What Severance Pay Rules Must Employers Follow in Bangladesh?

Which Employees Qualify for Severance Pay?

• Permanent employees with at least one year of continuous service who are retrenched or laid off for economic or operational reasons.
• Employees discharged from service for physical or mental incapacity not caused by their own misconduct.
• Workers terminated due to closure of the undertaking or transfer of ownership where continuity of service is not preserved.
• Employees who resign after completing the minimum qualifying period for statutory benefits under the Labour Act.
• Workers dismissed for reasons other than proven misconduct, following proper notice and domestic inquiry requirements.
• Non-permanent workers may also qualify for certain termination benefits if their contracts or collective agreements provide for severance.

What Are the Legal Timelines for Paying Severance?

In Bangladesh, your company is expected to settle statutory termination and severance benefits without undue delay, typically at the time employment ends or within a very short, reasonable period. In practice, many employers aim to pay all dues - wages, accrued leave encashment, and severance - on or before the employee’s final working day. Where internal clearance processes take longer, you should document the termination date, the calculation, and the expected payment date in writing. To stay on the safe side, treat 30 days from termination as an outer limit for completing all payments, unless a collective agreement or contract sets a shorter deadline. Paying promptly reduces the risk of labour court claims, interest awards, and reputational damage.

What Penalties Apply if Severance Is Not Paid Correctly?

If your company fails to pay severance correctly in Bangladesh, employees can file complaints with the labour authorities or bring claims before the Labour Court. The court can order you to pay any unpaid severance, other outstanding dues, and in some cases additional compensation or interest for delayed payment. Non-compliance may also expose directors or managers to personal liability where willful violations are proven.

• Administrative or criminal fines may be imposed under the Bangladesh Labour Act for non-payment of statutory benefits.
• Labour courts can award interest or additional compensation on delayed or underpaid severance.
• Reputational damage can affect your ability to hire and retain talent in a tight labour market.
• Persistent non-compliance can trigger more frequent inspections and stricter scrutiny of your HR practices.

Does Outsourcing Employment via an EOR Change Severance Liability?

Using an Employer of Record (EOR) such as the service described at https://www.playroll.com/employer-of-record does not remove the need to follow Bangladesh’s severance rules. In an EOR model, the local EOR entity is usually the legal employer on paper, but your company is the de facto controlling party that drives hiring, performance management, and termination decisions. Bangladeshi authorities and courts can look beyond the contract structure to see who truly controls the employment relationship. That means you must ensure the EOR is calculating severance correctly, funding payments on time, and documenting lawful grounds for termination. A well-drafted EOR agreement should clearly allocate who bears the financial cost and legal risk if severance is miscalculated or challenged.

Be 100 Percent Compliant in Offering Severance with Playroll

Managing severance in Bangladesh can feel complex, especially when you are juggling different termination grounds, notice rules, and service-linked formulas. Playroll helps your team translate the Bangladesh Labour Act into clear, step-by-step workflows so you know exactly what to pay and when. From verifying length of service to checking whether the case is retrenchment, discharge, or resignation, you get structured guidance instead of last-minute guesswork.

With Playroll, you can centralize employee records, automate standard severance calculations, and generate clean termination summaries for sign-off. Our Employer of Record and global payroll tools help ensure that local statutory requirements are met while aligning with your global policies. That way, your company can exit employees fairly, avoid avoidable disputes, and stay consistently compliant across every Bangladesh location.