Employer of Record in Sri Lanka

Businesses can only operate smoothly in Sri Lanka if they comply with local labor laws including drafting compliant employment contract agreements and meeting taxation and payroll obligations. Learn more about the employment laws and regulations in Sri Lanka below, to avoid any compliance issues.

Employment Contract Requirements

In Sri Lanka, employment contracts can be either verbal or in writing. However, opting for written contracts, duly signed by both the employee and employer, offers greater clarity and evidentiary value. These contracts must encompass key terms, including but not limited to:

• Basic salary
• Working Hours
• Leave entitlements
• Job duties and responsibilities

Onboarding Process

We can help you get a new employee started in Sri Lanka quickly, with a minimum onboarding time of just 1-2 working days. The timeline starts once the employee submits all required information onto the Playroll platform and completes any necessary local authority registrations.

For non-nationals, the Right to Work assessment (if applicable) may add up to three extra days. Additional time may be needed for follow-ups on this assessment. Please note, payroll cut-off dates can impact the actual start date. Playroll's payroll cut-off date is the 10th of each month unless otherwise specified.

Working Hours in Sri Lanka

In Sri Lanka, the standard work week consists of 8 hours per day, totaling 45 hours per week. However, industry-specific regulations, such as the Factories Ordinance, impose restrictions on certain employees, prohibiting them from working on specific days.

Overtime in Sri Lanka

Overtime in Sri Lanka is compensated at 150.00% of the regular pay rate, and the maximum allowable overtime hours are 12 per week. Certain exemptions from these restrictions may apply to executive or professional positions.

Probation Period in Sri Lanka

Sri Lanka's labour laws do not explicitly specify the duration of probationary periods. However, it is customary for the probationary period to be around 6 months. For senior employees, the probation period cannot exceed a year, and for other employees, it is limited to 6 months. In specific instances, the maximum probation period is capped at 3 months.

Fiscal Year in Sri Lanka

1 January - 31 December is the 12-month accounting period that businesses in Sri Lanka use for financial and tax reporting purposes.

Payroll Cycle in Sri Lanka

The payroll cycle in Sri Lanka is usually weekly / semi-monthly / monthly, with employees being paid as specified in employment contracts.

Minimum Wage in Sri Lanka

The minimum wage for employees in Sri Lanka is typically 97.22 LKR per hour, amounting to ~17,500 LKR per month for a typical 45 hour work week.

Bonus Payments in Sri Lanka

There is no legal obligation to provide a 13th-month salary in Sri Lanka.

Running payroll in Sri Lanka is complex, especially when you're hiring without a local entity. Local laws determine everything from tax withholdings and reporting deadlines to benefit contributions and currency requirements. Missteps can lead to fines, payment delays, or unhappy employees. An Employer of Record takes this burden off your plate by handling the full payroll process. Acting as the legal employer, the EOR ensures you remain compliant with all payroll-related obligations, while still allowing you to manage your team’s day-to-day work and performance.

Key Ways an EOR Supports Payroll in Sri Lanka:

• Key Ways an EOR Supports Payroll in Sri Lanka:
• Compliance Assurance: Ensures payroll aligns with local tax laws, labor regulations, and statutory deadlines.
• Payroll Processing & Tax Management: Calculates salaries, applies correct tax withholdings, and submits required reports.
• Benefits & Social Security Contributions: Manages employer obligations for pensions, health insurance, and other legal entitlements.
• Contract Generation & HR Administration: Drafts compliant employment contracts and supports onboarding, terminations, and HR tasks.
• Currency Payments: Issues timely salary payments in local currency, ensuring employees are paid accurately and on time.

Employer Tax Contributions

Employer payroll contributions are generally estimated at an additional 30% on top of the employee salary in Sri Lanka.

Employee Payroll Tax Contributions

In Sri Lanka , the typical estimation for employee payroll contributions cost is around 8%.

Individual Income Tax Contributions

Income tax in Sri Lanka is determined based on progressive rates, with various additional factors influencing the overall rates, including household status and the number of children.

Pension in Sri Lanka

As per the Minimum Retirement Age of Workers Act in Sri Lanka, the retirement age is set at 60 years. The old-age pension is managed through a Provident Fund and Trust Fund system. The employer contributes 12% of the monthly payroll to the Provident Fund and 3% of the monthly payroll to the Trust Fund.

In Sri Lanka, work permits and visas are critical for employers hiring foreign workers. The process involves obtaining an Entry Visa for initial entry, followed by a Residence Visa for long-term employment authorization. Employers must sponsor these applications and ensure compliance with local labor and immigration laws. Key visa types include the Entry Visa, used for short-term entry, and the Residence Visa, granting employment authorization for up to one year with the possibility of renewal.

Mandatory Leave Entitlement in Sri Lanka

The annual leave entitlement in Sri Lanka is 14 days for a full time worker. These can include public holidays on top of that or within those days, which would otherwise be unpaid.

Public Holidays In Sri Lanka

Sri Lanka observes the following 24 public holidays, in addition to the paid annual leave entitlement for employees:

Paid Time Off in Sri Lanka

In Sri Lanka, employees are entitled to a minimum of 14 days of paid annual leave after completing one year of service as specified in the employment contract. During the initial 12 months, the leave starts at 4 days after the probation period and accumulates quarterly. The carryover of unused leave is subject to the company's policy.

Maternity Leave In Sri Lanka

In Sri Lanka, a female employee is entitled to 12 weeks of paid maternity leave, excluding weekly holidays, Poya days, and statutory holidays, for the birth of their 1st and 2nd children. Of this, 14 days must be taken before the birth, and the remaining 70 days after. However, for the birth of their 3rd child or any subsequent children, the maternity leave is reduced to 6 weeks.

Paternity Leave In Sri Lanka

In the state sector in Sri Lanka, fathers are entitled to mandatory paid paternity leave for a total of 3 days. This leave must be taken within 3 months of the birth of their child.

Sick Leave In Sri Lanka

To be eligible for sick leave in Sri Lanka, employees need to provide a medical certificate issued by a registered medical practitioner. Typically, in both the public and private sectors, employees who have completed a year of continuous service are entitled to 100% paid sick leave, capped at a maximum of 7 days per year.

Parental Leave In Sri Lanka

There are no legal provisions set out for parental leave in Sri Lanka.

Duty Leave

In Sri Lanka, employees can be granted duty leave for various reasons, including participating in the reserve list of a volunteer unit of the armed forces, attending language proficiency exams, undergoing medical examinations, and exercising their right to vote in elections.

Termination Process in Sri Lanka

In Sri Lanka, terminations may only occur through valid reasons such as:

• Employee resignation
• Mutual agreement
• Employer-initiated termination without cause (with approval from the Commissioner of Labour and provision of severance payment)
• Employer-initiated termination with cause (with reason in writing)

Notice Period in Sri Lanka

The minimum statutory notice period in Sri Lanka varies based on the employee's job role and the terms outlined in the contract or agreement. However, the standard notice period typically extends up to 6 months.

Severance in Sri Lanka

Severance pay in Sri Lanka is applicable to employees with more than 5 years of service at the time of retirement, resignation, or dismissal. The employer is required to pay half a month's salary for each completed year of service.