How much does it really cost to hire in Sri Lanka in 2026?

Sri Lanka's employer add-ons are simple to model because both funds are flat percentages with no salary cap. The employer pays EPF at 12% of total monthly earnings and ETF at 3% of the same base. The employee also contributes EPF at 8%, deducted from salary. The employee pays no ETF. There is no mandatory occupational pension beyond EPF and ETF.

These figures are illustrative. They are computed from the 12% employer EPF rate and the 3% employer ETF rate, both applied to total earnings with no ceiling. They are not statutory figures. Because neither fund caps, the 12% plus 3% oncost holds at any salary level, which makes senior hires as easy to budget as junior ones.

Add Teamed from $599 per employee per month and the total rises. Use the Employer Cost Calculator to run your own salary figures.

1. Start with gross salary

   Confirm the agreed gross salary in Sri Lankan rupees. This is the base every other line builds on, because both employer funds apply to total earnings with no cap.

2. Apply EPF and ETF

   Add the employer EPF and ETF contributions on total monthly earnings. Neither fund has a salary ceiling, so the percentage holds at every pay level.

3. Withhold APIT for the employee

   Calculate the employee's income tax under APIT, withhold it from salary, and remit it to the Inland Revenue Department. This is the employee's cost, not an employer cash cost.

4. Treat leave as paid time built in

   Annual holiday, casual leave, and Poya holidays are paid time already inside the salary. Budget them as part of gross pay, not as separate monthly charges.

5. Reserve for gratuity and termination

   Gratuity accrues from the first year and falls due after five completed years. Build a gratuity reserve and a fair-process habit into headcount planning from the start.

EPF (Employees' Provident Fund)

The EPF is Sri Lanka's main retirement fund. The employer contributes 12% of an employee's total monthly earnings and the employee contributes 8%, deducted from salary. Both rates are minimums under the EPF Act, and they apply to total earnings with no upper limit. So the combined fund balance grows with salary at a steady 12% plus 8% of pay.

ETF (Employees' Trust Fund)

The ETF sits on top of EPF as an employer-only fund. The employer contributes 3% of every employee's total monthly earnings. The employee contributes nothing, and the 3% may not be deducted from wages. Like EPF, the ETF has no salary ceiling, so the 3% applies to the full gross at any pay level.

Remittance timing

EPF and ETF contributions for a given month must reach the funds on or before the last working day of the following month. Missing the window exposes the employer to late-payment penalties, so the practical cost driver in Sri Lanka is filing discipline, not the contribution rate. Teamed runs these remittances on your behalf.

No mandatory pension beyond EPF and ETF

Sri Lanka does not require an occupational pension scheme above EPF and ETF. Any additional retirement benefit is contractual. For cost modelling, treat the retirement line as EPF plus ETF only, unless the role's contract specifies more.

APIT is the employer's main monthly tax obligation in Sri Lanka. Every pay run, the employer calculates the tax due on each employee's income, withholds it, and remits it to the Inland Revenue Department. Income tax is the employee's cost in cash terms. For the employer it becomes a liability only through error or a missed deadline.

The 2025/2026 Sri Lanka income tax bands

A resident individual gets a personal relief of LKR 1,800,000/year, raised under the Inland Revenue (Amendment) Act No. 02 of 2025 and effective from 1 April 2025. Income above that relief is taxed across five progressive bands.

Source: IRD: Public Notice PN/IT/2025-01 (26 March 2025)

The top marginal rate is 36% on the balance of taxable income above the highest band threshold. That is the employee's tax cost. The employer's job is to calculate, withhold, and remit it correctly and on time. Income tax is not an employer cost in cash, only a compliance task.

Sri Lanka's leave rules for shop and office staff sit in the Shop and Office Employees Act No. 19 of 1954. The employer funds these entitlements directly. They are not insurance-backed.

Annual holiday

After a full year of continuous employment, an employee is entitled to 14 days of paid annual holiday, of which at least seven must be consecutive. First-year entitlement is tiered by the quarter in which employment began, then settles at the full 14 days in later years. Budget annual holiday as paid time already inside the salary, not as an extra line.

Casual leave and sickness

There is no distinct statutory sick-pay scheme for shop and office employees. Instead, an employee can take up to 7 days of casual leave a year on full pay, for private business, ill health, or other reasonable cause. Short illness is covered within that 7 days. Treat it as paid time built into the salary, not an event-driven reimbursement.

Full Moon Poya and public holidays

The 2026 government calendar gazettes 13 days Full Moon Poya days, because 2026 includes an intercalary Adhi Poson Poya month. Poya days are paid public holidays, separate from annual holiday and not subtracted from the 14 days entitlement. Private-sector staff also receive the mercantile public holidays marked in the same calendar, such as the Sinhala and Tamil New Year, May Day, and Christmas. A weekly rest of one whole day plus one half-day also applies under the Act.

Maternity leave

Statutory maternity leave applies under the Maternity Benefits Ordinance and is employer-funded. The exact day count is set by statute and varies by the number of prior live births, so confirm the current entitlement for each case before you budget it. There is no separate statutory paternity leave for private-sector employees.

Gratuity at five years

Gratuity is a separate payout, not part of EPF or ETF. An employer of fifteen or more workmen owes it to anyone who completes at least 5 years of service. For monthly-rated staff the rate is 0.5 months of the last-drawn salary for each completed year of service. For daily or piece-rated staff it is 14 days of wages per completed year. Accrue it from year one so a five-year leaver is not a surprise.

Termination compensation under TEWA

Under the Termination of Employment of Workmen Act, an employer of 15 or more workmen cannot end a covered worker's job without the worker's written consent or the Commissioner of Labour's written approval. There is no fixed notice period in days. Where the Commissioner orders compensation, the amount follows a formula set by Gazette Order, and it is capped at LKR 2,500,000 per workman. Treat this as a planned termination reserve, not a routine cost.

Labour Tribunal exposure

A workman who believes a dismissal was unfair can apply to a Labour Tribunal, which makes whatever order it finds just and equitable, including reinstatement or compensation. There is no statutory cap on that relief. A poorly documented dismissal can produce an award that runs well beyond the monthly contribution cost. Good process from the first day is the cheapest protection you can buy.

Remittance accuracy

EPF and ETF for a month are due by the last working day of the following month, and APIT is remitted to the Inland Revenue Department on its own schedule. Late EPF or ETF remittance attracts penalties that compound. For most Sri Lanka payroll budgets, getting the filing right matters more than the contribution rate.

Real HR and legal experts handle your Sri Lanka hires from the first offer letter through every EPF and ETF remittance and APIT return. An actual person, not a chatbot or a pooled queue. There is no setup fee and no exit fee. Every employer cost passes through at cost, itemised on every invoice. You see the EPF line, the ETF line, and any gratuity accrual. Nothing is buried inside the management fee.

EOR payroll, contractor onboarding, and entity setup all live on one platform. A Sri Lanka contractor who converts to employment keeps their record. That same employee can graduate from EOR to your own Sri Lankan entity without switching systems. EOR is the right structure for a first Sri Lanka hire, until it isn't. Start from the Sri Lanka hiring overview or run the Employer Cost Calculator to see the full picture.