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Sri Lanka – Employer of Record

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Country Introduction – Sri Lanka 

Capital – Colombo
Currency – Sri Lanka Rupe
GDP – 88.93 billion USD (2021)
People/Nationality- Sri Lankan
Language – Sinhala
Major Religion – Buddhism
Population – 21,666,365 (as of May 1, 2023)

Sri Lanka stands out in South Asia as the most progressive economy that embraces open-market principles and liberal trade policies, rendering it an ideal destination for business ventures. Moreover, Sri Lanka permits international business proprietors/investors to possess complete 100% ownership of their investments. The nation boasts an advanced and clearly defined system of regulations and laws, ensuring that foreign investments are well-protected and secure.

The primary industries driving the economy of the nation include tourism, the export of tea, the manufacturing of apparel and textile products, cultivation of rice, and the sale of other farm-produced goods.

The most populous cities in Sri Lanka include Colombo, Kandy, and Jaffna. Sri Lanka is a preferred destination for expats owing to its gorgeous beaches, amicable locals and affordable standard of living. Life in Sri Lanka is often portrayed as tranquil and stress-free, featuring a distinct emphasis on communal relationships.

Contract of Employment

 Various means such as words, actions, or written documents can be utilized to establish employment agreements. For the agreement to hold legal weight, it is imperative that it be documented in written form.

Probation Period

No clear provision under the Labor Law, but six months on average.

Hiring of Trainees (Non-governmental sector) a piece of legislation known as Act No. The Employers and Workers Act of 1978 dictates that companies and staff members alike must adhere to specific regulations. Workers have the option to engage in a training agreement. At most, a duration of one year.


Termination of Employment of Workmen (Special Provisions) Act, No.45 of 1971 (TEWA).

Termination of Employment of Workmen (Special Provisions) Amendment Act No. 29 OF 2021.

These legislations offer guidelines for the termination of employment in specific job types. It is not permissible for an employer to put an end to the employment arrangement of any employee without:

  • The worker must provide written consent beforehand.
  • The Commissioner’s authorization in written form must be obtained beforehand.

Working Hours

Maximum of 8 hours a day.

Maximum of 45 hours weekly.


In the event that an employee exceeds their allotted work hours, they are eligible to receive additional compensation referred to as overtime pay, which is calculated at a rate of 1.5 times their typical wages. The maximum limit for working overtime in a week is 12 hours.

13th Month Pay

There is no mandatory 13th-month pay in Sri Lanka.

Annual Leave

Each year of service entitles the employee to take 14 days of paid annual leave. As a result, first-year employees do not have the right to take a yearly break. The accumulation of vacation time during the second year of employment depends on the employee’s start date.

Sick leave

Sick Leave, Paid Sick Leave, and Family Care Leave.

Workers have the right to a maximum of seven days of remunerated non-permanent leave per annum, although those in their initial year of contract are excluded from this provision. Within the initial twelve months of being employed, the worker is granted one paid day of unplanned absence for every consecutive sixty days of service.

Maternity and Paternity Leave

A span of 84 days, equivalent to 12 weeks, with full compensation. With the exception of weekly holidays, Poya days, and holidays that are legally mandated. Two weeks prior to being confined (which includes the day of confinement) and a period of 70 days after the day of confinement.

In the event that the confinement does not culminate in the arrival of a live infant, the duration of time allotted for leave shall be diminished to 28 days. According to the Maternity Benefits Ordinance, a worker can receive 86% of their wages for the specified period. Regardless of how many children she has had before, a woman who has delivered a stillborn baby is entitled to 6 weeks of maternity leave.

There is no provision for paternity leave in the labour & employment laws of Sri Lanka.


The maximum rate was 15 % and minimum was 8 %

Income Tax

The amount of income tax you owe depends on your earnings. This is organized into distinct levels referred to as ‘Tax Brackets’. Income tax is applicable only if you earn more than 250,000 LKR per month or 3,000,000 LKR yearly.

Employer/ Employee Contributions

Every month, employers must transfer to the Fund 20% of the employee’s overall earnings, as mandated by the Central Bank. The employee is required to contribute 8% of their total earnings, while the employer must match this amount with a contribution of 12% of the employee’s earnings. Taxes ought to be levied based on the entirety of the employee’s income. The overall income encompasses not only the regular salary, wages, and fees, but also the cost of living allowance and vacation pay.

Public Holidays

Sri Lanka has one of the most number of holidays in the world. This is because of its multi-cultural diversity, where Buddhist, Muslim, Hindu, Christian and a number of national festivals are celebrated.

January 14 – Tamil Thai Pongal Day
January – Duruthu Full Moon Poya Day
February 4 – National Day
February – Navam Full Moon Poya Day
March 1 – Mahasivarathri Day
March – Madin Full Moon Poya Day
April 13 – Day prior to Sinhala & Tamil New Year Day
April 14 – Sinhala & Tamil New Year Day
April – Good Friday
April – Bak Full Moon Poya Day
May 1 – Labour Day
May – EId-Ul-Fitr/Ramazan Festival Day
May – Vesak Full Moon Poya Day
May – Day following Vesak Full Moon Poya Day
June – Poson Full Moon Poya Day
July – Eid Ul-Alha/Hadji Festival Dayw
July – Esala Full Moon Poya Day
August – Nikini Full Moon Poya Day
September – Binara Full Moon Poya Day
October – Milad un-Nabi/Holy Prophet’s Birthday/Vap Full Moon Poya Day
October – Deepavali Festival Day
November – Ill Full Moon Poya Day
December – Unduvap Full Moon Poya Day
December 25 – Christmas Day

Severance Pay

The amount of compensation given by the Commissioner of Labor for unjust dismissal, upon a successful application under TEWA, is determined based on the employee’s tenure duration.

An employee who has worked between one and five years will receive compensation equivalent to 2.5 months’ worth of salary for each completed year of service. The maximum compensation is capped at 12.5 months’ worth of salary.

Employees who have served for six to 14 years will receive a compensation of two months’ salary for each year completed, with a maximum payment of 30.5 months’ salary.

An employee who has served between 15 to 19 years shall be entitled to a compensation of 1.5 months’ salary for each year of completed service, with a maximum limit of 38 months’ salary.

An employee who has worked between 20 and 24 years will receive a compensation equal to one month’s salary for each year of service completed, with a maximum limit of 43 months’ salary.

An employee who has worked for 25 to 34 years will receive compensation equivalent to half a month’s salary for each year of service completed, with a maximum of 48 months’ salary.

The highest amount of compensation that can be given according to the formula mentioned above is LKR1.25 million.

Work and Residence Permits (Expatriates)

All individuals who are not citizens of Sri Lanka must secure a visa before being permitted to enter the country. The selection of the appropriate visa category is determined by the duration of stay and the objective of visit to Sri Lanka by the applicant. The Sri Lankan visa types are classified into:

– The transit visa is designed to permit non-nationals to traverse the border of Sri Lanka and stay in the nation for a maximum of 2 days, while on route to another location.

– A visitor visa enables an individual from a foreign country to stay in Sri Lanka for a period of 30 days for activities related to tourism or business, including attending conferences or training sessions. In certain situations, individuals can apply for an elongation of their visa, enabling them to remain for a maximum of 90 days.

– The Sri Lankan residence visa enables non-citizens to reside in the country for a maximum of one year and grants them the liberty to engage in employment and education. Foreigners are required to renew their residential visa on an annual basis for each year they intend to remain in the nation.

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