Sri Lanka Payroll & Employer Of Record (EOR) services.
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SRI LANKA
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Sri Lanka Payroll and EOR: Employment Contracts
- To enter Sri Lanka, all foreign nationals must get a visa. The type of visa to apply for is determined by the length of time the applicant intends to remain in Sri Lanka as well as the reason for their visit. Sri Lankan visas are classified as follows:
- Transit visa: This visa permits foreign citizens to enter Sri Lanka and stay in the country for up to 48 hours while traveling to another destination.
- A visitor visa permits a foreign individual to stay in Sri Lanka for up to 30 days for leisure or commercial activities, such as a conference or training session. In rare cases, applicants can request an extension of this visa to remain for up to 90 days.
- Residence visa: This visa permits foreign citizens to stay in Sri Lanka for up to a year and work and study freely. Foreign nationals must renew their residence visa every year they want to stay in the country.
- Any international workers who intend to relocate to Sri Lanka to work for your firm will require a residence visa. Employees will need to apply for an entrance visa in their home country before they may obtain this authorization.
Probation Periods
In most cases, the probation term is six months. According to the Shop and Office Employees Act, the employer must explicitly state the length of probation, the regulations regulating such probation, and the situations under which the employment contract may be terminated while on probation.
Notice Periods
- Employees may be laid off only after giving at least one month’s notice. Only after one year of employment is a worker entitled for this one-month notice. A worker with less than a year of service is not entitled to any kind of notice.
Minimum Wage
The monthly minimum salary in Sri Lanka is 10,000 rupees.
Working Hours
A regular employee’s typical working hours shall not exceed 8 hours every day. Working hours in a single week may not exceed 45 hours. The week is defined as the time between midnight on any Saturday night and midnight on the next Saturday night. An employer may not ask an employee to labour for more than 12 hours between the time he begins work on any given day and the time he finishes work on that same day.
Overtime
- Overtime in the context of any employment or work refers to employment or work that extends beyond the typical working hours. Overtime may not exceed a total of 12 hours in any given week.
- Pay – No employee is obliged to work overtime unless he is paid separately for each hour of overtime work at a rate not less than 1.5 times the hourly rate of his usual salary. The salary due for any part of an hour of overtime labour performed by him should be set in proportion to the hour.
- The hourly rate of remuneration for the purpose of computing overtime remuneration shall be as follows: where remuneration is payable at a daily rate, one-eighth of the daily rate divided by thirty, where remuneration is payable at a fortnightly rate, one-eighth of the monthly rate divided by fourteen, and where remuneration is payable at a weekly rate, one-eighth of the monthly rate divided by seven.
- To compute overtime in respect of work done by any employee in any week in excess of the normal maximum period of 45 hours, any day in that week on which such employee was on leave or on holiday shall be deemed to be a day on which such employee had worked for the normal maximum period fixed for a day. Section 6-9 of the Shop and Office Employees Act.
Non Compete
A non-competition agreement is a legal agreement or clause in a contract that states that an employee may not compete with his or her employer once the work time has ended.
Severance
Workers who have completed five years of service with an employer employing fifteen or more workers are entitled to the following rates of gratuity in the event of service termination (whether by the employer or the worker, or on retirement, or by the workman’s death, or by operation of law, or otherwise):
- 1. Half a month’s earnings or compensation for each year of service completed for monthly rated workers; and
- 2. 14 days’ pay for each year of service completed for other workers.
- This sum is payable regardless of the basis for termination (resignation, dismissal, retirement, worker death, through operation of law, or otherwise), and may only be withheld in specific strictly specified circumstances.
Termination
Before terminating an employee’s services, the law demands a termination notice. However, the law does not address individual dismissals; rather, it solely addresses retrenchment (collective dismissals). Employees may be laid off only after giving at least one month’s notice. Only after one year of employment is a worker entitled for this one-month notice. A worker with less than a year of service is not entitled to any kind of notice.
Collective Bargaining
N/A
Enforcement
The legal system of Sri Lanka is based on the English common law system. As a result, the interpretation of case law is governed by English law concepts such as judicial precedent (lower courts follow the reasoning of higher courts in comparable, future cases) and ratio decidendi (reasons for decision). District Courts hear civil proceedings, whereas Magistrates’ Courts and High Courts hear criminal ones. An appeal can be made from the rulings of these trial courts to the Court of Appeals and finally to the Supreme Court.
