes, you can. Small business owners often choose to handle contractor payments manually to save money, but this approach can consume a significant amount of time and result in errors. As your business expands and incorporates foreign contractors, the intricacies of payroll become more complex.
There are inherent risks associated with manually managing payroll, such as:
- Compliance: The manual input of payroll data raises the likelihood of introducing errors or overlooking vital information, which can lead to compliance issues and legal complications.
- Security: Employing spreadsheets or physical records for payroll introduces security vulnerabilities. Confidential employee details could be lost, stolen, or misused, potentially leading to breaches of privacy and data security.
How do you turn a contractor into an employee in Bangladesh?
Here are the steps to convert a Bangladeshi contractor into an employee:
- Onboarding: Initiate your company's standard onboarding. Decide whether to establish a local entity or opt for an Employer of Record (EOR) service, especially if there are no prior Bangladeshi employees.
- Documentation: Provide the employee with an appropriate employment contract. Ensure these documents align with Bangladeshi labor laws, addressing aspects like minimum wage, benefits, working hours, holidays, severance pay, and other relevant regulations.
- Verification: Collect and verify information such as the employee's name, nationality, contact details, identity certificate number, and payment specifics. Make sure to handle this data in accordance with Bangladesh's privacy and local laws.
- Payroll: Set up payroll to manage the employee's federal income tax and mandatory benefits, including pension, social security contributions, health insurance, and medical care.
Rippling and its affiliates do not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any related activities or transactions.