Introduction to Payroll in Sri Lanka
Many digital nomads are looking toward Sri Lanka as a destination while they work. Perhaps you hired one of these workers, or perhaps you have hired a Sri Lankan local who shows exceptional talent. No matter the reason, you have come to the point that you need to pay someone residing in Sri Lanka.
Figuring out payroll in Sri Lanka can be complicated if you have never done it before. Like every country, it has specific laws and tax mandates that must be followed.
Have no fear. Here at Skuad, we aim to make the process a breeze. See how Skuad as a payroll company can help you grow your business.
Payroll Process in Sri Lanka
Your payroll team has to wear many hats to stay up to date with the payroll process in Sri Lanka. Even with the best team, it can be hectic. By streamlining your payroll process, you can make it easier to maintain. It can be broken down into three phases:
This first stage is where you have to dig into the nitty-gritty.
Setting up the Organization
The best way to set up your company is to have certain policies be consistent and uniform. This will clarify the process for your payroll team and will also show your employees that you treat them fairly. Some of the policies to set up include:
- Business Profile: You must establish your business with the Department of the Registrar of Companies and the Department of Labor. You will need a company secretary in the country. Also, you will need an Employees' Provident Fund number and an Employees' Trust Fund number.
- Work Location: Since every area has its own regulations, you will need to set up a work location within Sri Lanka. If you are establishing several locations in the country, ensure that you follow all the region’s laws.
- Leave Policy: Everyone needs some time away from work for one reason or another. Standardizing a leave policy for your employees will lessen the strain on your payroll staff when they calculate paychecks.
- Attendance Policy: Establish set policies when it comes to computing attendance. This could include employees’ scheduled hours and how they report the hours they work. One idea to consider is using Biometric attendance devices.
- Statutory Components: Sri Lankan labor laws lay out employees’ rights, payroll deductions, and more. It is important to stay compliant with these to avoid any repercussions.
- Salary Components: Create salary components with your global team in mind. Decide on wages, benefits, deductions, and hours by considering how to be equitable to all your employees.
- Pay Schedule: Consider how you will pay your team. For instance, Sri Lankans usually pay their employees daily, weekly, or monthly, but it can be no longer than a month in between payments.
- Employee Information: Lastly, collect all the required information for your employees. Some of this information can be found in your records, such as your employee’s job title. Other information, like resident status, will come from your employee.
Payroll Calculation Phase
Your payroll team will take the information gathered in the pre-payroll phase and calculate the correct pay amounts for each employee. This process will depend on how you calculate these amounts. A simple way is to work with a payroll system that considers all the withholdings, deductions, and taxes.
The hard part is done. However, there are a few more steps to take:
- Salary payments: The major post-payroll phase is to actually pay your team. You can send your calculations in a report to your bank or use payroll software with a direct deposit option.
- Payroll accounting: Keep a record of your employees’ salaries. This is for budget, tax, and liability purposes.
- Payroll reporting and compliance: You will need to send the appropriate deductions to the respective agencies. This is to ensure that your company stays compliant.
Book a demo with Skuad to get assistance with Sri Lankan labor laws.
Payroll Processing in Sri Lanka
Payroll processing can be tricky when it comes to your first Sri Lankan employee. But it doesn’t have to be.
Payroll Processing Company in Sri Lanka
To avoid the headache of staying compliant with Sri Lanka’s labor laws, consider using a payroll processing company like Skuad. We can make the payroll process in Sri Lanka a breeze.
See how Skuad can help your company.
Payroll Management in Sri Lanka
Besides payroll processing companies, there are also payroll management services. These services keep a record of your employees and maintain compliance with the statutory laws in Sri Lanka. These records include incentives, employees’ gross and net income, and a specified number of pay slips.
Payroll Compliance in Sri Lanka
Payroll compliance refers to meeting the statutory requirements laid out in Sri Lanka’s labor laws. This includes but is not limited to taxes, social security, and employee benefits.
