Sri Lanka is a mixed economy in which both the private and the state sectors engage. Foreign investments are encouraged, and several free zones have been established. Its economy is based on agriculture and services and endowed with natural resources. Sri Lankan imports include petroleum, consumables, machinery, capital equipment, and motor vehicles and its exports include garments, tea, rubber, coconut products, gems, and jewelry.
Currency: Sri Lankan Rupee (LKR) 1 LKR = 0.0053 USD
Economic Capital: Colombo
Spoken Language: Sinhala, Tamil, English
GDP: 2.3% growth rate (2019) (Source: World Bank)
Time Zone: UTC (+ 05:30)
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Entitlements in Sri Lanka
Minimum Wage: Minimum monthly wage for all employees (irrespective of industry) is LKR 10,000, and the minimum daily wage is LKR 400.
Working Hours: Total hours worked, exclusive of meals and rest, don’t exceed 9 hours a day, or 45 hours in any week. Working hours of a person above the minimum age of employment (14 years) but less than 16 years shall not exceed 12 hours a day – and not before 6 am and after 6 pm.
Payroll Cycle: The wages are paid on a daily, weekly, fortnightly, or monthly basis. However, a wage period cannot exceed a month.
Pay Date: It has to be made on a working day.
Overtime Compensation: Overtime is paid at one and half times the average hourly rate of wage. The overtime hours in a week cannot exceed 12 hours.
With Saturdays and Sundays added to public holidays, people generally have around 125 days’ holidays per year.
- Each Full Moon is a public holiday. If the full moon falls on a weekend, the holiday is not moved.
- All public holidays, Saturdays, and Sundays are Bank Holidays.
Public holidays: An employee who works for not less than 28 hours (excluding overtime and rest breaks) in any one week must be allowed one-and-a-half days' paid holiday in that week or the week immediately after that. This weekly holiday is provided as a half-day on Saturday and a full day on Sunday. Most establishments offer a full day's holiday on Saturday. Any employee required to work on a weekly holiday is entitled to payment at the overtime rate.
Annual leave: It cannot extend beyond 14 days, irrespective of the employee’s tenure of service.
An employee is entitled to 14 days' annual leave with full pay for every completed year of service. He/she is required to take seven days on a consecutive basis. In respect of the first year of employment, an employee is entitled to proportionate in the succeeding year leave calculated on the following basis:
- Fourteen days' leave if work commenced on or after January 1 but before April 1.
- Ten days' leave if employment started on or after April 1 but before July 1.
- Seven days' leave if work commenced on or after July 1 but before October 1.
- Four days' leave if employment began on or after October 1 but before December 31.
Casual leave: Employees are entitled to 7 days' paid casual leave in any year, except during the first year of employment. During the first calendar year of employment, the employee is entitled to 1 day's paid casual leave for every two months working.
Maternity leave: A female employee can apply for 84 days' maternity leave. She cannot be dismissed based on her pregnancy or of any illness consequent to her pregnancy. Women nursing children who are less than one year old are entitled to nursing breaks, in addition to the rest breaks provided by law. For the birth of a subsequent child or a third or a dead child, leaves totaling 42 working days will be granted.
Sick leave: Every worker certified by a doctor is entitled to sick leave for seven days a year.
Paternity Leave: It is limited to 3 days for the state sector. The employee must take this leave within three months from the date of birth of the child.
Marriage Leave: There is no provision for marriage leave. It is at the employer's discretion.
Adoption Leave: No provisions concerning adoption under Sri Lankan law. It is at the employer's discretion.
Childcare Leave: No provisions concerning childcare under Sri Lankan law. It is at the employer's discretion.
Death Leave: There is no special provision for bereavement leave in Sri Lanka. It is at the employer's discretion.
Work-Related Injury Leave: If an employee is absent from work due to injury sustained during work and under the circumstances specifically attributed to the nature of his duties, they are granted accident leave. The employer also pays the employee following the terms and conditions of the insurance policies.
Duty Leave: All staff members are granted duty leave for the following purposes:
- Any employee who is in the reserve list of a volunteer unit of Armed Forces
- To attend examinations with regards to language proficiency
- To attend any medical examination
- To cast votes for elections or referendums
Taxes in Sri Lanka
Tax year: It is from April 1 to March 31 of the subsequent year. These are payable in quarterly installments in advance. Companies and trusts may apply for a different accounting period as the year of assessment (e.g., calendar year).
Personal Income Tax –
Residents: The income tax rate for an individual is between 4% and 24%, depending on the level of profits and income earned in a given year of assessment. For employees, the employer is required to deduct tax under a withholding scheme, termed as 'PAYE' (Pay As You Earn) tax.
Corporate taxation: The division and tax rates are as follows –
Employee Statutory Benefits
Employment Insurance System: Employees are given employment insurance cover. However, the kind of cover depends on the employer.
Employee Voluntary Benefits
Bonus: There is no obligation imposed by law on employers to pay bonuses. In general, unless mentioned in the employment contract, bonus payments are entirely at the employer's discretion and largely depend on the employer’s financial performance.
Retirement Age: An employee retires at the age of 55.
Pension: It is payable to men from 55 and women from the age of 50.
Employee Provident Fund: The employers and employees contribute to the Employees’ Provident Fund (EPF) and Employees' Trust Fund (ETF). The minimum contribution should be 8% by employees and 12% by employers in EPF, and 3% by employers in ETF.
Notice Period: 1 month
Probation Period: The probation period shall not exceed one year in the case of employees in supervisory or technical capacity and six months in any other employee. The employer may further extend in some cases for a maximum of 3 months.
Severance Pay: Employees terminated by notice shall be entitled to severance payment, which is as follows:
- 2.5-month pay per year of service for 1st to 5th year of service (maximum compensation: 12.5 months)
- 2-month pay per year of service for 6th to 14th year of service (maximum compensation: 30.5 months)
- 1.5-month pay per year of service for 15th to 19th year of service (maximum compensation: 38 months)
- 1-month pay per year of service for 20th to 24th year of service (maximum compensation: 40 months)
- 0.5-month pay per year of service for the 25th-34th year of service (maximum compensation: 48 months)
Office Setup in Sri Lanka
Types of Business: Sole proprietorships, partnerships, limited companies, overseas companies, offshore companies, franchises, joint ventures or wholly foreign-owned subsidiaries, representative offices, and a branch office.
Co-working Cost: There are several co-working spaces in Colombo, Galle, Ahangama, Dehiwala-Mount Lavinia, Kandakliya. They have office-like amenities such as hot desks, private meeting rooms, good wifi speed, air conditioners, etc. Workers can book these places according to day, week, and month.
Visa: Types of visas that a foreign national needs to enter the country for work reasons are –
- A visitor visa allows a foreign national to remain in Sri Lanka for up to 30 days for tourism or business purposes, such as a conference or training seminar. In some circumstances, applicants can request an extension of this visa to stay for up to 90 days.
- Work residency visa covers professionals employed to work on state-approved projects; ex-pat workers employed by a project under the Board of Investors of Sri Lanka; workers required for private companies or NGOs.
Validity of work visas: It is valid for one year or a period specified by the company. You can apply to renew each of these visas after a year. Company directors are given an initial two-year visa.
The cost of a visitor visa or a work visa is LKR 10,000.