When do you graduate from an EOR to your own Sri Lanka entity?
Cross 15 employees with your own Sri Lankan company and a 1971 law switches on: you can no longer dismiss a covered worker without the Commissioner of Labour's written approval. On an EOR you never trip that wire. This page lays out the full cost comparison, the headcount where an entity starts to pay, and the legal triggers a spreadsheet alone will miss.
· Sri Lanka guide
Illustration · Colombo, Sri Lanka
EOR is faster and cheaper at low headcount in Sri Lanka. Incorporating a private limited company typically takes around 1 to 3 weeks. Formation typically costs LKR 150,000 to 500,000.
Running a Sri Lankan entity costs roughly LKR 200,000 to 400,000 per month. These are typical market ranges, not law figures. They vary by how much you outsource and how involved your payroll is.
The crossover typically lands around 8 to 12 employees on common Colombo salary bands. EPF employer contributions are 12% on both sides. ETF adds 3% employer cost on both sides. The entity side also adds one legal trigger the cost model misses. Past 15 staff you fall under the 1971 termination law and need the Commissioner of Labour's written approval to dismiss a covered worker.
The crossover maths
EOR cost scales with headcount. One fee per employee per month. Entity cost has a fixed overhead. That fixed line and the EOR line cross at around 8 to 12 employees on typical Colombo salaries.
Teamed charges from $599 per employee per month. A typical Sri Lankan entity carries a fixed monthly overhead of LKR 200,000 to 400,000 for payroll, bookkeeping, statutory filings, and HR admin.
The table below uses LKR 180,000 as an illustrative LKR equivalent of the Teamed fee. This is illustrative. The actual LKR amount depends on the exchange rate at the time of invoice. Teamed charges from $599 USD with zero FX mark-up.
All entity cost figures in this table are typical ranges. They cover outsourced payroll, bookkeeping, statutory filings, and HR admin for a small Sri Lankan limited company. They are illustrative, not law figures. Actual costs vary with your outsourcing model and benefits programme. On pure cash cost the crossover lands early here, because local professional services are cheaper than the EOR fee at modest headcount. The reason most founders still stay on EOR longer is the legal trigger in the next sections, not the spreadsheet.
Two statutory employer costs apply whichever way you employ. The EPF employer contribution is 12% of total monthly earnings. ETF adds 3% of total earnings on top, paid by the employer alone. These rates are the same on EOR and on your own entity, so they do not move the crossover. They do add filing and remittance work on the entity side.
Run the Crossover Calculator with your own headcount and salary band.
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Calculate the EOR cost
Multiply the Teamed fee (from $599 USD) by your planned Sri Lanka headcount. This is the fixed per-head cost. It grows in a straight line as you hire.
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Estimate the entity fixed overhead
Typically LKR 200,000 to 400,000 per month for a small Sri Lankan company. This covers payroll, bookkeeping, statutory filings, EPF and ETF administration, and first-point HR. It does not grow much until headcount passes twelve.
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Find the crossover headcount
The crossover is where the EOR fees match the entity overhead. On most Colombo salary bands this lands early. Use the Crossover Calculator for your own numbers.
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Factor in non-financial triggers
The maths gives you a headcount threshold. The 1971 termination-approval law, local substance needs, and market-validation reversibility are separate questions that can override the cost crossover in either direction.
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Plan the graduation date
Allow one to three weeks for entity formation before the first payroll on your own entity. Add two to four weeks for the bank account. Start the GEMO process while EOR keeps running.
Sri Lanka entity setup, what it actually costs
Forming a Sri Lankan private limited company typically costs LKR 150,000 to 500,000 all-in. The Registrar of Companies filing fee is modest. The gap is professional fees, statutory registrations, and bank account setup.
Allow roughly 1 to 3 weeks from the incorporation decision to your first payroll run. EPF and ETF employer registration runs alongside it. Banking can add 2 to 4 weeks more.
