Sri Lanka payroll is built around two statutory funds with fixed percentage contributions and hard monthly deadlines. The Employees' Provident Fund takes a combined 20% of gross earnings, split between employer and employee, and the Employees' Trust Fund takes a further employer-only contribution, with escalating surcharges for late payment. Income tax is withheld from salaries through the pay-as-you-earn mechanism the Inland Revenue Department administers. The rates are published by the administering institutions and do not vary by employer, which makes Sri Lankan payroll unusually predictable to cost, provided the remittance calendar is respected.
EPF: the main retirement contribution
The Employees' Provident Fund, established under Act No. 15 of 1958, is Sri Lanka's largest social security scheme. The Central Bank of Sri Lanka, which acts as custodian of the fund, states that employers and employees are required to contribute minimum rates of 12% and 8% of the member's monthly gross earnings respectively, a combined mandatory minimum of 20%. The Commissioner of Labour acts as the fund's general administrator while the Central Bank's EPF Department handles custody and member accounts. For payroll purposes the mechanics are straightforward: the employer deducts the employee's 8% from gross earnings, adds its own 12%, and remits the total monthly. The employer share is a true additional cost on top of agreed salary, and offers to Sri Lankan staff should be explicit about whether a quoted figure is before or after these contributions.
ETF: the employer-only fund, and its surcharge ladder
The Employees' Trust Fund, created by Act No. 46 of 1980 and administered by the ETF Board, adds an employer-only contribution of 3% of each employee's total monthly earnings; the Board's employer guidance is explicit that ETF contributions must not be deducted from the employee's pay. Contributions are due on or before the last working day of the month following the month they relate to, and the Board publishes a surcharge ladder for late payment that climbs from 5% for delays of up to ten days to 50% where payment is more than a year late. Larger employers are now required to remit electronically. The ETF is small as a percentage but unforgiving on timing, and the surcharge ladder means a payroll process that slips a month is immediately writing penalty cheques.
Income tax withholding, and running it all from abroad
Employers withhold income tax from salaries under the advance personal income tax mechanism administered by the Inland Revenue Department, remitting withheld amounts monthly alongside the fund contributions; rate bands change with budget cycles, so current tables should always be taken from the Department rather than from any secondary page. For a foreign company, the constraint is that EPF, ETF and tax withholding all presuppose a registered local employer. That means either establishing a Sri Lankan entity and registering with the funds and the Department, or engaging staff through an employer of record whose local entity is already registered and simply adds your hires to its remittance runs. The EOR route prices as a monthly fee per employee on top of the employment cost and suits small teams; the comparison table on this site shows verified vendor pricing. Contracts and statutory documents control; nothing here is legal or tax advice.
Questions people ask about sri lanka payroll
What are the EPF contribution rates in Sri Lanka?
A minimum of 12% of monthly gross earnings from the employer and 8% from the employee, a combined 20%, per the Central Bank of Sri Lanka, which acts as custodian of the fund under Act No. 15 of 1958.
Who pays the ETF contribution?
The employer alone, at 3% of the employee's total monthly earnings under the ETF Act No. 46 of 1980. The ETF Board's guidance states it must not be deducted from the employee's earnings.
When are EPF and ETF contributions due?
ETF contributions are due on or before the last working day of the following month, with surcharges from 5% to 50% for late payment depending on the delay. Employers should align EPF remittance to the same monthly cycle to keep one payroll calendar.
Can a foreign company pay Sri Lankan staff without a local entity?
Not as direct employees, because EPF, ETF and tax withholding require a registered local employer. An employer of record provides that registration: it employs the staff locally, runs the contributions and withholding, and invoices the employment cost plus its fee.