Hiring at a Glance

Sri Lanka payroll compliance is built on three pillars: (1) monthly Pay-As-You-Earn (PAYE/APIT) withholding remitted to the tax authority by a fixed monthly deadline, (2) retirement/social protection contributions through EPF (12% employer + 8% employee), and (3) welfare contributions through ETF (3% employer) with a statutory payment timing rule. Tax law changed effective 1 April 2025, setting a progressive resident/non-resident individual tax schedule that begins at 6% and rises to 36% across defined brackets. Because employment law and leave entitlements vary by sector (Shop & Office vs other frameworks), EOR services are often used to standardise compliance across employee categories and ensure statutory remittances are correct and timely.

Sri Lanka has sector-specific employment rules; within the Shop & Office Employees Act framework, the Labour Department summarises standard leave entitlements including weekly holidays, annual holidays (14 days with full remuneration in the second or subsequent year), and casual leave (up to seven days with full remuneration), as well as full moon Poya day holiday rules.

For payroll, the core statutory deductions are EPF and ETF. EPF requires 20% total contributions split as 12% employer and 8% employee (as stated in EPF employer FAQs and the Central Bank’s EPF description).

PAYE rules require employers to deduct and remit tax monthly; the tax authority’s PAYE page states tax must be remitted “on or before 15th of the following month,” establishing the monthly “hard deadline” for employment tax remittance.

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Key characteristics of talent market

This report does not provide a detailed Sri Lanka sector-by-sector talent map because official labour-market dashboards and recent skills-shortage publications were not captured in the evidence set. What can be stated operationally is that Sri Lanka’s payroll compliance is document- and remittance-driven: employers must maintain accurate earning definitions for EPF/ETF, remit EPF contributions through EPF workflows and banks/online services, remit ETF under the ETF Act timing with employer-only contributions, and remit PAYE/APIT by the 15th of the following month.

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Most In-Demand Skills in 2026

No official Sri Lanka “in-demand” list for 2026 was captured in the evidence set, so this section is not asserted with occupational precision. Given the statutory tax schedule and remittance mechanics changed effective 1 April 2025, a defensible operational inference is that employers hiring in 2026 must ensure strong payroll and tax operations talent (payroll administrators, HR ops, finance controllers) in addition to the company’s core functional roles, because payroll mistakes have explicit deadlines and statutory contribution obligations.

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Top Universities Supplying Talent

This report does not assert named “top universities” for Sri Lanka because authoritative ranking sources or official higher‑education listings were not captured into the evidence set before tool limits were reached. Employers should validate candidate pipelines through current ranking publishers and recognised accreditation lists.

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Salary Benchmarks for Roles

Role-specific Sri Lanka salary benchmarks (e.g., software engineer, finance manager) were not captured in an authoritative, citable form within the available evidence set. Because this report is constrained to evidenced claims, numeric market salary ranges for roles are therefore marked as “unspecified here.” Employers should obtain a current Sri Lanka salary survey or recruiter guide when setting 2026 offers; statutory deductions and tax brackets can still be applied correctly once gross pay is determined.

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Employer of Record vs Legal Entity Setup in Sri Lanka

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To legally hire employees, a company must

A Sri Lanka employer must register and operate within three statutory systems: PAYE/APIT withholding remittance, EPF contributions, and ETF contributions. The tax authority PAYE guidance requires the employer to remit deducted PAYE tax on or before the 15th of the following month, making monthly remittance an explicit legal duty.

For EPF, employer FAQs state that the employer is responsible for remitting the monthly 20% contribution split (8% employee, 12% employer).

For ETF, the ETF Act text provides that an employer must pay a contribution equal to 3% of total earnings and pay it “on or before the last day of the succeeding month,” defining the ETF payment deadline.

On the company formation side, the Registrar of Companies fee schedule lists registration-related form fees and VAT, which is useful for estimating the statutory filing cost components of forming a private limited company.

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Cost of Entity Setup

Sri Lanka incorporation costs are partly driven by statutory form fees. The Registrar of Companies fee schedule lists baseline fees (e.g., Form 01 Application of Incorporation, Form 18 Consent of Directors, Form 19 Consent of Secretary, and Articles of Association/Company Profile) with VAT.

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What Hiring Through an EOR Means in Sri Lanka

An Employer of Record (EOR) in Sri Lanka becomes the legal employer registered with the Inland Revenue Department (IRD), Employees’ Provident Fund (EPF), Employees’ Trust Fund (ETF), and the Department of Labour, while the employee works exclusively for your company. You manage day-to-day performance, but the EOR assumes all statutory employer obligations under Sri Lankan labour law.

