Using an employer of record in Sri Lanka

Tapping into Sri Lanka’s growing workforce and engaging talent from the significantly vast talent pool can help you grow in the SAARC region. 

However, managing international teams while overseeing company workflows can be a hassle while following regulations, compliance, and local labor laws. 

This is why most employers prefer an employer of record in Sri Lanka to onboard local talent and manage admin operations. 

Read on to explore how an EOR in Sri Lanka can help you expand and manage your teams internationally, without overwhelming day-to-day company operations.

How to hire employees in Sri Lanka

You can hire employees in Sri Lanka via multiple channels, including:

1. Setting up a branch or subsidiary: You can register with the Sri Lankan Department of the Registrar of Companies. Follow the necessary steps to be legally present as a company in the country. This way, you can hire and onboard talent directly in Sri Lanka and manage teams without any third-party intervention. This typically takes a lot of time and demands a huge budget.

However, for companies seeking quicker market entry and local support for engaging talent, an EOR in Sri Lanka can offer a streamlined path.

2. Hiring independent contractors: You can appoint independent contractors or freelancers in Sri Lanka to engage local talent. But this option comes with misclassification risks that can lead to legal ramifications. You can take the assistance of a contractor management tool to handle it better. For instance, Payoneer Workforce Management’s AOR can help you mitigate misclassification risks.

3. Using an Employer of Record: An Employer of Record in Sri Lanka can help you legally onboard talent without having to set up a legal entity inside the country. This way, you can handle company operations with expert support and navigation to manage HR, local admin, or legal compliance. 

Payoneer Workforce Management helps you onboard and manage talent in 160+ countries without setting up a local legal entity.

How to onboard employees in Sri Lanka

Onboarding employees in Sri Lanka is a mostly standardized process that follows typical onboarding workflows. Key features include:

• Issuance of an appointment letter: As per the Shop and Office Act of Sri Lanka, employers need to issue an appointment letter to each employee on the date of joining. This document generally serves as the contract between the employer and employee and is legally binding in Sri Lanka.

• Collection of mandatory documents: As an employer, you need to collect certain typical documents from employees, including:
  • A national identification certificate under the Registration of Persons Act, No. 32 of 1968.
  • A birth certificate to verify the employee’s age on the date of appointment.
  • A proof of residence for background verification.
  • Educational and service certificates.

• Social security: Ensure that all employees are registered with the relevant social security authorities, and mainly with the Employees’ Provident Fund (EPF) and the Employees’ Trust Fund (ETF). This makes them eligible for statutory benefits like pensions and social security.

• Tax setup: Ensure that all employees have a Taxpayer Identification Number (TIN) from the Inland Revenue Department of Sri Lanka.
• First-day briefing: Give fresh hires an idea of the company’s workflow and policies. You also need to inform them of critical nuances like HR regulations, workplace ethics, etc.
• Team introductions: Let fresh hires familiarize themselves with their colleagues and teams to ensure that they settle in smoothly.

Payoneer Workforce Management allows companies to engage and manage talent across borders while staying compliant, all through its technology platform.

Pay employees in Sri Lanka

It is mandatory to pay employees in Sri Lanka their due salaries in Sri Lankan Rupees (LKR) on the last working day of the month. 

Income tax and social security obligations

Individual income tax is applicable for gross earnings of more than 150,000 LKR per month. 

For tax over the minimum limit, you can refer to the income tax slabs in Sri Lanka as per the Inland Revenue Department (IRD) tables.

Other social security obligations include:

• Pensionary contributions: The EPF requires employees to contribute 8% of their monthly earnings to the fund, and employers to pay 12% of the employee’s earnings. Also, as per the ETF, the employer is legally obligated to contribute 3% of an employee’s monthly earnings to the fund.

Using an Employer of Record provides a streamlined way to pay employees in Sri Lanka while staying compliant. Payoneer Workforce Management offers a unified, all-in-one platform with a single dashboard to manage a global workforce.

Employment laws in Sri Lanka

Employment laws in Sri Lanka define clear regulations that protect employees. As an employer, you need to keep your company policies in line with these regulations to avoid penalties and legal risks. These laws govern:

• Working hours: The Shop & Office Employees act set working hours to 8 hours per day and 45 hours per week.
• Overtime: Overtime work is capped at 12 hours per week at an hourly wage of 1.5 times the regular amount.
• Probation: The statutory minimum probation period in Sri Lanka is 6 months. However, the duration may be longer or shorter, depending on the job and the employer.

Staying compliant with these and various other employment laws can be hectic while executing company workflows. Payoneer Workforce Management’s infrastructure can help you navigate these regulations.

Minimum wage in Sri Lanka

The minimum wage in Sri Lanka is set at 30,000 LKR per month. 

The rate is subject to increase at the discretion of the governing authorities. As an employer, you should regularly keep an eye out for such updates via government notices and websites.

Employment contracts in Sri Lanka

There are several types of employment contracts in Sri Lanka. Typically, that includes indefinite, fixed-term, part-time, and freelancing contracts.

Most private-sector contracts in Sri Lanka are written documents and are legally required to carry these employee details:

• Name 
• Designation and nature of appointment
• Grade of appointment
• Basic remuneration and pay scale
• Nature of payment: weekly, fortnightly, or monthly
• Cost of living and/or any other allowances, if any
• Probation period, if any, with governing conditions
• Circumstances of probationary termination
• Conditions governing employment
• Circumstances of employment termination
• Normal working hours
• Number of entitled holidays and leave
• Payable overtime rate
• Medical aid provision by the employer, if any
• Details of the conditions governing any provident fund, pension, or gratuity scheme applicable to the employee.
• Prospects of promotion

Using an Employer of Record in Sri Lanka, you can draft and send out employment contracts to local employees with compliance support. 

