---
title: "Sri Lanka Tax and Payroll 2026 | EPF, ETF, PAYE"
description: "Sri Lanka payroll 2026: employer EPF 12% plus ETF 3%, employee EPF 8%, income tax to 36% after LKR relief."
canonical: https://www.teamed.global/country-hiring-guides/sri-lanka/tax-and-payroll
---

Sri Lanka · Tax & payroll child

Served by Teamed vetted partner-entity network in Sri Lanka

# How does *Sri Lanka payroll tax* work in 2026?

Two funds carry the employer load in Sri Lanka, not one. EPF takes 12% of earnings and the employer-only ETF adds 3% on top. ETF cannot come out of the worker's pay, so it lands as pure extra cost. The income tax side runs separately, starting only after a personal relief of LKR 1,800,000/year.

Last reviewed 13 June 2026 · Sri Lanka guide

![Colombo waterfront at golden hour with the Lotus Tower and office buildings reflected in the harbour.](/images/country-guides/sri-lanka-tax-payroll.webp)

Illustration · Colombo, Sri Lanka

Answer.cite this

Sri Lanka employer payroll in 2026 sits on two funds. The employer pays EPF at 12% of earnings. The employer also pays ETF at 3%, and that one is employer-only.

The employee pays into EPF at 8% of earnings. That comes off the salary. ETF never does. So the worker contributes to one fund and the employer pays into both.

Income tax is charged after a personal relief of LKR 1,800,000/year. It starts at 6% and climbs to 36% on the highest pay. There is no required 13th-month salary in Sri Lanka.

## What does an employer pay in Sri Lanka payroll taxes?

The employer pays into two funds. EPF takes 12% of earnings. ETF adds 3% on top.

ETF is employer-only. You cannot take it from the worker's pay. So the real employer cost is 12% plus 3% (EPF Act No. 15 of 1958).

| Employer contribution | Rate | Applies to |
| --- | --- | --- |
| EPF (provident fund) | 12% | Total monthly earnings |
| ETF (trust fund) | 3% | Total monthly earnings, employer-only |

### EPF, the employer side

EPF is the Employees’ Provident Fund, Sri Lanka’s main retirement savings fund. The employer pays a minimum of 12% of each worker’s total monthly earnings into it under the [Employees’ Provident Fund Act No. 15 of 1958](https://epf.lk/?page_id=2). The worker pays in as well, so EPF has two sides. The employer side is the larger of the two.

### ETF, the fund only the employer feeds

ETF is the Employees’ Trust Fund. The employer pays 3% of every worker’s total monthly earnings under the [Employees’ Trust Fund Act No. 46 of 1980](https://etfb.lk/welcome/). The worker pays nothing into ETF, and the law does not let you deduct it from wages. That makes ETF a clean addition to your cost of each hire, separate from EPF.

## What does an employee pay from their Sri Lanka salary?

One fund comes off the worker before income tax. EPF takes 8% of earnings.

ETF is not deducted from pay. Only the employer feeds it. So the worker sees a single EPF line, not two (EPF Act No. 15 of 1958).

| Employee deduction | Rate | Applies to |
| --- | --- | --- |
| EPF (provident fund) | 8% | Total monthly earnings |
| ETF (trust fund) | 0% | Worker pays nothing; employer-only |

### EPF is the employee’s one social contribution

The worker contributes a minimum of 8% of total monthly earnings to EPF, deducted at source from each salary. The employer then matches it with the larger 12% share and remits both together. There is no separate health or unemployment deduction from the worker’s pay in Sri Lanka, so EPF is the only social fund the worker pays into.

### What the worker keeps before tax

After the 8% EPF line comes off, income tax is worked out on what remains, against the personal relief. EPF is a genuine deduction, so it lowers take-home pay but builds the worker’s retirement balance. The employer’s EPF and ETF shares never reduce the worker’s pay; they sit on top as employer cost.

## Sri Lanka income tax bands for 2026

Income tax starts only after a personal relief of LKR 1,800,000/year. Earnings below that pay no tax.

