Introduction to Payroll in Sri Lanka

Sri Lanka is quickly gaining popularity as a base of operations for digital nomads. Maybe you hired one of these workers, or maybe you had a highly skilled local Sri Lankan working for you. For whatever reason, you’ve come to the stage where you need to pay a citizen of Sri Lanka.

Payroll can be difficult to understand in Sri Lanka if you have never done it before. Like any other country, it has rules and tax obligations that need to be followed.

Be not afraid. Our mission at EOR Services is to make the process simpler. Find out how payroll company EOR Services can help your business grow.

Payroll Process in Sri Lanka

To keep up-to-date with the payroll process in Sri Lanka, your payroll team needs to manage various responsibilities. Even with a skilled team, the process can be overwhelming. Streamlining the payroll process involves breaking it down into three phases:

1. Pre-Payroll Phase:
   In this initial stage, meticulous groundwork is essential.
   Setting up the Organization:
   Establish your company with the Department of the Registrar of Companies and the Department of Labor. Obtain a company secretary in the country, along with an Employees’ Provident Fund number and an Employees’ Trust Fund number.Define consistent policies for your organization to ensure fairness and clarity. Address aspects such as business profiles, work locations, leave policies, attendance policies, statutory components, salary components, pay schedules, and the collection of necessary employee information.
2. Payroll Calculation Phase:Your payroll team will utilize the information collected in the pre-payroll phase to calculate accurate pay amounts for each employee. This process hinges on the method used for calculations, with the option of employing a payroll system that factors in withholdings, deductions, and taxes.
3. Post-Payroll Phase:
   With the challenging calculations completed, a few additional steps remain.
   Salary Payments:
   The primary post-payroll phase involves actual salary payments. Submit your calculations to the bank through a report or leverage payroll software with a direct deposit option.
   Payroll Accounting:
   Maintain a comprehensive record of employees’ salaries for budgeting, tax, and liability purposes.
   Payroll Reporting and Compliance:
   Transmit the appropriate deductions to the relevant agencies to ensure ongoing compliance and adherence to statutory requirements. This step is crucial for keeping your company in good standing.

Payroll Processing in Sri Lanka

Payroll processing for your first Sri Lankan employee may present some difficulties, but it doesn’t have to be a difficult undertaking.

For assistance in managing the difficulties of adhering to Sri Lanka’s labor rules, think about using a specialist payroll processing business, like EOR Services. With our experience, we can simplify the payroll procedure in Sri Lanka, giving your company a smooth and stress-free experience.

Payroll Management in Sri Lanka

Payroll management services are offered in addition to payroll processing businesses. These services are essential for keeping up-to-date personnel records and guaranteeing Sri Lankan statutory law compliance. The extensive records include information on incentives, employee gross and net revenue, and the distribution of designated pay slips, among other topics.

Payroll compliance in Sri Lanka is ensuring that the legal standards specified in the labor laws of the nation are followed. This includes, among other things, taxes, social security contributions, and employee perks.

Payroll Components in Sri Lanka

Compensation	Ten thousand Sri Lankan rupees (LKR) a month is the minimum salary. This is $28 in US dollars. Paying your Sri Lankan workers beyond this minimum wage can help your business stay out of trouble.
Working hours	Nine hours a day is the typical full-time schedule in Sri Lanka. This equals forty-five hours a week in total.
Overtime laws	According to the rules, if your employee works more than these hours, they will be entitled to overtime compensation. The overtime rate in Sri Lanka is equivalent to 1.5 times the employee’s income. It should be mentioned that workers in Sri Lanka are only permitted to work a maximum of 12 extra hours each week.
Social security	There are two different kinds of social security funds in Sri Lanka. The biggest social security scheme is the Employees’ Provident Fund. It is intended for people without pensions to use as their retirement savings. Employees and employers each contribute a portion of this fund. The Employees’ Trust Fund is an additional option that is accessible to the majority of employees. Employers alone contribute to this fund. These rules require employers to deduct the necessary amount from their employees’ wages in addition to paying their part. You may find these percentages below. Employees’ Provident Fund Employer: 12% Employee: 8% Employees’ Trust Fund Employer: 3%
Sick leave	Everybody occasionally becomes ill. Sri Lanka mandates that workers be granted seven paid sick days per year as a result.
Parental leave	Regretfully, parental leave and paternity are not covered by statute. There is, nonetheless, maternity leave. Maternity leave for new moms should last for 12 weeks for both their first and second kid. The required maternity leave for each additional kid after that drops to six weeks.
Public holidays	Tamil Thai Pongal Day Duruthu Full Moon Poya Day National Day Navam Full Moon Poya Day Mahasivarathri Day Madin Full Moon Poya Day Holi 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 Deepavali Ill Full Moon Poya Day  Unduvap Full Moon Poya Day Christmas Eve Christmas Day
Payroll taxes	Every firm has to pay a particular payroll tax rate. These are known as income taxes and corporation taxes in Sri Lanka. Corporate tax is a requirement for all enterprises in Sri Lanka that generate revenue. Depending on the kind of business, the rate ranges from 28 to 40%. Additionally, employers are required to deduct income tax at the following rates from their workers’ paychecks: 6% (over 180,000 LKR): Maximum 3 million LKR 12% (above 540,000 LKR): LKR 3–6 million 18%: Over 6 million Rupees
Other laws	Additionally, Sri Lanka has a few laws that are exclusive to its nation: Following a complete year of employment, workers will be eligible to receive 14 days of paid time off. Employers are required to grant workers the right to take duty leave for things like language tests, voting, medical exams, and military reserve service. Medical insurance is a requirement for businesses, although the coverage is chosen by the employer.

Conclusion

Payroll management in Sri Lanka requires careful consideration of a number of issues. One way to generate payroll is to establish a subsidiary in Sri Lanka, but this takes a significant amount of work.

As an alternative, EOR Services may manage your employees’ payroll in Sri Lanka. We take care of compliance so you can concentrate on growing your business in the future. Make an appointment for a demo with EOR Services to find out how we can streamline your payroll process.