These are typical ranges, not law figures. No law sets what a Sri Lankan private limited company costs to form. The range reflects real professional services market rates in Colombo. It varies with share structure and how much you outsource.
| Cost item | Typical range | One-off or recurring |
|---|---|---|
| Registrar of Companies name approval and incorporation | LKR 15,000 to 35,000 | One-off |
| Articles of Association and company secretary setup | LKR 30,000 to 90,000 | One-off |
| Inland Revenue TIN and PAYE registration | LKR 0 direct (admin time) | One-off |
| EPF and ETF employer registration | LKR 0 direct (admin time) | One-off |
| Business bank account | LKR 10,000 to 50,000 (setup costs vary) | One-off plus monthly fees |
| Employment contract templates | LKR 30,000 to 100,000 | One-off |
| Employee handbook and HR policies | LKR 40,000 to 120,000 | One-off |
| Company secretarial retainer (first year) | LKR 60,000 to 150,000 | Recurring annually |
| Realistic total setup cost | LKR 150,000 to 500,000 | Mostly one-off |
Why the bank account matters for payroll
Most Sri Lankan banks want a fully registered company with its Inland Revenue and EPF numbers before opening a business account. So the registration sequence matters. Expect 2 to 4 weeks from incorporation to an opened account once directors clear KYC. Foreign-parented companies should budget longer. That can turn a 1 to 3 week incorporation into a 4 to 7 week wait before first payroll if the sequence is not managed tightly.
Sri Lanka entity ongoing cost, typically LKR 200,000 to 400,000 per month
Running a small Sri Lankan private limited company typically costs LKR 200,000 to 400,000 per month. That covers outsourced payroll, bookkeeping, statutory filings, and first-point HR.
Below 8 employees this fixed overhead is small against the per-head EOR fee. Above 12 employees it amortises further and the entity looks cheaper still.
These figures are typical market ranges for a small Sri Lankan company with 1 to 12 employees. They are illustrative, not law figures. Actual costs depend on whether you outsource or hire in-house, and on how involved your payroll and benefits programme is.
| Monthly cost item | Typical range (LKR) | What it covers |
|---|---|---|
| Outsourced bookkeeping and monthly accounts | 50,000 to 100,000 | Reconciliation, accruals, monthly management accounts |
| Payroll service (1 to 12 employees) | 25,000 to 70,000 | PAYE, EPF, ETF filings and payslips |
| Annual audit and statutory accounts (amortised) | 20,000 to 50,000 | Annual fee divided across the year |
| Company secretarial and annual returns (amortised) | 8,000 to 18,000 | Registrar of Companies filings |
| HR and employment law advisory | 20,000 to 50,000 | Contract reviews, disciplinary support, policy updates |
| Sri Lanka People Ops and first-point HR | 50,000 to 100,000 | Onboarding, leave admin, employee queries |
| Software subscriptions (HRIS, payroll, accounting) | 10,000 to 30,000 | Per-user SaaS tools |
| Insurance (group medical) | 20,000 to 50,000 | Group medical cover for staff |
| Total ongoing monthly | 200,000 to 400,000 | 1 to 12 employee company |
Above 12 employees you usually need dedicated in-house HR and finance capacity, and the band widens. Group medical cover, which is near-universal in competitive Colombo hiring, can add LKR 3,000 to 8,000 per employee per month and is not included in the overhead estimates above.
The cost nobody quotes, director liability
Sri Lankan directors carry personal duties under the Companies Act No. 7 of 2007. These cannot be handed to an advisor. Late or wrong filings attract personal fines.
EOR clients do not carry these duties. Teamed holds them as the legal employer.
Most cost comparisons skip the director-liability dimension because it is hard to put a number on. It is worth naming before you decide.
Personal director duties under Sri Lankan law
Under the Companies Act No. 7 of 2007, every director of a Sri Lankan company must act in good faith in the best interests of the company, exercise the care a reasonable director would, and avoid undisclosed conflicts of interest. Breach can result in personal civil liability. These are personal duties. They do not transfer to a company secretary or an outside adviser.
