How to hire employees in Sri Lanka

Sri Lanka's economic landscape, characterized by a blend of traditional industries and burgeoning sectors like IT and tourism, makes it an enticing destination for global recruitment. The island nation is recognized for its diverse talent pool, with expertise spanning from agriculture and textiles to information technology and hospitality, marking it as a hub of varied professional capabilities.

The labor market in Sri Lanka offers an appealing proposition for businesses due to its cost-effectiveness in hiring skilled professionals. This advantage, coupled with the country's commitment to education and workforce development, makes Sri Lanka an attractive option for companies looking to enhance their talent base or expand their presence in South Asia.

With its strategic geographic location, robust economic growth, and a government supportive of foreign investment, Sri Lanka stands out as a compelling choice for employers seeking to tap into a rich reservoir of talent while benefiting from a cost-efficient and dynamic employment landscape.

What you need to know before hiring employees in Sri Lanka

Job market in Sri Lanka

• Active job postings in Sri Lanka saw a 2.43% monthly decrease, with a 12.01% drop since October 2023, indicating a cautious hiring environment.
• The employment rate slightly increased to 95.30% in Q3 of 2023, showcasing overall employment stability despite global challenges.
• The Sri Lankan government's active involvement in bolstering the IT sector, through initiatives like technology parks and foreign investment policies, is setting a solid foundation for job growth.
• Sri Lanka's focus on STEM education ensures a continuous supply of highly educated IT professionals, meeting the industry's demand for skilled talent.
• The rise in technology start-ups is injecting vibrancy into the job market, creating diverse opportunities for innovative and talented individuals.
• The shift towards remote work opens international career avenues for Sri Lankan IT professionals, enhancing their global work exposure.
• Despite a promising job market, Sri Lanka faces challenges with an unemployment rate increase to 6.18% in 2022, highlighting areas needing strategic interventions to enhance job creation.
• The youth unemployment rate's rise to 24.74% in 2022 underscores the urgent need for targeted employment policies and programs to support young job seekers.
• With a GDP of $74.85 billion in 2022 and strategic governmental support, Sri Lanka's job market is poised for growth, particularly in the IT sector, promising a brighter future for employment in the region.
• The GRWI score of 0.528, ranking 85th, offers insight into Sri Lanka's position in the global landscape regarding remote work capabilities, cybersecurity, economic factors, infrastructure, and social safety criteria.

Srilanka Hiring Trends

Sri Lanka's employment landscape is experiencing dynamic changes, underpinned by steady economic advancements and a significant emphasis on the services sector, notably travel and tourism. This sector's contribution of $9.7 billion to the GDP highlights its pivotal role in employment generation. 

Furthermore, the nation's strategic infrastructure investments, supported by the International Monetary Fund, are setting the stage for diversified job opportunities. With GDP growth stabilizing around 4% and a vibrant services sector employing a substantial portion of the workforce, the country is on a trajectory towards enhancing its global economic standing.

Amid these developments, Sri Lanka's job market is becoming increasingly attractive to both local and international employers, especially in the realms of technology and tourism. The government's focus on reducing the trade deficit, coupled with a forecasted inflation stabilization around 5%, suggests an optimistic future for hiring. 

As the country continues to balance its import reliance with export growth, employers are presented with a fertile ground for tapping into Sri Lanka's skilled and versatile talent pool, promising a buoyant hiring trend in the coming years.

How to hire employees from Sri Lanka

1. Set up an entity in the country

Establishing a legal entity in Sri Lanka serves as a key to unlocking the South Asian market's potential, offering direct management of employment practices and the promise of long-term economic benefits.

The process begins with selecting an appropriate corporate structure, such as a Private Limited Company or Public Limited Company, pivotal for laying the groundwork for future expansion. Subsequent steps involve formal registration with the Registrar of Companies in Sri Lanka and securing a Tax Identification Number (TIN), essential milestones for melding into the local business landscape.

Venturing into this endeavor is intricate, entailing a blend of legal, fiscal, and administrative challenges. A deep understanding of Sri Lankan employment laws and a calculated approach to human resources and payroll are indispensable. It's about more than just understanding the legal framework; it's about integrating your operation within Sri Lanka's dynamic economy. This requires careful preparation or the guidance of experienced professionals to ensure a smooth entry and sustainable success.

2. Hire independent contractors

Engaging independent contractors in Sri Lanka entails forming agreements with individuals or companies for specific tasks or projects, granting considerable flexibility perfect for short-term needs or special project objectives. Properly classifying workers is crucial to avoid legal complications and potential fines. It's also vital to recognize that contractors might not show the same level of engagement or allegiance as full-time, permanent employees, an essential consideration in this hiring strategy. This method enables businesses to swiftly respond to project requirements and market fluctuations in Sri Lanka, accessing specialized expertise without the need for long-term employment commitments.