PAID TIME OFF
Annual Vacation
When the new calendar year begins, an employee is eligible to take annual leave. The length of the first yearly leave period is defined by the date/month on which the job began. After 12 months of continuous employment, an employee is entitled to 14 days of paid annual leave beginning in the second year. Depending on the period of his employment’s start, an employee would have the following yearly leave for the first year:
- 14 days if the job begins on or after January 1st but before April 1st;
- 10 days if the job begins on or after April 1st but before July 1st;
- 7 days if the job begins on or after July 1st but before October 1st; and
- 4 days if the job begins on or after October 1st.
A worker is obligated to use his or her yearly leave within twelve months after being entitled to it. The schedule of annual leave is decided by mutual agreement between the company and the employee. It can be divided, but the minimum time cannot be less than 07 days. Employers are not permitted to coerce employees to work during their yearly leave. If an employee’s employment contract terminates before he or she may get the right to annual leave, the employee is entitled to the annual leave earned in the preceding year plus the days earned during the year of termination. The Wage Boards allow a higher degree of yearly leave (up to 21 days) for various trades under Wages Board Ordinance.
Sick
A person who has completed a year of continuous service in the public or private sector is entitled to seven days of paid sick leave after completing a year of continuous service.
Maternity
Maternity leave is 12 weeks (84 days) long, omitting weekly holidays, Poya days, and statutory holidays. Out of these 12 weeks, two weeks are before confinement (including the day of her confinement) and ten weeks are after confinement. Maternity leave is completely compensated for a period of 12 weeks.
Paternity
There is no formal policy in Sri Lanka regarding paternity leave.
Family
The statute makes no mention of paid or unpaid parental leave.
National Holidays
24 public holidays in Sri Lanka.
Other Paid Time Off
N/A
STATUTORY EMPLOYEE BENEFITS
Unemployment
No unemployment benefits available yet in Sri Lanka.
Workers Compensation
Workmen’s Compensation in Sri Lanka: The Workmen’s Compensation Ordinance of 1935 and later Amendments allow for the payment of compensation to employees who are injured in the course of their job as a result of an accident that occurs as a result of and during the course of their work.
Social Security
In Sri Lanka, there are a number of social security programmes for employees in both the formal and informal economies, the majority of which take the form of provident funds or retirement savings schemes and hence do not precisely take the form of social insurance schemes.
Employers in both the public and private sectors contribute monthly to a trust fund that is owned and controlled by employees. The fund invests in a variety of asset classes and offers additional old-age, disability, and survivor benefits. Employee: 8% of monthly wages; extra voluntary contributions may be made.
Employer
- Provident fund: 12% of monthly payroll.
- Trust fund: 3% of monthly payroll.
Retirement
Age 55 (men) or 50 (women) and retired from covered employment; at any age if the government closes the place of employment, if emigrating permanently, or for employed women who married.
Early withdrawal: Partial withdrawals are permitted to pay certain housing and medical expenses. The fund member must be younger than the regular retirement age, be presently employed, have made at least ten years of payments, and have a balance of at least 3,000 rupees in their account.
Age 60 or older and retired from covered work; at any age if the fund member retires, resigns, is sacked, changes employers, permanently emigrates, or becomes eligible for any other government pension.
Health
N/A
PRIVATE EMPLOYEE BENEFITS
Workers Compensation
Private workers compensation is available in Sri Lanka.
Retirement
There are private retirement schemes available in Sri Lanka.
Health
Private healthcare is available in Sri Lanka.
Insurance
Private life insurance is available in Sri Lanka.
PERSONAL INCOME TAX
Tax Year
Beginning on April 1 of one calendar year and ending on March 31 of the next calendar year.
Tax Tables
Individuals who are residents are liable to income tax on their international earnings. Non-residents are solely taxed on income earned in Sri Lanka.
Taxable Income | Rates of Taxes |
0 – 3 million | 6% |
3 million – 6 million | 12% |
6 million + | 18% |
Taxation Method
Excise charges, value added tax, income tax, and tariffs are the most common forms of taxation in Sri Lanka. Taxation is a major component of the government’s budgetary policy. The Sri Lankan government primarily levies two types of taxes: direct taxes and indirect taxes.
