Sri Lanka is a mixed economy, in which both the private and the state sector engage. Foreign investments are encouraged and several free zones have been established. Its economy is based on agriculture and services. It is endowed with natural resources. Imports include petroleum, consumables, machinery, capital equipment, and motor vehicles. Exports include garments, tea, rubber, coconut products, gems, and jewellery. 

General Information

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)

Entitlements in Sri Lanka

Minimum Wage: Minimum monthly wage for all employees (irrespective of industry) is LKR 10,000 and minimum daily wage is LKR 400

Working Hours: Total hours worked, exclusive of intervals for 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: Wages can be 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 normal 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 1 week must be allowed one-and-a-half days’ paid holiday in that week or in the week immediately thereafter. This weekly holiday is provided as a half-day on Saturday and a full day on Sunday. Most establishments provide a full day’s holiday on Saturday. Any employee who is 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 7 days of 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:

  • 14 days’ leave if employment commenced on or after 1 January but before 1 April. 
  • 10 days’ leave if employment commenced on or after 1 April but before 1 July.
  • 7 days’ leave if employment commenced on or after 1 July but before 1 October. 
  • 4 days’ leave if employment commenced on or after 1 October but before 31 December.

Casual leave: Employees are entitled to 7 days’ paid casual leave in any year, except during the first calendar year of employment. During the first calendar year of employment, the employee is entitled to 1 day’s paid casual leave for every 2 months worked.

Maternity leave: A female employee can apply for 84 days’ maternity leave. She cannot be dismissed on the basis of 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 totalling to 42 working days will be granted.

Sick leave: Every worker certified by a doctor is entitled to sick leave for 7 days in a year. 

Paternity Leave: It is limited to 3 days for the state sector. This leave must be taken within 3 months from the date of birth of the child.

Marriage Leave: There is no provision for marriage leave. It is at employer’s discretion.

Adoption Leave: No provisions concerning adoption under Sri Lankan law. It is at employer’s discretion.

Childcare Leave: No provisions concerning childcare under Sri Lankan law. It is at employer’s discretion.

Death Leave: There is no special provision for bereavement leave in Sri Lanka. It is at employer’s discretion. 

Work-Related Injury Leave: If an employee absents themselves from work as a result of an injury sustained in an accident during the course of the performance of his duties and under circumstances specifically attributed to the nature of his duties, they are granted accident leave and also paid in accordance with terms and conditions of the insurance policies which the firm has taken in respect of them. 

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 (eg calendar year).  

Personal Income Tax –

Residents: 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 discretion of the employer 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 the age of 55 and to 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 the case of EPF, and 3% by employers in the case of ETF.


Notice Period: 1 month

Probation Period: The period of probation shall not exceed 1 year in the case of employees in supervisory or technical capacity and 6 months in the case of any other employee, which may be further extended in some cases for a maximum of 3 months.

Severance Pay: Employees terminated by notice or with payment in lieu of 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 25th-34th year of service (maximum compensation: 48 months)

Office Setup in Sri Lanka 

Types of Business: Sole proprietorships, partnerships, limited companies, overseas company, offshore company, franchises, joint ventures or wholly foreign-owned subsidiaries, representative office and 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. These places can be booked according to a day, week and a month.

Visa: Types of visas that a foreign national needs to enter the country for work reasons are –

  • 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 allow them to stay for up to 90 days.

  • Work residency visa covers professionals who are employed to work on state-approved projects; expat 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 time period specified by the company. You can apply to renew each of these visas after a year. Company directors are given a two-year initial visa.

The cost of a visitor visa or a work visa is LKR 10,000.


Sources: Encyclopedia, World Bank, Sri Lanka government website, Reuters, KPMG, PricewaterhouseCoopers report, Coworker, Deloitte

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