The compliance treadmill
- EPF and ETF remittance: the employer pays 12% EPF and 3% ETF each month. The money must reach the Fund by the last working day of the following month. Miss it and penalties build.
- PAYE returns: filed and paid to the Inland Revenue Department on the statutory monthly cycle.
- Annual return: filed each year with the Registrar of Companies. Late filing attracts penalties.
- Statutory accounts and audit: prepared and filed annually under the Companies Act.
- Annual leave accrual: the 14 days paid annual holiday tracked and paid per employee.
Each filing is individually manageable. Stacked across a year they consume real management attention and carry personal director risk on every missed deadline. An EOR carries all of these on its own entity.
When you should stay on EOR
Below 8 employees, during market validation, or on project-based hires, EOR is the right answer. The crossover is a maths threshold. It is not a strategic verdict.
The 15-employee line matters most here. Stay under it and your own entity sits outside the 1971 termination-approval law. Cross it and every dismissal of a covered worker needs the Commissioner of Labour's written approval first.
- Under 8 Sri Lanka employees at typical Colombo salaries: EOR keeps your costs predictable while headcount is still small and the legal exposure stays with Teamed.
- Market validation phase: you are hiring 1 or 2 people to test commercial fit. Entity setup commits capital and management time before you know whether Sri Lanka will deliver.
- Project-based hires: 6 to 12 month engagements where the formation cost will not pay back before the project ends.
- You want to stay below the 15-worker line: at or above it, your own entity falls under the 1971 termination law and you need the Commissioner of Labour's written approval to dismiss a covered worker. The EOR absorbs that regime on its own entity, not yours.
- Uncertain headcount trajectory: Sri Lanka is a priority market but you have not committed to long-term growth. EOR keeps your options open.
When you should switch to your own entity
Above 8 employees consistently, with a multi-year Sri Lanka plan, or where local presence matters to customers or regulators, your own entity starts winning on cash cost. It also unlocks capabilities the EOR structure cannot offer.
Just plan for the 1971 law as you grow. Past the 15-worker line your own dismissals route through the Commissioner of Labour, so build that process in before you need it.
- Sustained headcount above 8 Sri Lanka employees at typical salaries: the entity overhead is small against the equivalent EOR fees, so per-head cost falls below the fee.
- Local substance requirements: some regulated sectors and government contracts need a registered Sri Lankan company with a physical presence. EOR employment does not provide that substance.
- Procurement and tender eligibility: certain public and large private tenders favour locally registered companies. An EOR employer does not qualify as your registered local business for these.
- Employee share schemes: senior hires expecting equity in a Sri Lankan-registered company need a local entity to structure those arrangements.
- Multi-year growth plan: you have line of sight to 12 or more Sri Lanka employees over 24 months. Starting formation early means the entity is ready before the crossover, and you have a termination process built for the 15-worker regime.
How Teamed's Graduation Model handles the transition
Teamed moves customers from EOR to their own entity on the same platform. Same Sri Lanka specialist. Same employment contracts, novated to the new entity. No break in tenure or benefits.
Most providers treat graduation as a re-onboarding event. Employees re-sign, sometimes lose continuous service, and lose accrued leave. Teamed treats it as a stage of the employment lifecycle.
The technical mechanic is contract novation: the employment contract transfers from Teamed's partner entity to your new Sri Lankan company on a set date. All terms carry across. Salary, EPF and ETF contributions, annual leave entitlement, and continuous service date all stay the same. The employee sees a different employer name on the payslip. Nothing else changes.
What we do operationally:
- Stand up your Sri Lanka entity through GEMO, typically around 1 to 3 weeks, while EOR keeps running in parallel.
- Register the new entity for PAYE with the Inland Revenue Department and as an employer with EPF and ETF.
- Open the entity bank account and payroll mandate.
- Novate every active employment contract on a single effective date.
- Migrate ongoing benefits, including any group medical cover, without a lapse.