Double Taxation
Sri Lanka has multiple double tax agreements (DTA) with other countries.
Residence Requirements
An individual is considered to be a resident of Sri Lanka for the purpose of assessment if the following conditions are met:
- resides in Sri Lanka during the year, for a period or periods totalling 183 days or more in any 12-month period that begins or ends during the year is an employee or official of the government of Sri Lanka and one’s spouse is posted abroad during the year, or is an individual who is employed on a Sri Lanka ship, within the meaning of the Merchant Shipping Act, during the period the individual is so employed.
Payroll Calendars
- There are no predetermined dates on which employees must be paid.
- Weekly, Bi-weekly, fortnightly and monthly payrolls are acceptable.
Rebates & Tax Credits
Up until December 31, 2019, the following incentives were available:
- In the event of a senior citizen having interest income from a financial institution in a given year, LKR 1,500,000 for each year of assessment, up to the sum of the individual’s interest income for the year.
- In the case of a resident individual or partner in a partnership having foreign currency revenue generated in Sri Lanka from any service performed in or outside Sri Lanka to any person to be used outside Sri Lanka, LKR 15 million for each year of assessment, up to the sum of such income for the year.
Health Insurance
Sri Lanka has a universal health care system that provides free healthcare to all inhabitants, a national priority. OPD services are widely offered at public (general) hospitals in large towns and cities, and most have laboratory and radiology facilities. The public healthcare system is supported by the government, and its services are open to all citizens. The system covers around half of all outpatient treatments and 90 percent of all inpatient care.
Unemployment
No unemployment benefits available yet in Sri Lanka.
Social Security
In Sri Lanka, there are a number of social security programmes for employees in both the formal and informal economies, the majority of which take the form of provident funds or retirement savings schemes and hence do not precisely take the form of social insurance schemes.
Employers in both the public and private sectors contribute monthly to a trust fund that is owned and controlled by employees. The fund invests in a variety of asset classes and offers additional old-age, disability, and survivor benefits. Employee: 8% of monthly wages; extra voluntary contributions may be made.
Employer
- Provident fund: 12% of monthly payroll.
- Trust fund: 3% of monthly payroll.
PAYROLL ELEMENTS
Income
Sri Lanka Payroll Elements
Salary, earnings, bonuses, overtime pay, taxable benefits, allowances, and certain lump sum perks are examples of remuneration (revenue from employment). Profits or losses made by a company or trade. Income or profits derived from an individual’s status as a trust beneficiary.
Bonuses
There is no legal requirement for companies to provide bonuses.
Allowances
N/A
Benefits in Kind
Benefits in kind are simple payments in kind and company subsidies offered for workers’ personal or social needs. Also, depending on its purpose, money provided to employees may be considered a kind benefit and may be excluded from tax and premium contributions.
Investment Income
Pay-out tax is payable at a rate of 14 percent (formerly 10 percent) on gross dividends issued by a resident firm, except dividends given out of any dividend received from another resident company. Under the revised Inland Revenue Act No. 24 of 2017, any dividend distributed prior to 1 April 2019 from dividends from which withholding tax (WHT) was deducted at 10% previous to 1 April 2018 would not be liable to dividend tax.
Dividends given by a resident corporation to any non-resident individual will be tax-free from January 1, 2020. A company’s gain on the realization of an investment asset or obligation (the amount by which the total of the consideration received for the asset or liability exceeds the cost of the asset or liability) is subject to a 10% tax. Gains on the sale of shares listed on any official list issued by a stock exchange registered by the Securities and Exchange Commission of Sri Lanka are tax-free. Such profits are subject to the 0.3 percent share transaction levy, which is levied on both the seller and the buyer based on the transaction value.
Retirement Funding
- Age 55 (men) or 50 (women) and retired from covered employment; at any age if the government closes the place of employment, if emigrating permanently, or for employed women who married.
- Early withdrawal: Partial withdrawals are permitted to pay certain housing and medical expenses. The fund member must be younger than the regular retirement age, be presently employed, have made at least ten years of payments, and have a balance of at least 3,000 rupees in their account.
- Age 60 or older and retired from covered work; at any age if the fund member retires, resigns, is sacked, changes employers, permanently emigrates, or becomes eligible for any other government pension.