3. Partner with an EOR in the country

Utilizing an Employer of Record service simplifies the process of entering Sri Lanka's market, avoiding the hurdles of establishing a local entity. This approach notably minimizes liabilities and boosts cost efficiency. Partnering with an EOR ensures adherence to Sri Lankan employment regulations, tax requirements, and legal standards, significantly reducing the risk of compliance issues and fostering a lawful operational framework. This enables businesses to concentrate on their primary activities while smoothly expanding their presence in Sri Lanka, making the most of the local expertise and resources available.

Compliance risk while hiring in Sri Lanka

Hiring in Sri Lanka presents compliance risks related to labor laws, taxation, and worker classification. To manage these complexities and avoid potential legal issues, companies must have a thorough understanding of Sri Lankan and applicable international regulations. Collaborating with local legal experts or utilizing an EOR service can greatly mitigate these risks, ensuring ethical employment practices and regulatory compliance within the Sri Lankan context.

Key Aspects of Srilanka  Labor Law

Employment Contract:

In Sri Lanka, employment agreements are anchored by the nation's labor laws, with a clear inclination towards ensuring that all terms of employment are laid out in writing, even though the law doesn't mandate it for all employment types. These contracts comprehensively cover:

• The personal and position details of both parties involved - the employer and the employee.
• The official start date of employment, along with the stipulated end date for those on fixed-term engagements.
• The precise location or locations where the employee is expected to perform their duties.
• An in-depth role description, elucidating the job responsibilities and expectations.
• Salary details, conforming to the minimum wage laws of Sri Lanka, and any other financial compensations.
• Work schedule specifics, outlining the daily and weekly working hours.
• Leave entitlements, including annual, sick, and parental leave, as applicable to the employee.
• Notice period requirements for both resignation and termination scenarios, safeguarding the interests of both parties.
• Reference to any collective bargaining agreements influencing the employment terms.

Sri Lanka allows for the utilization of fixed-term contracts, catering to project-based or temporary staffing needs, with legal provisions ensuring that these arrangements don't exploit pension rights. Typically, continuous service under such contracts beyond four years transitions into eligibility for pension benefits, maintaining a balance between flexibility for employers and security for employees.

Working Hours:

In Sri Lanka, the typical work schedule is 8 hours a day, totaling 45 hours across the week. Notably, there are regulations tailored to certain sectors; for instance, Section 73 of the Factories Ordinance prohibits employing young individuals in factories on Sundays.

Overtime:

Overtime compensation is set at 1.5 times the regular pay rate, with a cap of 12 hours of overtime permitted weekly. Positions in executive or professional categories may not be subject to these overtime limits.

Minimum Wage:

In Sri Lanka, the monthly minimum wage is set at 12,500 LKR, translating to a daily rate of 500 LKR.

Payroll laws in Srilanka

In Srilanka, the frequency for payroll distribution is set on a monthly basis.

Employment benefits in Srilanka

Leave Policies in Srilanka

1. Paid Time Off:

In Sri Lanka, employees who have completed one year of service are entitled to at least 14 days of paid annual leave, plus public holidays. Initial leave entitlement of 4 days is available after completing the probation period, with additional leave accumulating quarterly during the first year. The carryover of unused leave is subject to the company's policy.

2. Public Holidays:

In Sri Lanka, there are 25 public holidays scheduled for 2024.

3. Sick Days:

For sick leave, a medical certificate from a licensed doctor is required. Typically, employees who have worked for a continuous year in either the public or private sectors are eligible for up to seven days of fully paid sick leave annually.

4. Maternity leave:

5. Paternity leave

Fathers working in the state sector receive a compulsory paid paternity leave of three days, which must be utilized within three months following the child's birth.

Public Health Insurance 

Sri Lanka's healthcare system is characterized by its universal coverage, offering all citizens access to a wide range of medical services through public health insurance funded by government taxation. This includes outpatient and inpatient care, emergency services, and surgeries, emphasizing preventive care and maternal health. 

Despite the system's comprehensiveness, challenges such as hospital overcrowding have led to a complementing private sector. The government's ongoing investment aims to enhance healthcare quality and accessibility, ensuring the system's sustainability. With both public and private options available, Sri Lanka continues to uphold its commitment to ensuring health equity and access for all its residents.

Filing tax in Sri Lanka

Income Tax:

In Sri Lanka, employee income tax follows a progressive structure, beginning at 0% for the initial LKR 100,000 of gross salary, and escalating up to 36% for earnings exceeding LKR 308,333. This tiered system ensures equitable contributions across different income levels, with higher earners contributing a larger percentage. This framework reflects Sri Lanka's commitment to a balanced fiscal policy, encouraging fairness and financial responsibility. For a detailed breakdown of tax rates and brackets, consult our extensive guide on Sri Lanka's income tax regime.

Other Tax and Social Security Contributions:

In Sri Lanka, employer and employee payroll contributions are integral to supporting the country's welfare system, with total employment costs for employers ranging between 22.75% to 25.75%. These contributions finance various social security benefits, including family allowances and work injury compensation, alongside retirement funds like the Employees Provident Fund and Employees Trust Fund. Employees contribute 8% to the Provident Fund, aligning with the country’s commitment to ensuring a secure financial future for its workforce. This structured contribution system underlines Sri Lanka’s dedication to employee welfare and social security. For a more detailed exploration of payroll contributions, our guide offers comprehensive insights.