- Build the termination workflow you need once you cross the 15-worker line, so a Commissioner of Labour approval is planned, not a surprise.
- Keep the same People Ops specialist as your post-graduation primary contact.
The Graduation Model exists because every other EOR makes this hard. We treat the move as something we help you plan for from the day you hire your first employee through us.
How does Teamed handle Sri Lanka employment for you?
Teamed becomes your legal employer of record in Sri Lanka for from $599 per employee per month, with zero FX mark-up in any currency.
Payroll, benefits, and the full Sri Lanka employment law stack run on one platform.
Real HR and legal experts handle your Sri Lanka hires from the first offer letter through every EPF remittance and annual audit. 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 employer line at 12%, the ETF employer line at 3%, and the annual leave accrual for 14 days. Nothing is hidden inside the management fee.
EOR payroll, contractor onboarding, and entity setup all live on one platform, so when you graduate to your own Sri Lankan entity nothing has to be rebuilt. Run the Crossover Calculator to see the month the model flips. Start from the Sri Lanka hiring overview. Key sources: EPF (Central Bank of Sri Lanka) and the Employees' Trust Fund Board.
Frequently asked questions
At what headcount does an EOR stop being cheaper than a Sri Lanka entity?
On cash cost alone the crossover lands early, often around 3 to 5 Sri Lanka employees, because local professional services are cheaper than the EOR fee at modest headcount. The bigger trigger is legal, not financial. Once your own company employs 15 or more workmen it falls under the 1971 termination-approval law and you need the Commissioner of Labour's written approval to dismiss a covered worker. Use the Crossover Calculator to run your own salary band.
How much does it cost to set up a Sri Lankan private limited company?
Typically LKR 150,000 to 500,000 all-in. The Registrar of Companies filing fee is modest. The rest is professional fees: Articles of Association, a company secretary, employment contracts, HR policies, the bank account, and the first year of company secretarial work. The range varies with share structure and how much you outsource.
How long does it take to set up a Sri Lanka entity and run the first payroll?
Around one to three weeks from the incorporation decision to first payroll if you use a local corporate services firm or Teamed GEMO. The bank account is the common gating step. Budget two to four weeks for a business account to open after registration, longer if the directors are not Sri Lanka resident.
What are the statutory employer costs on both sides of the comparison?
The EPF employer contribution is 12% of total monthly earnings. ETF adds 3% of total earnings, paid by the employer alone and never deducted from wages. These rates apply whether you employ via EOR or your own entity. They are Sri Lanka law costs on both sides of the comparison.
What changes legally once my Sri Lanka entity passes fifteen employees?
At 15 or more workmen your own company comes under the Termination of Employment of Workmen Act of 1971. You can no longer dismiss a covered worker on the employer's decision alone. You need either the worker's written consent or the Commissioner of Labour's prior written approval. On an EOR that regime sits on Teamed's entity, so you do not carry it until you graduate.
What is Teamed's Graduation Model for Sri Lanka?
Teamed moves customers from EOR to their own Sri Lanka entity on the same platform. Employment contracts are novated to the new entity on a single date. Salary, EPF and ETF contributions, annual leave entitlement, and continuous service date all carry over unchanged. Teamed handles entity formation through GEMO, registers the new entity for PAYE, EPF, and ETF, and builds the termination workflow you need once you cross the 15-worker line.
Sri Lanka's cost crossover comes early, but the line that actually changes the decision is the fifteen-worker threshold. Cross it as your own entity and you cannot dismiss a covered worker without the Commissioner of Labour's written approval. On an EOR that regime sits on Teamed's entity, not yours. The honest read is that the spreadsheet says switch sooner than the law does, and you should plan for both.
Cross fifteen Sri Lanka workers and a 1971 law decides who you can let go, not just your spreadsheet.
On cash, a Colombo entity typically runs LKR 200,000 to 400,000 a month. The bank account adds two to four weeks.
When the maths flips, we tell you and move you across. That is the only honest version of this.
