Employer of Record in Sri Lanka

An Employer of Record, or EOR, is a service that helps you hire employees in another country. If you want to hire someone in Sri Lanka, but you don't have a registered business there, an EOR is the solution. The EOR becomes the legal employer for your team member. It handles all the local HR tasks like payroll, taxes, benefits, and compliance with Sri Lankan law. This lets you focus on managing your employee's day-to-day work without the cost and complexity of setting up a new entity. For a simple way to manage this, you can use an EOR provider like Rivermate.

How an Employer of Record (EOR) Works in Sri Lanka

Using an EOR simplifies your hiring process. You find the talent, and the EOR handles the legal side of employment. The process is straightforward.

1. You Choose Your Candidate. You recruit and select the person you want to hire in Sri Lanka. You determine their role and salary.
2. The EOR Hires Your Candidate. The EOR legally hires the employee through its local Sri Lankan business entity. This means your new hire is on a compliant local payroll.
3. A Local Contract is Created. The EOR drafts an employment contract that follows all of Sri Lanka's labor laws. This protects you and your employee. All contracts must comply with regulations set by Sri Lanka's Department of Labour, which you can learn more about on their official site (http://www.labourdept.gov.lk).
4. Onboarding Begins. The EOR manages the entire onboarding process. It collects necessary documents and ensures your new employee is registered for taxes and any required social contributions.
5. Payroll and Benefits are Managed. The EOR takes care of paying your employee accurately and on time. It handles all tax withholdings and manages statutory benefits.
6. You Manage Your Team. While the EOR handles the HR administration, you manage your employee's daily tasks, projects, and performance. You have complete control over their work.

Why use an Employer of Record in Sri Lanka

Using an EOR in Sri Lanka is a practical way to grow your team without getting slowed down by administrative hurdles. It allows you to enter the market quickly and legally, saving you the significant time and money required to establish a local company. This approach removes the burden of navigating unfamiliar employment laws and tax systems.

• Enter the Market Faster. You can hire employees in days, not the months it can take to register a new business entity in Sri Lanka.
• Ensure Full Compliance. EORs are experts in local labor laws. They ensure your hiring practices are fully compliant with Sri Lankan regulations, which are overseen by the Ministry of Labour (https://labourmin.gov.lk). This reduces your risk of legal issues.
• Reduce Costs. Setting up and maintaining a foreign subsidiary is expensive. An EOR gives you a more cost-effective way to build a global team.
• Simplify Payroll. Managing international payroll is complex. An EOR handles all calculations, tax deductions, and payments, so you don't have to.
• Focus on Your Business. With the EOR handling HR and legal tasks, you can focus your energy on supporting your team and growing your business.

Rivermate's transparent pricing model eliminates complexity with a single, competitive monthly fee per employee. Unlike traditional PEO providers, our pricing in Sri Lanka includes comprehensive HR support, benefits administration, compliance management, and access to our proprietary dashboard for real-time workforce analytics. No hidden costs, no setup fees—just straightforward pricing that scales with your business needs while ensuring full legal compliance in Sri Lanka.

Hiring in Sri Lanka offers access to a skilled and adaptable workforce. The country has a high literacy rate, and many professionals have experience in international settings. When you hire here, you'll find a workforce known for a strong work ethic. To do it right, you need to understand the local labor laws. This guide breaks down the key areas you need to know.

Employment contracts & must-have clauses

While verbal agreements are recognized, a written employment contract is standard practice and highly recommended. It creates clarity for you and your employee. Under the Shop and Office Employees Act, you must provide written particulars of employment.

Your employment contracts should include these key elements:

• Party Details: Full names and addresses of the company and the employee.
• Job Role: A clear job title and description of duties.
• Start Date: The official first day of employment.
• Contract Duration: State whether the contract is for a fixed term or is indefinite.
• Probation Period: Details about the probationary period, if any.
• Pay: The base salary, any allowances, and the payment schedule.
• Social Security: Mention of contributions to the Employee Provident Fund (EPF) and Employee Trust Fund (ETF).
• Working Hours: Standard work hours and overtime rates.
• Leave: Information on annual, sick, and other leave entitlements.
• Termination: The required notice period and conditions for termination.