Business Culture in Sri Lanka

Business Culture in Sri Lanka is shaped by its linguistic diversity and rich cultural heritage, manifesting in specific etiquette practices within the workplace. Here are the core aspects:

• Initial business meetings are formal; use handshakes for greetings.
• Address individuals by professional titles until invited to use first names.
• Building personal relationships is key to successful business interactions.
• Engage in small talk at the start of meetings to build rapport.
• Practice indirect communication and be observant of non-verbal cues.
• Direct or confrontational communication is considered rude.
• Formal business attire is expected; men wear suits, and women wear business suits or traditional attire.
• Gifts should be given with both hands and not be overly extravagant.
• Punctuality is valued, but flexibility is also practiced.
• Adapting to these cultural nuances is crucial for successful business in Sri Lanka.

Top sectors to hire from in Sri Lanka

Agriculture Sector

In 2021, the agriculture sector employed 25.75% of Sri Lanka's workforce and contributed 8.75% to the GDP in 2022, marking it as a foundational pillar of the economy. This sector, focusing on tea, rubber, and coconut production alongside rice and spices, presents opportunities for agronomists, farm managers, and agricultural technicians, reflecting its importance in national employment and economic stability.

Industry Sector

Employing 27.88% of the population and contributing 30.27% to the GDP in 2022, the industry sector in Sri Lanka encompasses textiles, construction, and manufacturing. With roles ranging from engineers to skilled laborers, this sector offers diverse employment prospects in its extensive industrial landscape.

Services Sector

Commanding 46.38% of employment and contributing about 56.11% to the GDP in 2022, the services sector is Sri Lanka's dominant economic and employment force. Spanning tourism, IT, financial services, and transport, it provides broad recruitment opportunities for IT professionals, financial analysts, and hospitality managers, among others.

IT and Digital Technologies

Marking a rapid growth trajectory, the IT and digital technology sector in Sri Lanka is a burgeoning field with an expanding pool of skilled professionals. Offering roles in software development, digital marketing, and tech innovation, this sector aligns with the global shift towards digitalization and tech-focused economies, underscoring the critical need for tech-savvy talent in shaping the future.

Top cities to hire from Sri Lanka

Colombo: 

As the commercial capital and the largest city, Colombo is the heart of Sri Lanka's business and IT sectors, hosting a wide array of local and international companies. It's an ideal location for finding professionals in finance, IT, hospitality, and more.

Kandy: 

Known for its educational institutions, including the University of Peradeniya, Kandy is a hub for young, educated talents, particularly in the fields of IT, engineering, and healthcare.

Galle: 

With a growing tourism industry, Galle is a prime spot for hiring in hospitality, travel, and related services. It also has a burgeoning IT and creative industries presence.

Jaffna: 

Emerging from its post-conflict reconstruction, Jaffna is becoming a center for education and entrepreneurship, offering untapped potential in tech and agriculture sectors.

Hambantota: 

With significant investments in port and infrastructure development, Hambantota is rapidly growing in logistics, manufacturing, and industrial sectors, presenting opportunities for specialized skill sets in these areas.

Hire in Sri Lanka compliantly with Gloroots

Gloroots, acting as an Employer of Record (EOR) in Srilanka, offers a streamlined approach to navigate the complexities of recruitment. Our EOR platform ensures swift onboarding of candidates, facilitating the quick initiation of operations while adhering to both local and international regulations. Designed to accommodate businesses of all sizes, Gloroots simplifies payroll management, benefits administration, and tax responsibilities, bypassing the need for a local entity. This strategy enables companies to effectively build a remote team in Sri Lanka, optimizing efficiency and compliance. For detailed insights on how Gloroots can support your Srilanka hiring initiatives, please contact us.

Frequently Asked Questions 

1. What are the key sectors for hiring in Sri Lanka?

Sri Lanka's key sectors for hiring include the Services sector, which encompasses finance, IT, healthcare, and tourism, contributing significantly to the GDP and employment. The Industrial sector, including manufacturing, construction, and textiles, also offers robust hiring prospects. Additionally, the Agricultural sector remains vital, employing a significant portion of the workforce in tea, rubber, and coconut production.

2. What is the process for obtaining a work permit for foreign nationals in Sri Lanka?

Foreign nationals looking to work in Sri Lanka must secure a work visa, which involves obtaining a recommendation from the Board of Investment or the relevant government ministry, depending on the nature of employment. The employer must then apply for a work visa on behalf of the foreign national, submitting necessary documents, including employment contracts and qualifications.

3. How does public health insurance work in Sri Lanka for employees?

Sri Lanka offers a universal public healthcare system that is free at the point of delivery for all citizens, including employed individuals. Employers do not typically need to contribute to health insurance; however, some choose to provide private health benefits as part of their employment package to attract and retain talent. Employees can access a wide range of healthcare services through public hospitals and clinics across the country.