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Sri Lanka

Discover everything you need to know about Sri Lanka

Hire in Sri Lanka at a glance

Here ares some key facts regarding hiring in Sri Lanka

Sri Jayewardenepura Kotte
Sri Lanka Rupee
GDP growth
GDP world share
Payroll frequency
Working hours
45 hours/week

Overview in Sri Lanka

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Sri Lanka, an island nation in the Indian Ocean, has a rich history dating back over 2500 years with influences from Portuguese, Dutch, and British colonialism. It gained independence in 1948 after which it faced a prolonged civil war from 1983 to 2009, primarily between the Sinhalese majority and Tamil minority. Today, Sri Lanka is a multi-ethnic, multi-religious country with a population exceeding 22 million, experiencing a transition from an agriculture-based economy to one focused more on services and manufacturing. Key economic sectors include tourism, textiles, and tea exports, with remittances also playing a significant role.

Despite having one of the highest literacy rates in South Asia, the country faces challenges in matching education with market needs, leading to a "brain drain." The services sector has become the largest contributor to GDP, with significant employment in garment manufacturing and agriculture still vital for rural livelihoods. The ongoing economic crisis in 2022, marked by debt, dwindling reserves, and inflation, has severely impacted the economy, causing shortages and job uncertainties.

Culturally, Sri Lankans value personal relationships and teamwork in business settings, with a strong adherence to religious and family obligations. The country is also recognized for its ethical manufacturing in the textile industry and has potential growth sectors in IT and logistics, aiming to become a regional hub. However, the economic recovery and future growth are contingent on overcoming the current economic and political challenges.

Taxes in Sri Lanka

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Employer Tax Obligations in Sri Lanka

In Sri Lanka, employers have several responsibilities regarding tax withholding and remittance:

  • Pay As You Earn (PAYE): Employers must deduct income tax from employees' salaries based on the PAYE system and remit it to the Inland Revenue Department (IRD). They are required to calculate the tax using provided tables, maintain records, remit taxes by the 15th of the following month, issue tax certificates by April 30th, and submit an annual declaration.

  • Social Security Contributions:

    • Employees' Provident Fund (EPF): Employers contribute 12% of the monthly salary.
    • Employees' Trust Fund (ETF): An additional 3% contribution is required.
  • Value Added Tax (VAT):

    • Businesses exceeding LKR 80 million in annual turnover must register for VAT, with returns filed monthly or quarterly and payments made monthly.
    • Exports of services are zero-rated, allowing businesses to claim a refund on input VAT.

Tax Incentives

Sri Lanka offers various tax incentives to stimulate economic activity and attract investment:

  • Reduced Corporate Income Tax Rates: Rates can be as low as 14% for specific sectors under the Board of Investment (BOI) and other schemes.
  • Tax Holidays and Exemptions: Certain sectors may receive complete tax holidays or duty exemptions on imports.
  • Application Process: Involves submitting a detailed proposal to the BOI or consulting with the IRD for non-BOI incentives.

Employers must comply with these regulations to ensure proper tax contributions and avoid personal liability for non-compliance.

Leave in Sri Lanka

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In Sri Lanka, vacation leave entitlement is based on the duration of service within a service year. Employees with less than 10 months of service receive one day of paid leave per month, while those with more than 10 months receive 14 days of paid annual leave. Leave is calculated proportionally for incomplete service years, and unused leave can be carried over with some restrictions. The country also observes various national and religious holidays, including fixed national holidays, Poya Days based on the lunar calendar, and other holidays specific to different religious communities.

Employees are also entitled to other types of leave such as casual leave (7 days), sick leave (14 days with a medical certificate), and maternity leave (84 days). Paternity leave availability varies by company policy. Special provisions like pilgrimage leave, study leave, and special leave for unforeseen circumstances may be available depending on company policies or sector-specific agreements. Leave policies are often detailed in employee handbooks and can vary by employment sector.

Benefits in Sri Lanka

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Sri Lanka's labor laws provide a range of mandatory benefits to employees, including paid leave, provident fund contributions, and other mandatory benefits like overtime pay, notice period, and severance pay. Employees are entitled to 14 days of paid annual leave after one year of service, seven days of paid sick leave with a medical certificate, and paid leave on public holidays. Maternity leave is also mandated, with specific terms varying by sector.