Above the relief the rate runs from 6% up to 36% in steps. The bands were revised for the 2025/2026 tax year (Inland Revenue (Amendment) Act No. 02 of 2025).

| Taxable income band, after personal relief | Rate |
| --- | --- |
| First slice of taxable income | 6% |
| Next slice | 18% |
| Next slice | 24% |
| Next slice | 30% |
| Balance above the top boundary | 36% |

Sri Lanka taxes individuals on a yearly basis under the [Inland Revenue (Amendment) Act No. 02 of 2025](https://www.ird.gov.lk/en/Lists/Latest%20News%20%20Notices/Attachments/666/PN_IT_2025-01_26032025_E.pdf). Each worker who is resident gets a personal relief of LKR 1,800,000/year first. Tax is then charged on the taxable income that remains. The rate rises in equal slices from 6% through 18%, 24% and 30%, with everything above the top boundary taxed at 36%.

### The order of the calculation matters

The personal relief comes off first, then the bands apply to each slice in turn. Get the relief or the slice order wrong and the tax figure is wrong, even when every rate is right. Employers withhold this tax through APIT, the Advance Personal Income Tax system run by the Inland Revenue Department. Teamed’s payroll applies the relief and the bands in the right order on every run.

## How does Sri Lanka payroll filing and remittance work?

Employers withhold income tax through APIT and deduct EPF and ETF each month.

EPF and ETF for a month must reach the funds by the last working day of the next month. Miss it and a late-payment penalty applies on top of the contribution.

EPF · Central Bank of Sri Lanka

Employers must remit EPF contributions for a month **on or before the last working day of the following month**. The employer pays the 12% employer share and the 8% employee share together, having deducted the employee share at source. Late remittance carries a penalty on the outstanding amount under the Act.

Source: [Central Bank of Sri Lanka: Employees’ Provident Fund](https://www.cbsl.gov.lk/en/financial-system/financial-institutions/employees-provident-fund)

Sri Lanka payroll runs on a monthly cycle. Three things move each month:

- **APIT income tax** withheld from the worker and paid to the Inland Revenue Department
- **EPF** employer plus employee shares, paid to the Central Bank of Sri Lanka by the last working day of the next month
- **ETF** employer share, paid to the Employees’ Trust Fund Board on the same monthly footing

The EPF and ETF deadlines fall at the end of the following month, not on a fixed date in it. The employer that deducts EPF from a worker but pays it late owes a penalty on the unpaid sum, so the deadline matters as much as the rate.

1. Collect pay data Gather salary, allowances, and any taxable benefits for the pay period before the run closes.
2. Deduct employee EPF Take the employee EPF share off the worker's earnings first, so the rest of the run is built on the right base.
3. Withhold income tax Apply the personal relief, then the income tax bands to the taxable income, and withhold the result through APIT.
4. Add employer funds Work out the employer EPF and ETF shares on top of the worker's earnings. ETF is employer-only and cannot reduce the worker's pay.
5. Remit by month-end Pay APIT to the Inland Revenue Department, and EPF and ETF by the last working day of the following month. Late payment triggers a penalty.

## Provident and trust funds in the Sri Lanka payroll stack

EPF is the retirement fund. The employer pays 12% and the worker pays 8% of earnings.

ETF sits beside it at 3%, paid by the employer alone. There is no required 13th-month salary in Sri Lanka.

Two funds make up the social side of the Sri Lanka payroll, and they work differently:

- **EPF** is the provident fund. The worker pays 8% of total earnings and the employer pays 12%. Both go into the worker’s individual EPF balance for retirement.
- **ETF** is the trust fund. The employer pays 3% of total earnings and the worker pays nothing. The law bars you from deducting it from wages.

Add the two employer shares and the employer is paying 12% into EPF and 3% into ETF for every hire, before income tax even enters the picture. That is a real cost on top of salary for any role you fill.

### No statutory bonus to budget for

Sri Lanka has no required 13th-month or festival bonus in law for private-sector workers. Any bonus is a matter of contract or company policy, not statute. So unlike many markets, you budget EPF and ETF as the fixed employer add-ons, and treat bonuses as a choice rather than a legal floor.

## How does Teamed handle Sri Lanka payroll for you?

Teamed becomes your legal [employer of record](/lp/employer-of-record) in Sri Lanka for [**from $599 per employee per month**](/pricing), with **zero FX mark-up** in any currency.