Employment in Sri Lanka is governed primarily by:

• Shop and Office Employees Act
• Wages Boards Ordinance
• Termination of Employment of Workmen Act (TEWA)
• EPF & ETF Acts
• Inland Revenue Act (PAYE rules)
• Department of Labour regulations

Foreign companies cannot legally employ workers in Sri Lanka without:

• A locally registered company
• EPF and ETF registration
• PAYE tax registration
• Compliance with labour regulations

An EOR provides this entire employer infrastructure without requiring you to establish a Sri Lankan entity.

An EOR in Sri Lanka handles:

• Labour-law compliant employment contracts
• Payroll processing in LKR
• PAYE income tax withholding
• EPF and ETF contributions
• Leave and public holiday compliance
• Statutory bonus and allowance compliance (if applicable by sector)
• Termination approval management under TEWA
• Work permits and immigration coordination

This model is ideal for companies that want to hire in Sri Lanka without navigating strict termination laws, provident fund obligations, and labour authority approvals directly.

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Risk Involved in Both Models

Sri Lanka has a strongly employee-protective labour framework, especially regarding termination and retirement benefits.

Key characteristics:

• Mandatory EPF and ETF contributions
• Strict termination approval requirements (TEWA)
• Active Department of Labour enforcement
• Sector-based wage regulations
• Statutory leave entitlements

Compliance failures can result in:

• Retroactive EPF/ETF payments
• Labour Department penalties
• Compensation orders
• Government-mandated reinstatement

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‍EOR Vs. Entity: When to use What?

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Why an EOR Is the Most Efficient Way to Hire in Sri Lanka

Sri Lanka is a growing hub for IT outsourcing, accounting services, customer support, apparel manufacturing, and back-office operations. However, hiring is governed by mandatory provident fund contributions and one of the strictest termination approval systems in South Asia.

An EOR is not just a payroll provider. It is the legal employer recognized by EPF, ETF, IRD, and the Department of Labour, responsible for:

• Labour law compliance
• Provident fund administration
• PAYE tax reporting
• Leave and wage board compliance
• Termination procedure management

This allows foreign companies to operate in Sri Lanka without directly assuming regulatory and termination risk.

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#1. EOR Manages EPF and ETF Contributions

Sri Lanka mandates employer and employee contributions to:

Employees’ Provident Fund (EPF)

• Employer: 12%
• Employee: 8%

Employees’ Trust Fund (ETF)

• Employer: 3%

These contributions are legally required and closely monitored.

Failure to comply can result in:

• Significant fines
• Criminal liability
• Retroactive payment demands

An EOR ensures accurate monthly calculation and remittance.

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#2. EOR Handles PAYE Income Tax Compliance

Sri Lanka operates a PAYE system administered by the Inland Revenue Department.

Employers must:

• Apply correct tax brackets
• File monthly returns
• Issue annual tax documentation

Incorrect withholding can result in:

• IRD penalties
• Employer liability for unpaid taxes

An EOR ensures proper tax band application and reporting compliance.

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#3. EOR Manages Termination Approval Under TEWA

The Termination of Employment of Workmen Act (TEWA) requires:

• Government approval for termination (in many cases)
• Compensation calculations based on tenure
• Formal notification procedures

Unauthorized dismissal can result in:

• Government refusal
• Mandatory reinstatement
• Heavy compensation awards

An EOR manages:

• Legal termination grounds
• Department of Labour approvals
• Settlement negotiation

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#4. EOR Ensures Compliance With Wages Board Regulations

Sri Lanka’s Wages Boards regulate minimum wages and benefits across sectors.

An EOR ensures:

• Correct wage classification
• Compliance with sector-specific allowances
• Overtime and leave adherence

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EOR vs. PEO in Sri Lanka: How to Decide the Right Hiring Model?

A PEO in Sri Lanka cannot legally employ workers on behalf of foreign companies.

Without a Sri Lankan entity, a foreign company cannot directly hire staff.

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For companies without a local entity, EOR is the compliant solution.

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Payroll, Taxes, and Monthly Compliance

Sri Lanka’s individual income tax schedule for years of assessment commencing from 1 April 2025 is set in the Inland Revenue (Amendment) Act No. 2 of 2025: taxable income up to LKR 1,000,000 is taxed at 6% on the amount in excess of 0; LKR 1,000,000–1,500,000 at “60,000 plus 18% of the excess over 1,000,000”; LKR 1,500,000–2,000,000 at “150,000 plus 24%”; LKR 2,000,000–2,500,000 at “270,000 plus 30%”; and above 2,500,000 at “420,000 plus 36%.”

The same amendment also indicates a relief amount of LKR 1,800,000 for each year of assessment commencing on or after 1 April 2025 (i.e., a key threshold for payroll withholding tables in practice).