The law requires contributions to the Employees' Provident Fund (EPF) and Employees' Trust Fund (ETF) from both employers and employees, serving as a retirement savings plan. While health insurance is not legally required except in specific sectors like plantation workers, many employers offer it as a perk along with life and disability insurance, and wellness programs.

Work-life balance is encouraged through additional paid time off, flexible work arrangements, and childcare assistance. Employers may also offer transportation and housing allowances, and performance-based bonuses to attract and retain talent.

Regarding retirement, there are individual retirement plans available from insurance companies, employer-sponsored plans, and government pension schemes, mainly for public sector employees. These plans often include options for lump sum payouts or regular income post-retirement, with some offering flexible contribution options.

Workers Rights in Sri Lanka

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Sri Lanka's labor laws provide comprehensive protections for employees regarding termination, discrimination, and workplace safety. Employees cannot be terminated without valid reasons, which are categorized into disciplinary and non-disciplinary grounds. Notice requirements and severance pay are mandated depending on the length of service and the nature of termination. Although the constitution protects against discrimination based on several characteristics, there are gaps, notably the absence of protections for sexual orientation and gender identity. Employers have significant responsibilities to ensure a discrimination-free workplace and to uphold safety standards, including providing a safe work environment and necessary training. The legal framework, however, lacks a unified law specifically addressing discrimination, leading to inconsistent applications and limited protections. Strengthening anti-discrimination laws and enhancing enforcement mechanisms are suggested to improve the overall effectiveness of labor protections in Sri Lanka.

Agreements in Sri Lanka

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Sri Lanka's employment law categorizes employment agreements into several types, each with specific characteristics and legal implications. These include:

  • Indefinite Employment Contracts: These are the most common and do not have a fixed end date, offering various legal protections under local labor laws.
  • Fixed-Term Contracts: These specify employment duration, with a maximum limit of five years before they convert to indefinite contracts.
  • Casual and Seasonal Employees: Casual employees work short-term without ongoing commitments, while seasonal employees work during specific seasons, possibly recurring annually.
  • Apprenticeship Agreements: Aimed at vocational training, these do not classify trainees as regular employees but focus on practical experience in a trade.

Employment agreements should detail job roles, remuneration, working hours, and leave, alongside outlining policies on termination, confidentiality, and dispute resolution. Probationary periods, although not strictly regulated, typically last six months, serving as a trial phase to assess employee suitability.

Confidentiality and non-compete clauses are crucial for protecting business interests. Confidentiality clauses safeguard sensitive information, while non-compete clauses prevent employees from joining competitors immediately after their tenure. The enforceability of these clauses hinges on their reasonableness regarding duration, geographic scope, and the nature of restrictions imposed.

Remote Work in Sri Lanka

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Remote work has become increasingly popular in Sri Lanka, especially during the COVID-19 pandemic, prompting a need to understand its legal, technological, and employer-related aspects.

Legal Regulations

  • Sri Lanka lacks specific laws for work-from-home (WFH) arrangements, with existing labor laws providing limited guidance and protection for remote workers. This includes unclear stipulations on working hours and employee benefits under the Shop and Office Employees Act.

Need for Reform

  • There is a pressing need for legislative updates to define remote work clearly, outline employer and employee responsibilities, and extend labor law protections to include remote workers.

Technological Infrastructure

  • Effective remote work requires reliable internet access and robust communication tools. However, stable high-speed internet is not universally available across Sri Lanka, which can hinder remote work efficiency.

Employer Responsibilities

  • Employers should develop comprehensive remote work policies, provide necessary equipment and training, and support mental well-being to combat isolation and burnout among remote workers.

Types of Flexible Work Arrangements

  • Flexible work options like part-time work, flexitime, and job sharing are available but lack specific legal frameworks, often relying on individual employment contracts for structure.

Considerations for Employers

  • Employers are encouraged to provide essential equipment and consider expense reimbursements for internet connectivity to facilitate effective flexible work arrangements.

Establishing Clear Policies

  • Clear policies are crucial for outlining the specifics of flexible work programs, including eligibility, working hours, and performance evaluations.

Employer Obligations and Employee Rights

  • Under the Right to Information Act, employers must protect employee data with appropriate measures and be transparent about data usage. Employees have rights to access, rectify, or erase their personal data.

Best Practices for Securing Data

  • Employers should use secure communication platforms, limit data access to authorized personnel, and train employees in cybersecurity best practices. Compliance with the Computer Crime Act for data breaches is also mandatory.

