Labor Laws in Sri Lanka

Sri Lanka’s labor laws are useful for employers to understand how to hire and manage employees in the country. These laws govern all aspects of the employer-employee relationship. 

Conditions of Service

• Employees in the public sector are covered under the Establishment Code of the labor laws. 

• On the other hand, employees working in the private sector come under the purview of three primary laws: Wages Board Ordinance, Shop and Office Employees Act, and Factories Ordinance. 

• Additionally, Sri Lanka has the Sri Lanka Bureau of Foreign Employments Act, which governs matters related to employing foreigners. 

Working Hours

Working hours in Sri Lanka vary based on the different labor and employment acts.

Equality

• Chapter III of Sri Lanka’s constitution provides equal rights to all individuals, making it unconstitutional to discriminate based on sex. 

• Furthermore, the various employment laws, such as the Employment of Women, Young Persons, and Children Act, Maternity Benefits Ordinance, Payment of Gratuity Act, etc., are all written to establish equality in the country.

Minimum Wage

• The laws governing minimum wages in Sri Lanka are:

• Minimum Wages Act
• Budgetary Relief Acts of 2005 and 2016

Statutory Benefits

• Employees in Sri Lanka receive statutory benefits in the form of provident funds, trust funds, and gratuities. 

• The laws on Social Security cover the provisions of the statutory benefits in Sri Lanka. 

Health and Safety

• The Factories Ordinance provides the regulations to ensure good health and safety at work. 

• The Workmen’s Compensation Ordinance outlines the compensations that should be paid to employees in case they are injured.

Payroll and Taxes in Sri Lanka

Payroll in Sri Lanka has the following features:

Minimum Wage

• Currently, the minimum wage in Sri Lanka is LKR 12,500 per month. 

• The payroll frequency in Sri Lanka is monthly. 

Overtime Pay

• As per the Shop and Office Employees Act, overtime is remunerated at a rate of 1.5 times the standard salary of the respective employee. 
• However, overtime cannot exceed 12 hours in a week. 

Employer and Employee Contributions

Income Tax

• The personal income tax rates in Sri Lanka depend on an individual’s profits and income. 
• As of 2023, the personal income tax varies from 6% to 36%.

Dates of Taxation

• Sri Lanka's fiscal year runs from April 1 to March 31. 
• The taxes must be payable in quarterly installments.

Employee Benefits in Sri Lanka

The following employee benefits in Sri Lanka ensure employees’ welfare and help achieve work-life balance:

Leave Policy in Sri Lanka

Paid Time Off: 

• Employees are eligible for 14 days of paid yearly leave for every employment year. 

• In the first year of work, you get a portion of your entitled leave. In the next few years, your leave is calculated based on a set formula or rule. 

• four days if work starts on or after October 1 but prior to December 31. 
• seven days if the job starts right after July 1 but prior to September 30.  
• ten days if the job starts right after April 1 but prior to June 30.
• Fourteen days if the job starts right after January 1 prior to March 31.

Public Holidays: 

• The Sri Lankan government announces the public holidays each year. 

• The statutory holidays in Sri Lanka are:

‍Maternity Leave: 

• Mothers are entitled to twelve weeks of fully paid maternity leave in Sri Lanka. 

• Employees get paid 6/7th of their overall regular income at this time.

• Employees have the right to six weeks of maternity leave if their child is stillborn.

Paternity Leave: 

• State-sector employees can take 3 days of paid paternity leave in Sri Lanka. 

‍Sick Leave:

Employees Provident Fund

• Employees, once retired, can start receiving payments from the Employees Provident Fund. 

• This benefit is extended to women leaving work for marriage, inability to work due to incapacitation, closure of government corporations where one was employed, and so on. 

Employees Trust Fund

• Payments are received from the Employees Trust Fund when one retires, is dismissed, or resigns. 

• This fund can only be utilized once every five years. 

Gratuity

• Employees who were fired, quit, and retired must have the right to a severance payment from their employers. 

• They have to work for a minimum of five years. 

• The amount of gratuity is half a month’s salary for every year of service given by the employee. 

Probation Period

• There is no legal probation period in Sri Lanka. 

• Generally, companies have a probation period of six months.