APIT income tax, EPF, ETF, 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 monthly APIT withholding and EPF and ETF remittance. **An actual person**, not a chatbot or a pooled queue. There is **no setup fee** and **no exit fee**. Employer cost **passes through at cost, itemised** on every invoice, so you see EPF and ETF as separate lines, never a blended figure.

EOR payroll, contractor onboarding, and entity setup all live on **one platform**. A Sri Lanka contractor who converts to payroll keeps their record. That same employee can **graduate** from EOR to your own Sri Lanka entity without switching systems. Run the [Employer Cost Calculator](https://www.teamed.global/tools/employer-cost) to see the full picture, including the 3% employer-only ETF. EOR is the right model for a first Sri Lanka hire, **until it isn't**. Start from [the Sri Lanka hiring overview](/country-hiring-guides/sri-lanka).

Key sources: [Central Bank of Sri Lanka EPF](https://www.cbsl.gov.lk/en/financial-system/financial-institutions/employees-provident-fund), [Employees’ Trust Fund Board](https://etfb.lk/welcome/), and the [Inland Revenue (Amendment) Act No. 02 of 2025](https://www.ird.gov.lk/en/Lists/Latest%20News%20%20Notices/Attachments/666/PN_IT_2025-01_26032025_E.pdf).

## Frequently asked questions

What does an employer pay in Sri Lanka payroll taxes in 2026?

The employer pays EPF at 12% of total monthly earnings and ETF at 3% of earnings. ETF is employer-only, so it cannot be deducted from the worker's pay and lands as extra cost. Both sit on top of salary, before income tax is considered.

What is deducted from a Sri Lanka employee's salary?

One social contribution comes off the worker before income tax: EPF at 8% of total monthly earnings. ETF is not deducted from pay because only the employer funds it. Income tax through APIT is then charged on the taxable income that remains after the personal relief.

What are the Sri Lanka income tax bands for 2026?

Income tax applies only after a personal relief of LKR 1,800,000/year. Above the relief, the rate runs in equal slices from 6%, then 18%, 24%, 30%, with the balance taxed at 36%. The bands were revised for the 2025/2026 year of assessment.

When must Sri Lanka EPF and ETF be paid?

EPF contributions for a month must reach the fund by the last working day of the following month, and ETF runs on the same monthly footing. The employer pays the 12% employer EPF share and the 8% employee share together. Late payment carries a penalty on the outstanding amount.

Is there a 13th-month salary in Sri Lanka?

No. Sri Lanka has no required 13th-month or festival bonus in law for private-sector workers. Any bonus is a matter of contract or company policy. The fixed employer add-ons to budget are EPF at 12% and ETF at 3%, not a statutory bonus.

Teamed Legal Operations

The Sri Lanka payroll mistake we see most is treating ETF as just another EPF line. It is not. ETF is paid by the employer alone, it cannot be taken from the worker's wages, and it lands on top of the EPF employer share. Miss that and you under-budget every single hire from day one.

A note from Tom Price-Daniel

Sri Lanka loads the employer twice. EPF at 12% and an employer-only ETF at 3%, both on top of salary.  
Income tax only starts after a personal relief of LKR 1,800,000/year, then climbs in steps to 36%.  
Budget both funds before you sign the offer.

Tom Price-Daniel · Co-founder, Teamed

## Related Sri Lanka guides

- [Hiring in Sri Lanka, overview](/country-hiring-guides/sri-lanka)parent
- [Employer of Record overview](/lp/employer-of-record)core
- [Pricing, Zero FX Fixed](/pricing)core
- [Employer Cost Calculator](https://www.teamed.global/tools/employer-cost)tool
- [Talk to an expert](https://www.teamed.global/contact)CTA

A note on this page.

This is a guide, not legal, tax or accounting advice. Rules change and vary by jurisdiction. Verify current requirements with the Inland Revenue Department, the Central Bank of Sri Lanka (Employees' Provident Fund), and the Employees' Trust Fund Board, or speak to a qualified professional, before relying on any specific framework. The income tax bands and the personal relief were revised for the 2025/2026 year of assessment under the Inland Revenue (Amendment) Act No. 02 of 2025 and remain subject to further amendment.