Contractual Staffing in Bangladesh

Contractual staffing is widely used in Bangladesh for security, cleaning, facility management, data entry, promotional work, project installation and seasonal peaks in export manufacturing. It gives flexibility, but it is also an area where inspectors and the Labour Court look closely, because contract labour has often been used to deny workers permanent status.

This page is for companies that want to use contract staff responsibly, and for staffing providers that want their own structure to be compliant. We cover the two models, the Section 3A outsourcing rules, the principal employer's exposure, and the VAT and income tax treatment of manpower supply payments.

Two models of contractual staffing

In the first model, your company employs the person directly for a fixed period or a specific project. The person is your temporary or seasonal worker under Section 4 of the Labour Act, with rights that depend on that category. In the second model, a contractor employs the person and supplies their services to you under a service agreement; the contractor is the employer, but your premises, instructions and supervision may still create obligations for you.

Which model suits you depends on the duration of the need, the nature of the work and how much day-to-day control you need over the people.

Section 3A: registration of outsourcing contractors

Section 3A, inserted into the Labour Act by the 2013 amendment, requires any organisation that supplies workers to others on contract to be registered in the manner set by the Labour Rules 2015. Using an unregistered supplier is risky for the principal employer, particularly where wages go unpaid or a worker is injured. Before signing a staffing agreement, verify the contractor's registration, trade licence, BIN and e-TIN.

The contract should make clear who pays wages, overtime, festival bonuses and leave, who maintains attendance and registers, who provides safety equipment and who handles termination benefits. Ask for monthly proof of wage payment.

VAT and withholding tax on manpower supply

Manpower supply is a VAT-able service under the VAT and Supplementary Duty Act 2012, and the contractor should issue a Mushak 6.3 VAT invoice. Where the client is a withholding entity, it must deduct VAT at source on the service, deposit it and issue a Mushak 6.6 certificate. Income tax must also be deducted at source on payments to the contractor under the Income Tax Act 2023, at the rate applicable to the service as set by current law.

Because the applicable rates and the base on which they apply are changed from time to time through the Finance Act and SROs, we confirm the current treatment before each engagement rather than relying on last year's figures.

Where contractual staffing goes wrong

• Core, continuing jobs filled by rolling contract staff for years
• Contractor not registered under Section 3A
• Client directly supervising, disciplining and paying contract staff
• No VAT deducted at source on manpower supply invoices
• Contract staff excluded from safety induction and facilities
• No clause on who bears termination benefits when the contract ends

Fixed-term contracts with your own company

Fixed-term direct employment is suitable for genuinely time-bound projects. The appointment letter should state the project, the expected end date and the worker category. Renewing the same contract repeatedly for continuing work weakens the temporary classification. Plan for leave, festival bonus eligibility and end-of-contract dues from the start.

How the process works

1. Assess the needWe review the roles, duration and degree of control required to choose between direct fixed-term and outsourced staffing.
2. Contractor due diligenceFor outsourcing, we check the contractor's Section 3A registration, trade licence, BIN, e-TIN and payment record.
3. Draft the agreementWe prepare or review the staffing agreement, allocating wage, benefit, safety and termination responsibilities.
4. Set up tax treatmentVAT deduction at source, Mushak 6.6 certificates and income tax withholding are configured in your accounts process.
5. Monitor complianceMonthly checks confirm wage payment, attendance records and tax deposits for contract staff.

Typical timeline: Setting up a compliant contractual staffing arrangement usually takes one to three weeks, depending on contractor due diligence and agreement negotiation; registration of a new staffing contractor depends on the authority's processing.

How Tax & VAT Associates helps

• Choice of staffing model based on role, duration and control
• Contractor due diligence, including Section 3A registration
• Staffing service agreement drafting or review
• VAT deduction at source and Mushak 6.6 process set-up
• Income tax withholding on contractor payments
• Registration and compliance support for staffing providers

Frequently asked questions

Related services

Last reviewed: 6 October 2026. Bangladesh tax and regulatory rules change with each Finance Act, SRO and authority circular. This page is general guidance; confirm current requirements for your case before filing.