Payoneer Workforce Management can help you set up local benefits and payroll as per Sri Lankan laws and mandates, so that you can onboard talent quickly and securely.

Leave policy in Sri Lanka

Employees in Sri Lanka are entitled to various types of leave during their tenures. Here’s a breakdown:

Annual/earned leave

There’s no provision of annual leave during the first year of employment. 

In the second year, the leave period is determined based on the date of an employee’s joining:

From the third year onwards, all employees receive 14 days of annual leave per year.

Sick leave

There’s no legal provision for sick leave in the labor laws. If you decide to assign sick leave durations, that will depend on company policies.

Casual leave

Employees are entitled to 7 days of casual leave in Sri Lanka.

Public holidays

As per the national calendar, employees get 8 mandatory statutory holidays with pay.

Maternity leave

Women receive 84 working days off as maternity leave, paid by the employer.

Childcare and compassionate leave

These leave periods are subject to employer discretion.

Other leave

Employees receive a “Poya Holiday”, which is a day off on a full moon day.

Work permit in Sri Lanka

Non-Sri Lankans require explicit and mandatory permits to legally work in Sri Lanka. Primarily, as per the Immigration Services Centre of Sri Lanka, every aspiring employee in various sectors needs an employment visa to be employed in the country. And for that, they must have an Entry Visa before travelling to Sri Lanka.

For more information, it’s best to consult official government resources or verify credible information with the official website of the governing authority.

Background check in Sri Lanka

Employers can conduct background checks in Sri Lanka before engaging local talent. This is to verify an employee’s legal presence or residence in the country, along with educational qualifications, employment quality at previous workplaces, if any, and previous criminal records, if any.

Employers should refer to local regulations before initiating background checks in Sri Lanka.

Employment termination in Sri Lanka

Termination in Sri Lanka is a regulated process by the Termination of Employment of Workmen (Special Provisions) Act (TEWA) that protects employees from arbitrary dismissal. 

As an employer, you can terminate employees in Sri Lanka, but only on valid and justifiable grounds. Otherwise, a termination can be considered as an unfair dismissal and expose you to legal consequences with heavy penalties. Here’s a breakdown:

• Possible termination scenarios include:
  • Employee resignation
  • Mutual agreement between you and the employee
  • Termination during probationary period
  • Termination due to gross misconduct, performance issues, and unsanctioned absences without leave, etc.

Notice period

Notice period in Sri Lanka can range from 0 to 60 days, if the employee is in service for a year or more.

If the employee’s service is less than a year, they may not be entitled to a notice period.

Severance

Severance compensation is subject to calculation. It is calculated based on the length of service and last drawn monthly salary, as per Labor Department-issued compensation schedules. 

It is expressed in months of salary per year of service, with a statutory cap to prevent overcompensation. 

Years of Service	Pay per Year of Service	Maximum Compensation
1st to 5th year	2.5 months per year	12.5 months
6th to 14th year	2 months per year	30.5 months
15th to 19th year	1.5 months per year	38 months
20th to 24th year	1 month per year	40 months
25th to 34th year	0.5 months per year	48 months

Business registration in Sri Lanka

If you want to set up a permanent presence in Sri Lanka for your brand or want access to local markets, you can register a business within Sri Lankan borders. However, you have to go through an extensive registration process, as stated by the Department of Registrar of Companies.

To avoid the hassle of setting up a legal presence, many employers typically prefer using an EOR in Sri Lanka, which makes the onboarding process faster and streamlined. 

Payoneer Workforce Management helps you engage talent in 160+ countries, without requiring you to set up a legal entity.

PEO in Sri Lanka

Using a Professional Employer Organization (PEO) in Sri Lanka can help you with HR and payroll workflows. However, using a PEO, you carry some legal liabilities and require a legal presence in the country. 

Using an Employer of Record in Sri Lanka helps you reduce local administration burden. You don’t have to set up any legal entities, and the EOR acts as the legal employer for the local team. This makes it a better choice when it comes to entering the Sri Lankan market quickly.

Payoneer Workforce Management’s Employer of Record services in Sri Lanka

With Payoneer Workforce Management, you can focus more on day-to-day company operations while streamlining global workforce management.

Our platform can help you:

• Onboard local talent in Sri Lanka, without setting up a local entity
• Support to manage employee benefits, payroll, taxes, timesheets, HR, and more
• Expert guidance to navigate local laws and regulations.

Book a demo today.

FAQs

1. Do Sri Lankan employees get annual bonuses?

There’s no legal requirement for an annual or any other bonus in Sri Lanka. Provision of bonuses and allowances is subject to the discretion of the employer and company policies.

2. Do employees in Sri Lanka receive gratuity?

Yes, Sri Lankan employees are entitled to a gratuity. You need to pay workers their gratuities after 5 years of service.

3. Are employees entitled to health benefits in Sri Lanka?

Public health benefit schemes in Sri Lanka may not be mandatory. However, Sri Lankan citizens are eligible to enroll into the National Health Insurance Scheme (NHIS). It is voluntary and offers subsidized healthcare. 

As an employer, you can choose to provide private health insurance. However, it is not a mandate or a legal requirement in the country.

4. Is there an employer cost in Sri Lanka?

Yes, there is a fixed employer cost in Sri Lanka of 17% on a gross annual salary of USD 60,000 or 18,25,000 LKR approx. For a breakdown of employment costs, you can use our employee cost calculator.

5. Is there a leave carry-forward policy in Sri Lanka?

There’s no legal provision in the labor law that allows employees to carry forward unutilized leave periods to the following year.