Overall, while remote work offers flexibility and benefits, it requires careful consideration of legal, technological, and managerial aspects to ensure it is beneficial and fair for all parties involved.

Working Hours in Sri Lanka

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Sri Lanka's labor laws regulate working hours, overtime, and breaks to ensure fair treatment and compensation for employees. The Shop and Office Employees Act sets a standard of 8 hours per day and 45 hours per week, while the Factories Ordinance allows up to 8 hours per day and 48 hours per week for adults, with a 12-hour limit for those aged 16-18. Employees are entitled to 1.5 days of paid leave weekly, typically including a half-day on Saturday and a full day on Sunday.

Overtime work must be compensated, although the Shop and Office Employees Act does not specify a rate; the Minimum Wage Ordinance requires at least 1.25 times the normal pay rate. Specific industries may have different rates set by the Wages Board Ordinance. Working on public holidays necessitates additional compensation or compensatory leave, often at the overtime rate.

Breaks are implied in the Shop and Office Employees Act, which states that working hours exclude intervals for rest or meals, suggesting reasonable breaks should be provided for work exceeding 5 hours. Women with infants are entitled to additional nursing breaks.

Night work, defined as any 11 consecutive hours between 10:00 PM and 5:00 AM, prohibits employment of individuals under 18 and requires written permission for women. Employers may offer additional benefits for night shifts, but it is not legally mandated.

Salary in Sri Lanka

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Understanding market competitive salaries in Sri Lanka is essential for both employers and employees to ensure fair compensation and attract top talent. Factors influencing these salaries include job title, industry, experience, skills, location, company size, and education. Research tools like PayScale and SLASSCOM surveys help in determining competitive salaries. Employers must adhere to the National Minimum Wage Act, ensuring a minimum wage of LKR 12,500 monthly. Bonuses and allowances, such as performance-based bonuses and transportation or housing allowances, vary by company and are not mandated by law. Payroll practices in Sri Lanka allow for flexibility in payment frequency but must not exceed a monthly cycle, with employers responsible for regular and compliant wage disbursement.

Termination in Sri Lanka

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In Sri Lanka, labor laws, including the Termination of Employment of Workmen (Special Provisions) Act No. 45 of 1971 (TEWA), regulate employee terminations and severance pay but do not mandate a general notice period for individual terminations. TEWA specifically requires a one-month notice for retrenchment if the employee has served for at least one year. Individual contracts and collective agreements may specify different notice periods and can override TEWA provisions.

Severance pay is mandated under certain conditions such as involuntary termination, with calculations based on the employee's length of service and last drawn salary. However, severance is not required in cases like dismissal for misconduct or for employees on expiring fixed-term contracts.

Termination procedures are detailed, requiring valid grounds and adherence to fair processes, including written notices and possibly the approval of the Commissioner of Labour. Employees can challenge unlawful terminations through the Labour Tribunal. Understanding these regulations is crucial for both employers and employees in navigating employment terminations in Sri Lanka.

Freelancing in Sri Lanka

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In Sri Lanka, the distinction between employees and independent contractors is significant due to its implications on rights, benefits, and taxes, though the legal framework is still evolving. Employees work under employer control with set schedules and tools, contributing directly to the core business, and usually work on the employer's premises. Independent contractors, however, operate autonomously, are not integrated into the core operations, and often work remotely or at locations of their choosing.

The legal landscape in Sri Lanka presents challenges due to limited case law and a significant informal workforce. Independent contractors should use well-defined contracts to outline work scope, payment terms, and dispute resolution, and they must handle their own tax obligations. Key industries for freelancers include IT, creative sectors, and professional services, with opportunities expanding as the economy develops.

Intellectual property rights are crucial, with the default rule granting copyright ownership to the creator, though contracts can specify otherwise. Freelancers should negotiate ownership and usage rights clearly in contracts. Additionally, freelancers are responsible for their own taxes and social security contributions and should consider private insurance options to manage risks.

Health & Safety in Sri Lanka

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  • Legislation and Policies: Sri Lanka's workplace health and safety are primarily governed by the Factories Ordinance (No. 45 of 1942), which sets standards for factory environments, and the Shop and Office Employees Act (No. 19 of 1954) for non-factory environments. The National Environmental Act (No. 47 of 1980) also indirectly affects workplace safety through environmental protection measures.