Health Insurance
Sri Lanka has a universal health care system that provides free healthcare to all inhabitants, a national priority. OPD services are widely offered at public (general) hospitals in large towns and cities, and most have laboratory and radiology facilities. The public healthcare system is supported by the government, and its services are open to all citizens. The system covers around half of all outpatient treatments and 90 percent of all inpatient care.
Risk Insurance
N / A
Taxable Income
Individuals who are residents are liable to income tax on their international earnings. Non-residents are solely taxed on income earned in Sri Lanka.
Allowable Deductions
A deduction is permitted in calculating taxable income for the following:
- Donations of cash or goods to the government or designated government institutions/funds.
- Donations of cash to recognized charity that provide institutionalized care for the sick or destitute.
- Donations to the government are tax-deductible without limits throughout the assessment year. The other deductions are limited to one-third of the taxable income or LKR 75,000, whichever is less.
PAYROLL TAXES AND EMPLOYER CONTRIBUTIONS
Payroll Taxes
Sri Lanka Payroll Taxes and Employer Contributions
Employees’ Provident Fund (EPF) (EPF)
- Employers and workers are required to contribute defined percentages (employer 12%, employee 8%) of each employee’s monthly emoluments/salary to the government-established EPF. Employers and workers can also contribute to private provident funds authorised by the labour administration.
Trust Fund for Employees
- Employers are also obligated to donate a set proportion (currently 3%) of each employee’s monthly emoluments/salary to the government-established Employees Trust Fund.
Unemployment
No unemployment benefits available yet in Sri Lanka.
Social Security
In Sri Lanka, there are a number of social security programmes for employees in both the formal and informal economies, the majority of which take the form of provident funds or retirement savings schemes and hence do not precisely take the form of social insurance schemes.
Employers in both the public and private sectors contribute monthly to a trust fund that is owned and controlled by employees. The fund invests in a variety of asset classes and offers additional old-age, disability, and survivor benefits. Employee: 8% of monthly wages; extra voluntary contributions may be made.
Employer
- Provident fund: 12% of monthly payroll.
- Trust fund: 3% of monthly payroll.
Workers Compensation
Workmen’s Compensation in Sri Lanka: The Workmen’s Compensation Ordinance of 1935 and later Amendments allow for the payment of compensation to employees who are injured in the course of their job as a result of an accident that occurs as a result of and during the course of their work.
ADMINISTRATION
Income
Individuals who are residents are liable to income tax on their international earnings. Non-residents are solely taxed on income earned in Sri Lanka.
Payroll Taxes
Employees’ Provident Fund (EPF) (EPF)
Employers and workers are required to contribute defined percentages (employer 12%, employee 8%) of each employee’s monthly emoluments/salary to the government-established EPF. Employers and workers can also contribute to private provident funds authorised by the labour administration.
Trust Fund for Employees
Employers are also obligated to donate a set proportion (currently 3%) of each employee’s monthly emoluments/salary to the government-established Employees Trust Fund.
Unemployment
No unemployment benefits available yet in Sri Lanka.
Social Security
In Sri Lanka, there are a number of social security programmes for employees in both the formal and informal economies, the majority of which take the form of provident funds or retirement savings schemes and hence do not precisely take the form of social insurance schemes.
Employers in both the public and private sectors contribute monthly to a trust fund that is owned and controlled by employees. The fund invests in a variety of asset classes and offers additional old-age, disability, and survivor benefits. Employee: 8% of monthly wages; extra voluntary contributions may be made.
Employer
- Provident fund: 12% of monthly payroll
- Trust fund: 3% of monthly payroll.
Workers Compensation
Workmen’s Compensation in Sri Lanka: The Workmen’s Compensation Ordinance of 1935 and later Amendments allow for the payment of compensation to employees who are injured in the course of their job as a result of an accident that occurs as a result of and during the course of their work.
Statutory Benefits
Statutory benefits in Sri Lanka include time off for the 24 national public holidays, as well as the annual leave of 14 days.
Employee Benefits
All employees are entitled to time off, including 24 paid public holidays.
LEGISLATION
Shop and Office Employees (Regulation of Employment & Remuneration) Act No 19 of 1954 and amendments to this Act. Wages Board Ordinance No 27 of 1941 and amendments to this Ordinance. Factories Ordinance No 45 of 1942 and amendments to this Ordinance.
STATUTORY BODIES
Inland Revenue Department