Payroll Components in Sri Lanka
To be compliant in Sri Lanka, you will need to understand and use the following payroll components:
The minimum wage is 10,000 Sri Lankan rupees (LKR) per month. This converts to about $28 USD. Your Sri Lankan employees’ pay should meet or exceed this minimum so that your company can avoid any repercussions.
Sri Lanka's standard full-time schedule is nine hours per day. This comes to a total of 45 hours per week.
If your employee works more than these hours, the regulations entitle them to overtime pay for the additional hours. In Sri Lanka, the overtime rate equals one and a half times their salary wage. It also should be noted that employees in Sri Lanka may not work more than 12 overtime hours per week.
Within Sri Lanka, there are two types of social security funds.
The Employees’ Provident Fund is the largest social security program. It is for the retirement fund of those who don’t receive pensions. Both employers and employees pay a percentage toward this fund.
Additionally, there is the Employees’ Trust Fund, which is a fund open to most employees. Only employers pay into this fund.
These statutes mandate employers to pay their share as well as obtain the appropriate amount from their employees’ pay. These percentages can be found below.
Employees’ Provident Fund
- Employer: 12%
- Employee: 8%
Employees’ Trust Fund
- Employer: 3%
Everyone gets sick every once in a while. Because of this, Sri Lanka requires that employees receive seven paid sick days annually.
Unfortunately, there is no statutory paternity or parental leave. However, there is maternity leave.
New mothers should receive 12 weeks of maternity leave for their first child as well as their second. For each child thereafter, the mandated maternity leave decreases to six weeks.
In Sri Lanka, there are a whopping 26 public holidays. This is because every full moon is a public holiday in addition to national and religious holidays. These holidays include the following:
- Tamil Thai Pongal Day
- Duruthu Full Moon Poya Day
- National Day
- Navam Full Moon Poya Day
- Mahasivarathri Day
- Madin Full Moon Poya Day
- Good Friday
- Sinhala and Tamil New Year's Eve
- Sinhala and Tamil New Year's Day
- Bak Full Moon Poya Day
- May Day
- Eid Ul-Fitr
- Vesak Full Moon Poya Day
- The day following Vesak Full Moon Poya Day
- Eid Ul-Alha
- Poson Full Moon Poya Day
- Esala Full Moon Poya Day
- Nikini Full Moon Poya Day
- Binara Full Moon Poya Day
- Vap Full Moon Poya Day
- Ill Full Moon Poya Day
- Unduvap Full Moon Poya Day
- Christmas Eve
- Christmas Day
On top of this, every employee who works at least 28 hours per week is entitled to one and a half days of holiday for each seven-day week. Usually, these days would be considered the weekend. If the employee does not receive these days, they shall receive overtime pay.
There are certain payroll tax rates that all businesses must pay. In Sri Lanka, these are corporate taxes and income taxes.
All businesses that accumulate income in Sri Lanka must pay corporate tax. The rate is 28–40% depending on the type of business.
Employers must also take income tax directly from their employees’ pay at the following rates:
- 6% (180,000 LKR on excess): Up to 3 million LKR
- 12% (540,000 LKR on excess): 3 to 6 million LKR
- 18%: Above 6 million LKR
Sri Lanka also has some laws that are unique to their country:
- Employees will collect 14 days of paid time off after a full year of employment.
- Employers must allow employees to observe duty leave for medical checkups, voting, military reservist duty, and language examinations.
- Companies must provide medical insurance, but the employer chooses the policy.
Check out more information about hiring in Sri Lanka.
There are a lot of factors to keep straight to process payroll in Sri Lanka. You can set up a subsidiary in Sri Lanka to establish payroll, but this is a large undertaking.
Instead, Skuad can manage the payroll process for your Sri Lankan employees. We will keep you compliant so you can focus on growing your business in the future. Contact Skuad to request a demo and see how we can finesse your payroll process.