Probation periods

Sri Lankan labor law does not set a specific length for probation periods. However, a common practice is a probation period of six months. For senior-level roles, this can sometimes extend to one year.

During probation, both you and the employee can assess the fit. Termination conditions during this period should be clearly stated in the employment contract.

Working hours & overtime

The standard workweek in Sri Lanka is 45 hours, with a maximum of 8 hours per day. For factory workers, the maximum is 48 hours per week.

Here are the key points on overtime:

• Any work beyond the standard 45 hours per week is overtime.
• Overtime is capped at 12 hours per week.
• You must pay employees 1.5 times their regular hourly rate for overtime work.
• Employees are entitled to a one-hour break for every eight hours worked.

Public & regional holidays

Sri Lanka has a generous number of public holidays. These include national, religious, and cultural holidays. A unique feature is the "Poya" day, a public holiday that falls on every full moon.

Here is a list of public holidays for 2025:

Hiring contractors in Sri Lanka

You can hire independent contractors for project-based work. This offers flexibility and access to specialized skills without the commitments of full-time employment.

However, the main challenge is worker misclassification. You must correctly classify your workers. If you treat a contractor like an employee, you risk legal and financial penalties. This can include back payments for benefits and taxes.

An Employer of Record (EOR) helps you avoid these risks. An EOR can hire workers on your behalf, ensuring they are classified correctly under Sri Lankan law. The EOR handles all legal and HR responsibilities, including compliant contracts, payroll, and benefits. This lets you focus on managing your team's work without worrying about compliance.

In Sri Lanka, handling compensation and payroll means navigating a system with specific rules and social security contributions. You'll find a mix of mandatory benefits and common allowances that shape how you pay your team. It's a landscape that requires careful attention to detail to ensure you're compliant and your employees are paid correctly.

Payroll cycles & wage structure

You can pay your employees on a daily, weekly, or monthly basis. However, the pay period cannot be longer than one month. Monthly salaries are usually paid by the last working day of the month.

Beyond the basic salary, your wage structure might include:

• Allowances: Payments for things like transportation and housing are common, especially in urban areas.
• Bonuses: While not required, festival advances and bonuses are often given during major cultural and religious holidays.

Overtime & minimums

Working hours can vary by industry. For office and shop workers, the standard is an eight-hour day and a 45-hour week. Factory workers have a slightly different schedule of a nine-hour day and a 48-hour week.

If your employees work beyond these standard hours, they are entitled to overtime pay. Here's what you need to know:

• Overtime is paid at 1.5 times the normal hourly rate.
• There's a cap on overtime at 12 hours per week.

The national minimum wage in Sri Lanka is LKR 12,500 per month.

Employer taxes and contributions

As an employer, you are required to make contributions to social security funds on behalf of your employees.

Employee taxes and deductions

Employees also contribute to their own social security and pay income tax.

In Sri Lanka, employee benefits and leave are a mix of government-required entitlements and extra perks employers offer. The law sets the minimum standards for things like vacation time, sick days, and retirement savings. Many companies choose to provide more than the basics to attract and keep good employees. This creates a workplace culture where people feel valued and supported.

Statutory leave

Sri Lankan law ensures you get time off for rest and personal needs. After your first year with a company, you are entitled to 14 days of paid annual leave. During your first year, you earn leave on a pro-rata basis.

You also get seven days of paid sick leave each year. If you need to use this leave, you'll have to provide a medical certificate. For expecting mothers, maternity leave is quite generous. You get 12 weeks of fully paid leave for your first two children. For any subsequent children, the leave is six weeks.

