Turn risky contractor arrangements into compliant employment
We review how your Bangladesh contractors really work, tell you which ones look like employees, and convert them to employment, either on your own entity or through our Employer of Record service, without breaking the working relationship.
Long-term “contractor”
- Fixed monthly fee, set hours, one client
- No appointment letter or leave
- No salary tax deducted by anyone
Compliant employee
- Appointment letter under the Labour Act 2006
- Payroll, salary tax, leave and festival bonus
- Same person, same work, documented properly
What is contractor compliance and conversion?
It is a two-step service. First we review each contractor arrangement against how Bangladesh law tells a worker from an independent professional. Then, for anyone who is really working as an employee, we convert the arrangement to proper employment, with an appointment letter, payroll, salary tax and statutory leave and bonuses, on your own entity or through our Employer of Record service.
Signs a Contractor in Bangladesh Is Really an Employee
A contract that says “independent contractor” does not decide the question. What matters is how the work is actually done. Check each statement against your arrangement.
Paid a fixed amount every monthrather than per project or deliverable
Works set hours you decideand asks you for days off
Works only for your companywith no other clients
Supervised day to day like staffwith tasks assigned by your managers
Uses your laptop, email and systemsand is listed in your team
Has worked with you for over a yearwith no fixed end date
Holds a job title in your organisationsuch as manager or engineer
Gets leave or a bonus informallywithout an employment contract
The more of these apply, the more the arrangement looks like employment. In that case the person may be treated as a worker under the Bangladesh Labour Act 2006, with rights to leave, festival bonus and final dues.
Contractor Compliance Review
A written review of every contractor you engage in Bangladesh, with a clear recommendation for each person.
Collect
Contracts, invoices, payment history and a short questionnaire on how each person works.
Assess
Each arrangement checked for control, pay pattern, exclusivity, duration and integration.
Rate
Each contractor marked as keep as contractor, adjust the contract, or convert to employment.
Report
A written report in English with the reasons, the costs of conversion and the next steps.
Two Ways to Convert Contractors to Employees
The right path depends on whether your company has a legal entity in Bangladesh.
Convert onto your own entity
For subsidiaries, branch offices and INGOs registered in Bangladesh.
- Employer
- Your Bangladesh entity
- We handle
- Appointment letters, payroll set-up, salary tax registration and the first payroll run
- Ongoing
- Optional monthly payroll outsourcing
Convert through our Employer of Record
For overseas companies with no legal entity in Bangladesh.
- Employer
- PayrollBangladesh, as your Employer of Record
- We handle
- Employment contract, payroll, salary tax, leave, bonuses and final settlements
- Ongoing
- You direct the work and pay one monthly invoice
People who are genuinely independent can stay as contractors and be onboarded properly through our Agency of Record service.
The Contractor-to-Employee Conversion Process
Five steps, planned so the person keeps working without a gap in pay.
Contractor vs Employee in Bangladesh: What Changes After Conversion
| Item | As a contractor | As an employee |
|---|---|---|
| Written terms | Service contract | Appointment letter and photo ID card |
| Pay | Against invoices | Monthly salary, paid before the end of the seventh working day after the wage period |
| Income tax | Contractor files own return | Employer deducts salary tax at source under the Income Tax Act 2023 |
| Casual leave | None by law | 10 days a year on full wages |
| Sick leave | None by law | 14 days a year on full wages |
| Festival holidays | None by law | 13 paid days a year |
| Festival bonus | None by law | Two a year after one year of continuous service |
| Ending the work | As the contract says | Notice rules apply; all dues paid within 30 working days |
Based on the Bangladesh Labour Act 2006 and Labour Rules 2015, as amended in 2025 and 2026. Some amendments still await implementing rules.
The Risks of Leaving Misclassification Unfixed
The longer a contractor works like an employee, the larger the potential liability.
Back pay of statutory benefits
A person treated as a worker may claim unpaid leave, festival bonuses and final dues for the period worked.
Labour Act penalties
The general penalty under the Labour Act was raised in 2026 to Tk 25,000 to Tk 50,000, with up to three months’ imprisonment.
Missing salary tax
If the person is an employee, salary tax should have been deducted at source, and the gap may surface in a tax review.
Contractor Compliance and Conversion: Frequently Asked Questions
Answers to what companies ask before reviewing or converting their Bangladesh contractors.
How do I convert a contractor to an employee in Bangladesh?
Agree a start date, make a written offer, close the service contract and settle the last invoice, then issue an appointment letter and add the person to payroll with salary tax. If you have no Bangladesh entity, we employ the person for you through our Employer of Record service.
How do I know if a contractor should be an employee?
Look at how the work is done, not the contract title. Fixed monthly pay, set hours, day-to-day supervision, working only for you, using your equipment and a long engagement with no end date all point towards employment under the Bangladesh Labour Act 2006.
Can we convert contractors without a Bangladesh entity?
Yes. Through our Employer of Record service PayrollBangladesh becomes the legal employer, runs payroll, salary tax and statutory benefits, and you keep directing the person’s work.
What does a contractor compliance review include?
We collect each contract, invoice history and a short questionnaire, assess how the person works, and give a written recommendation for each contractor: keep, adjust the contract, or convert to employment, with the cost of conversion.
Does the person lose time worked as a contractor?
How earlier service is treated depends on the facts and on the terms you agree at conversion. We set this out clearly in the review so both sides know where they stand.
Will the person’s take-home pay change?
Possibly, because salary tax is now deducted at source and benefits are added. We model the gross salary, deductions and employer cost before the offer so there are no surprises.
Can some people stay as contractors?
Yes. Professionals who work independently, for several clients and on defined deliverables can stay as contractors, documented properly through our Agency of Record service.
How long does a conversion take?
Most of the work is preparing the offer and paperwork. We plan the dates so the person moves from the last invoice to the first salary without a gap in pay.
Find Out Which Contractors Should Convert
Send us the number of contractors you engage in Bangladesh and whether you have a local entity. We will scope a review and show you the conversion options.
PayrollBangladesh · Rupayan Shopping Square, Suite 610, Bashundhara R/A, Dhaka 1229 · +880-1711-990010 · info@payrollbangladesh.com
Reviewed by Romana Akter Shila, Chief Executive Officer, PayrollBangladesh, 8 years in EOR and payroll operations. This page is general information, not legal or tax advice.