Cost of Hiring an Employee in Sri Lanka

The cost of hiring in Sri Lanka is influenced by several factors, such as:

• Location of business
• Job posting
• Job Requirements
• Training (if any)
• Employee salaries
• Employee benefits
• Taxes

Establishing a Subsidiary vs. Employer of Record (EOR) in Sri Lanka

Top Job Listing Sites in Sri Lanka

With Skuad, you can expect to hire the most talented and well-experienced employees in Sri Lanka. No matter which field you operate in, Skuad can provide the most suitable candidates to meet your employment requirements. Furthermore, with our unified EOR platform, you will be able to access and manage all your employees with ease. 

Other resources that can help you hire employees in Sri Lanka are:

1. Topjobs.lk: This website has a huge number of visitors each day, and hence, offers employers a diverse pool of candidates. Furthermore, relevant CVs are directly sent to employers who have vacancies posted. 

2. XpressJobs: XpressJobs is one of the leading platforms in Sri Lanka that has already helped 170,000 registered candidates get their dream jobs. A prime benefit of this website is that it provides convenient price packages to recruiters, hence, making it easy for employers to narrow down suitable candidates. 

3. CV.lk: This site makes it noticeably easy for employers to shortlist candidates due to its comprehensive filter options. Furthermore, it also lets employers enlist vacancies for overseas positions. 

4. Ikman Jobs: With over 273,000 candidate profiles, Ikman Jobs has one of the strongest pool of job applicants. It can be downloaded as an app and used with ease anytime, anywhere. 
5. ‍Jobpal.lk: Jobpal.lk has a simplified user portal, where recruiters can manage their job postings and applications. Furthermore, job applicants can directly contact recruiters and hence, this website helps save a lot of time.

Compliance Risks of Hiring Employees in Sri Lanka

The following compliance risks are to be expected in Sri Lanka:

• Delay in contributing to the Employees Provident Fund and Trust Fund can result in surcharge rates ranging from 5% to 50%, depending on the extent of the delay. 

• In case an employer fails to pay gratuity to their employee on time, the penalties can range from 10% of the money due to 30% of the money due, based on the period of delay.

How to Hire Talent in Sri Lanka

You can hire a workforce in Sri Lanka using one of the aforementioned procedures:

Option 1: Establishing a Subsidiary

• By adhering to the country’s laws and regulations, businesses can open a subsidiary in Sri Lanka and subsequently, oversee the hiring process themselves. 

• While this option allows greater control, it can also result in more usage of time, money, and other resources, and compliance risks.

Option 2: Hiring On A Contractual Basis

• Contract workers can be employed by companies who wish to retain their staff flexibly. 

• Companies should have no legal concerns as long as their agreements conform to the applicable laws. As a result, if you intend to use this strategy, ensure that you have a competent legal team. 

Option 3: Hire an Employer of Record (EOR)- Skuad

• Partnering with an employer of record, like Skuad, ensures companies can onboard the most skilled and diverse workforce, without risking compliance, or spending a ton of resources. 

• This option also enables companies to delegate tasks like payroll management, tax management, etc., to Skuad.

Hiring Trends in Sri Lanka in 2023

In recent years, Sri Lanka has witnessed marked changes in its hiring policies. Hence, if you are looking to hire in Sri Lanka, you must keep the following developments in mind:

• Companies are becoming more and more open to remote workers and freelancers. This gives employees the benefit of flexibility and in turn, boosts greater work productivity. 

• Various sectors in Sri Lanka, especially the IT sector, resort to competitive salary and benefits packages to ensure they can hire the best talent pool. 
• Companies offer a diverse range of roles to candidates, allowing various niches to become a part of their structure.

Hiring in Sri Lanka Made Simpler with Skuad

Sri Lanka has a dynamic and ever-growing business infrastructure inviting business owners from all over. However, companies must first hire employees in Sri Lanka to take full advantage of this market. This might turn out to be a challenging process unless you partner with an Employer of Record. 

With Skuad as their EOR partner, companies can hire employees and contractors in Sri Lanka. Skuad’s unified platform enables local onboarding, multi-currency payroll and 100% compliance in Sri Lanka and 160+ other countries. Book a demo to learn more today!

FAQs

How to hire people in Sri Lanka?

You can post job vacancies on various websites such as Ikman.lk, Jobup.lk, and so on. 

Can I hire an employee who lives in another country?

Yes, you can hire an employee living in another country in Sri Lanka.

What are the legal laws regarding employment in Sri Lanka? 

The main Sri Lankan labor laws about employment are the Wages Board Ordinance, Shop and Office Employees Act, and the Factories Ordinance.