Public holidays & regional holidays

Sri Lanka has many public holidays, celebrating a rich blend of cultural and religious events. While there are numerous holidays, not all are mandatory paid days off for every sector. Here are some of the key holidays:

Typical supplemental benefits

To stay competitive, many employers in Sri Lanka offer benefits beyond the legal requirements. Here’s a look at what's legally required versus what's often added as an extra perk:

How an EOR can help with setting up benefits

Setting up a comprehensive benefits package in a new country can be complex. An Employer of Record (EOR) simplifies this process for you. We handle all the administrative tasks, from enrolling your team in mandatory funds to sourcing competitive supplemental benefits.

An EOR ensures you comply with all local labor laws. We stay up-to-date on regulatory changes so you don't have to. This saves you time and reduces risk. By partnering with an EOR, you can offer your employees in Sri Lanka a great benefits package without the administrative headache.

Letting an employee go in Sri Lanka involves clear legal steps. You can't just dismiss someone. The process requires you to follow the rules set out in the country's labor laws. Two key laws govern terminations: the Termination of Employment of Workmen (Special Provisions) Act (TEWA) and the Industrial Disputes Act. In most cases, you need a valid reason and must get approval from the Commissioner of Labour before ending a contract. This ensures the process is fair and transparent for everyone.

Notice Periods

When it comes to notice periods, Sri Lankan law doesn't set a single, fixed timeframe for every situation. The length of the notice period often depends on the employee's contract.

Here are some key points:

• Check the Contract: The employment agreement is the first place to look for the required notice period.
• Reason for Termination: The reason for ending the employment can also influence the notice period.
• No Minimum by Law: There is no overall minimum notice period mandated by law, but it's common practice to give at least six months' notice for certain terminations.

Severance Pay

Severance pay is not automatic for every employee who leaves. It's typically provided when a dismissal is considered unfair. The amount is calculated based on the employee's length of service with your company.

For terminations due to business closure, the TEWA provides specific guidelines for calculating compensation.

How Rivermate Handles Compliant Exits

At Rivermate, we make sure every departure is smooth and compliant. We handle the entire offboarding process, so you don't have to worry about the details.

Here’s how we manage it:

• Documentation: We prepare all necessary paperwork, from the initial notice to the final settlement.
• Clear Communication: We ensure the employee understands the reasons for the termination and the next steps.
• Final Pay Calculation: We accurately calculate the final salary, including any outstanding leave and severance pay.
• Asset Handover: We manage the return of all company property, like laptops and phones.
• Exit Interviews: We conduct professional exit interviews to gather valuable feedback for your business.

We take care of the complexities of Sri Lankan labor law so you can focus on running your business.

Getting the right visas and work permits in Sri Lanka is essential for your team. The process involves multiple steps and requires a clear understanding of the local immigration laws. Foreign nationals need an entry visa to travel to the country and then must apply for a Residence Visa for employment within 30 days of arrival. You cannot enter on a tourist or business visa and then switch to an employment visa.

Employment visas & sponsorship realities

To legally work in Sri Lanka, foreign nationals need a Residence Visa with an employment endorsement. This is the standard route for anyone employed by a company in the country. The visa is typically issued for one year and can be renewed.

An Employer of Record (EOR) can sponsor work visas for your employees. To do this, the EOR must be a registered legal entity in Sri Lanka. The EOR handles the application process, which includes demonstrating the need to hire a foreign national for the specific role.

However, there are practical limits to consider:

• Local Justification: The sponsoring entity must justify why a local candidate cannot fill the position.
• Quotas: There may be visa quotas that can affect the ability to sponsor foreign employees.
• Processing Time: The entire process can take one to two months.

An EOR simplifies this process by managing the sponsorship and ensuring all local requirements are met. This allows you to hire talent in Sri Lanka without establishing your own legal entity.

Business travel compliance

For short-term business activities, a Business Visa is the correct option. This visa is for activities like:

• Attending meetings
• Conferences and seminars
• Negotiations
• Short-term training workshops

A Business Visa does not permit any form of paid or unpaid employment. It is illegal for anyone to work on a Business Visa or a Tourist Visa. Using the wrong visa can lead to fines and deportation. Make sure your team members traveling for business understand these restrictions to stay compliant.