Sri Lanka Labor Law Guide for Hiring Employees and Contractors
This labor law guide for Sri Lanka has important information for businesses looking to hire employees or contractors in the country. Sri Lanka is a country in South Asia.
Sri Lanka’s economy, as of 2023, is experiencing moderate growth with a GDP of approximately $85 billion. The key sectors driving the economy include textiles and garments, tea production, rubber manufacturing, tourism, and the information technology sector. These sectors form the backbone of Sri Lanka’s economic structure, employing a significant portion of the workforce.
The Sri Lankan Rupee (LKR) is the national currency used for all financial transactions.
Minimum Wage
LKR 17,500 per month
Overtime Wage
1.5 times the hourly wage
Meal Breaks
30 minutes
Rest Breaks
10 minutes per every 4 hours
Working hours
8 hours/day, 48 hours/week
Salary Payment Cycle
Monthly
Payroll Taxes
Provident Fund, Trust Fund
Paid Vacation
14 days
Overtime Hours
48 hours per week
Night Shift Hours
1.5 times
Holidays
12
No Work Days
Sundays and Public Holidays
Employers must sign an employment contract with their employees that includes essential clauses such as job description, compensation, working hours, overtime policy, leave policy, and termination terms.
Employees and contractors are treated differently under Sri Lankan labor laws; employees have extensive protection under labor legislations, whereas contractors are governed more by civil contracts.
Exceptions to the minimum wage include certain apprentices and trainees, who may be paid a lower rate which should not be less than 70% of the minimum wage for a period not exceeding three years.
Employers are also required to pay holiday pay, equivalent to the normal daily wage when an employee is on a statutory holiday.
- Employees’ Provident Fund (EPF): 12% of the employee’s salary.
- Employees’ Trust Fund (ETF): 3% of the employee’s salary.
- Income Tax: Employers must withhold tax based on monthly earnings.
| Income Level (LKR) | Tax Rate |
|---|---|
| Up to 600,000 | Exempt |
| 600,001 – 1,200,000 | 6% |
| 1,200,001 – 1,800,000 | 12% |
| 1,800,001 – 2,400,000 | 18% |
| 2,400,001 – 3,000,000 | 24% |
| 3,000,001 and above | 30% |
- Vacation Leave: 14 days of paid leave per year after completing one year of service.
- Maternity Leave: 84 working days (for the first two children), reduced to 42 days for any additional children.
- Paternity Leave: Typically 3 days.
- Sick Leave: 7 days of paid sick leave per year.
- Adoption Leave: Parallel to maternity leave regulations.
| Holiday | Date |
|---|---|
| Tamil Thai Pongal Day | January 14 |
| National Day | February 4 |
| Sinhala and Tamil New Year | April 13–14 |
| May Day | May 1 |
| Vesak Full Moon Poya Day | Variable (April/May) |
| Poson Full Moon Poya Day | Variable (June) |
| Deepavali | Variable (October/November) |
- Provident Fund: Retirement benefits; employers contribute 12% of the employee’s salary.
- Trust Fund: Life insurance and other benefits; employers contribute 3%.
- Gratuity: Employees with more than 5 years of service are entitled to gratuity payments, typically half a month’s salary for each year of service.
- Annual Bonuses: While not mandated, many employers provide annual bonuses as either a fixed amount or a percentage of the annual salary.
Sri Lanka does not practice ‘At Will Employment.’ Termination of employment is regulated and employers must follow legal procedures.
The termination process involves providing a notice period of one month for general terminations. For dismissals related to misconduct or inefficiency, necessary documentation and evidence must be provided, and the employee must be given an opportunity for defense.