Payroll in Sri Lanka

Shraddha Saxena
Learn about payroll laws and regulations in Sri Lanka. Efficiently manage payroll, compliance, and employee salaries with Gloroots.

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Payroll in Sri Lanka
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Table of Content

Nestled in the Indian Ocean, Sri Lanka offers vast opportunities for business expansion. However, navigating its intricate payroll regulations can be challenging. Gloroots simplifies payroll management, ensuring compliance with local laws. Employers hiring in Sri Lanka or managing payroll through an Employer of Record (EOR) need to understand these nuances for seamless operations.

How is payroll calculated in Sri Lanka?

Calculating payroll in Sri Lanka involves several key components, including:

  • Names and basic details of employees
  • Hours worked
  • Payroll deductions
  • Minimum wages
  • Taxes
  • Employee benefits
  • Gross pay
  • Net pay

Setting up payroll in Sri Lanka is relatively straightforward, but it is crucial to adhere to the country’s labor laws. When establishing payroll for your company, you must ensure compliance with all Sri Lankan payroll processes and regulations to ensure accurate and lawful payroll management.

Explore our  A Complete Guide to Payroll Management | Gloroots for in-depth insights

How to set up payroll in Sri Lanka

To set up payroll in Sri Lankas as a foreign company, you must first establish a subsidiary. Follow these steps:

  • Establish a Subsidiary: Create a subsidiary to hire employees to manage salaries, benefits, and payroll.
  • Register Your Business: Ensure your business is registered to begin payroll processing.
  • Open a Bank Account: Set up an active bank account for payroll transactions.
  • Collect Employee Documents: Gather all financial and tax documents from your employees.
  • Create Employee Profiles: Set up profiles for each employee on the payroll portals.
  • Verify Work Schedules: Check and confirm employees' work schedules.
  • Calculate Pay: Determine the gross and net pay for each employee.
  • Decide Payment Schedule: Establish a payment schedule for salary disbursements.
  • Begin Payroll Processing: With all the steps completed, start processing payroll.

Payroll Process in Sri Lanka

Managing payroll in Sri Lanka involves multiple steps and responsibilities. Streamlining this process ensures efficiency and compliance, and it can be broken down into three main phases:

Pre-Payroll Phase

The initial stage focuses on establishing essential policies and organizational structures.

  • Organization Setup: Establish uniform policies to simplify processes for your payroll team and ensure fairness for employees. Key steps include:
  • Business Profile: Register with the Department of the Registrar of Companies and the Department of Labor, obtain a company secretary, and secure Employees' Provident Fund and Employees' Trust Fund numbers.
  • Work Location: Set up work locations within Sri Lanka, ensuring compliance with regional laws if operating in multiple areas.
  • Leave Policy: Standardize leave policies to ease payroll calculations.
  • Attendance Policy: Implement clear attendance tracking methods, such as biometric devices, to record working hours accurately.
  • Statutory Components: Adhere to Sri Lankan labor laws regarding employee rights and payroll deductions to avoid legal issues.
  • Salary Components: Define wages, benefits, and deductions to ensure equitable treatment of all employees.
  • Pay Schedule: Determine a payment schedule, ensuring intervals are no longer than a month.
  • Employee Information: Collect all necessary employee information, including job titles and resident status.

Payroll Calculation Phase

With the pre-payroll setup complete, the payroll team calculates the correct pay for each employee. Utilize a payroll system that accounts for withholdings, deductions, and taxes to streamline this process.

Post-Payroll Phase

After calculations, there are additional steps to finalize the payroll process:

  • Salary Payments: Disburse salaries to employees either by sending calculations to your bank or using payroll software with direct deposit options.
  • Payroll Accounting: Maintain detailed records of employee salaries for budgeting, tax, and liability purposes.
  • Payroll Reporting and Compliance: Submit the appropriate deductions to respective agencies to ensure compliance with regulations.

Payroll Cycle

In Sri Lanka, payroll compliance is straightforward. Employers have the flexibility to pay salaries daily, weekly, bi-weekly, or monthly, but the pay period cannot exceed 31 days. It is essential for employers to establish a specific payday and ensure that employees are paid on this designated date.

Payroll Processing

To simplify compliance with Sri Lanka’s labor laws, consider partnering with a payroll processing company like Gloroots. We streamline the payroll process in Sri Lanka, making it efficient and hassle-free. Let Gloroots handle your payroll needs so you can focus on growing your business.

Payroll Management

In addition to payroll processing companies, payroll management services offer comprehensive solutions to manage your employee records and ensure compliance with statutory laws in Sri Lanka. These services maintain detailed records of incentives, employees' gross and net income, and provide a specified number of pay slips.

Discover the latest insights on Global Payroll Trends for 2024.

Payroll Components

Minimum Wage

In Sri Lanka, the minimum wage is set at 12,500 LKR per month or 500 LKR per day.

Working Hours

In Sri Lanka, the standard working hours are 8 hours per day, totaling 45 hours per week. Specific industries have additional regulations; for instance, Section 73 of the Factories Ordinance prohibits employing young individuals in a factory on Sundays.


Overtime is compensated at 150% of the regular pay rate. Employees can work up to a maximum of 12 overtime hours per week. However, executive and professional positions may be exempt from these overtime restrictions.

Social Security 

In Sri Lanka, there are two main types of social security funds:

Employees’ Provident Fund (EPF)

The Employees’ Provident Fund is the largest social security program, designed as a retirement fund for those who do not receive pensions. Both employers and employees contribute to this fund.

Contribution Type Percentage
Employer 12%
Employee 8%

Employees’ Trust Fund (ETF)

The Employees’ Trust Fund is open to most employees, with contributions made solely by employers.

Contribution Type Percentage
Employer 3%

Employers are mandated by law to contribute their share and deduct the appropriate amounts from their employees’ pay.

Sick Days

Employees in Sri Lanka are entitled to sick leave supported by a medical certificate from a registered medical practitioner. Generally, employees with a year of continuous service in either the public or private sector can receive up to seven days of fully paid sick leave per year.

Parental Leave

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

Employee Income Tax Rates

Employee income tax rates in Sri Lanka are structured as follows:

Income Bracket Tax Rate
First 100,000 LKR 0%
LKR 100,000 - LKR 141,667 6.00%
LKR 141,667 - LKR 183,333 12.00%
LKR 183,333 - LKR 225,000 18.00%
LKR 225,000 - LKR 266,667 24.00%
LKR 266,667 - LKR 308,333 30.00%
LKR 308,333 and above 36.00%

Find the Best Srilankai Talent for Your Business Today

To find the best Sri Lankan talent, leverage local job boards, social media, and professional networks, or partner with local recruitment agencies. Gloroots simplifies this process by ensuring compliance with local labor laws and providing comprehensive payroll management services. Our expertise in risk mitigation, streamlined onboarding, and payroll integration allows you to focus on business growth while we seamlessly manage the complexities of payroll and talent acquisition in Sri Lanka.

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