  • Health and Safety Policy: The National Health and Safety Policy in Sri Lanka aims to reduce workplace accidents and diseases, promote safety culture, and integrate health and safety into education and training.

  • Regulatory Bodies: The Department of Labour is the main body responsible for health and safety enforcement, with the Ministry of Health and the Central Environmental Authority also playing significant roles.

  • Employer Responsibilities: Employers are required to ensure workplace safety through risk assessments, maintaining safe equipment, providing protective gear, and training employees on safety practices and emergency procedures.

  • Worker Rights: Workers have the right to be informed about workplace hazards, participate in safety decision-making, and refuse unsafe work.

  • Challenges: The enforcement of health and safety regulations faces challenges such as coverage gaps, particularly in the informal sector, limited resources, and low awareness among employers and workers about their rights and responsibilities.

  • Inspection and Compliance: Workplace inspections are conducted by the Department of Labour and other specialized agencies, depending on the industry, to ensure compliance with health and safety standards.

  • Accident Reporting and Investigation: Employers must report serious workplace accidents and conduct investigations to identify causes and prevent future incidents. The Department of Labour may also investigate serious accidents.

  • Compensation: The Workmen's Compensation Ordinance provides compensation for workers injured on the job, with claims handled by the Commissioner of Workmen's Compensation and disputes possibly settled in Labour Tribunals.

Dispute Resolution in Sri Lanka

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Labor relations and dispute resolution in Sri Lanka are governed by the Industrial Disputes Act (IDA) of 1950, which establishes labor courts and arbitration panels. Labor courts, led by a President appointed by the President of Sri Lanka, handle cases involving employment termination, unfair labor practices, and collective agreements. Arbitration panels, appointed by the Commissioner of Labour, deal with less critical industrial disputes and aim for quicker resolutions. Both courts and panels make binding decisions.

Compliance audits and inspections are conducted by various entities including the Department of Labour, Central Environmental Authority, and Sri Lanka Customs, among others, to ensure adherence to laws and regulations. These audits help in legal compliance, risk mitigation, and promoting transparency.

Non-compliance can lead to severe consequences such as fines, lawsuits, and operational disruptions. Sri Lanka has mechanisms for reporting violations and legal provisions to protect whistleblowers, although practical challenges like fear of retaliation and limited awareness persist.

Sri Lanka has ratified several ILO conventions which influence its labor laws, covering areas such as forced labor, collective bargaining, discrimination, and child labor. Despite progress, challenges in enforcement and legal coverage remain, particularly in informal sectors and among certain worker categories.

Cultural Considerations in Sri Lanka

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Communication Styles in Sri Lankan Workplaces

  • Indirect Communication: In Sri Lanka, communication often involves indirectness where messages are conveyed through context and non-verbal cues rather than direct statements. This requires understanding subtle hints and expressions to avoid misinterpretations.

  • Formal Language and Tone: Formality is prevalent in Sri Lankan workplaces, especially in interactions with superiors. Titles are commonly used, and a respectful tone is maintained in both verbal and written communications.

  • Non-Verbal Cues: Non-verbal communication, including body language and facial expressions, plays a crucial role in conveying messages. Understanding these cues is essential for grasping the full meaning of communications.

  • Hierarchy and Decision-Making: Decision-making typically follows a top-down approach, with senior members making final decisions. This reflects the high power distance in Sri Lankan culture.

  • Building Relationships: Establishing personal relationships is vital for effective communication and collaboration. Trust and rapport are emphasized, particularly in negotiation settings where indirect communication is used to preserve "face" and avoid conflict.

  • Negotiation Practices: Negotiations can be lengthy, focusing on building relationships and achieving consensus through thorough discussions. Patience and understanding cultural nuances are key to successful negotiations.

  • Impact of Cultural Norms: Respect for hierarchy influences leadership and decision-making styles, often leading to a directive approach. However, there is a growing trend towards more consultative and collaborative styles within the hierarchical framework.

  • Business Impact of Holidays: Sri Lanka observes numerous public and religious holidays that can affect business operations. Understanding these holidays and planning accordingly is crucial for maintaining productivity and minimizing disruptions.

Overall, success in Sri Lankan business environments requires a deep understanding of local communication styles, cultural norms, and the significant role of non-verbal cues and formalities in everyday interactions.

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