Monthly PAYE remittance is due on or before the 15th of the following month as stated by the tax authority PAYE guidance.

EPF contributions are mandatory at 12% employer and 8% employee (20% total), and ETF is a 3% employer-only contribution payable by the last day of the succeeding month per the ETF Act.

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Salary Structure: Where Most Compliance Issues Begin

In Sri Lanka payroll, compliance issues most commonly start with (a) mis-defining the earnings base for EPF/ETF and (b) missing the PAYE/APIT 15th-of-following-month remittance deadline. EPF guidance is explicit that the employer is responsible for remitting the combined contribution; therefore, any under-withholding or under-remittance exposes the employer.

ETF adds a second employer-paid obligation with a different deadline (last day of the succeeding month), so payroll teams must treat EPF and ETF as distinct controls even though both are payroll-adjacent.

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What Monthly Payroll Operations Actually Involve

A month typically closes by confirming earnings components, then calculating deductions: employee EPF 8%, employer EPF 12%, employer ETF 3%, and PAYE/APIT withholding based on the post‑April‑2025 rate schedule and relief thresholds. Employers then pay net salary, remit PAYE by the 15th of the next month, and remit ETF by the last day of the succeeding month, while also remitting EPF via the EPF contribution workflow supported by the EPF system/banks.

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Step-by-Step Onboarding Process With an EOR in Sri Lanka

Hiring in Sri Lanka involves tax registration, provident fund enrollment, and labour documentation compliance.

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1. Verify EOR Registration

Confirm the EOR is registered with:

• EPF
• ETF
• Inland Revenue Department
• Department of Labour

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2. Determine Employment Contract Type

Sri Lanka recognizes:

• Permanent employment
• Fixed-term contracts
• Probation periods

Improper classification increases termination risk.

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3. Validate Salary and Wages Board Compliance

EOR ensures:

• Salary meets sector minimum standards
• Allowances are correctly applied

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4. Calculate Total Employment Cost

Includes:

• EPF & ETF contributions
• PAYE withholding
• Severance exposure

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5. Draft Labour-Law Compliant Contract

Must specify:

• Job duties
• Work schedule
• Compensation
• Termination provisions

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6. Register Employee With EPF & ETF

Registration must occur immediately upon hiring.

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7. Establish Payroll and Leave Systems

EOR sets up:

• Monthly payroll processing
• Leave tracking
• Provident fund reporting

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8. Immigration Compliance (If Applicable)

For foreign nationals, EOR manages:

• Employment visas
• Residence permits

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9. Execute First Payroll

Includes:

• Salary payment
• EPF/ETF remittance
• PAYE tax reporting

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10. Ongoing Compliance Management

EOR oversees:

• Monthly fund contributions
• Labour inspections
• Regulatory updates

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11. Termination and Settlement Handling

EOR manages:

• Government approval process (if required)
• Compensation calculation
• Final settlement payments

Most employer disputes in Sri Lanka arise from termination without proper approval.

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Build Your Sri Lanka Team with Bolto EOR

Hiring in Sri Lanka requires careful management of provident fund obligations, tax reporting, and strict termination approval rules.

Bolto’s Employer of Record model absorbs:

• Labour Code complexity
• EPF and ETF compliance risk
• PAYE reporting obligations
• Termination and litigation exposure

This allows you to expand into Sri Lanka without setting up a local entity.

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Full Legal Employer Coverage in Sri Lanka

Bolto becomes the legal employer before:

• Department of Labour
• EPF & ETF authorities
• Inland Revenue Department
• Labour tribunals

Bolto manages:

• Contracts and compliance
• Payroll and statutory filings
• Provident fund administration
• Termination approval handling

You manage employee performance. Bolto manages legal risk.

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Built for Cost-Effective Offshore Expansion

With Bolto EOR:

• Hire without incorporating locally
• Avoid entity registration costs
• Skip payroll infrastructure setup
• Exit without liquidation procedures

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Transparent Cost Structure

Bolto provides:

• Clear provident fund breakdowns
• Tax visibility
• Predictable EOR fees

No hidden liabilities.
No unexpected compliance penalties.

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End-to-End Employee Lifecycle Management

Bolto manages:

• Contract drafting
• Payroll and tax reporting
• EPF & ETF compliance
• Leave administration
• Termination handling

You never interact directly with Sri Lankan labour authorities.

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Designed for Risk-Controlled Expansion in Sri Lanka

Sri Lanka enforces strict penalties for:

• Provident fund non-compliance
• Unauthorized termination
• PAYE underpayment

Bolto enables hiring in Sri Lanka without inheriting employer liability risks.