Sri Lanka

Overview

Sri Lanka, commonly known as the Pearl of the Indian Ocean, is a lovely country with a rich culture and various landscapes. With more than 22 million people, it has a mix of ethnicities and traditions that make it special.

In recent years, many foreign companies have been migrating to Sri Lanka. With government support and special economic zones, it has become easier to operate here. 

However, understanding local labor laws is a necessity. That’s where the employer of record Sri Lanka services comes in, so companies can hire employees and follow the rules.

Skuad’s Sri Lanka EOR (Employer of Record) solution offers a hassle-free business expansion experience in Sri Lanka. By partnering with Skuad, you can scale up your business without setting up a physical entity in another country. 

Skuad’s unified and automated global HR platform helps you build and manage a globally distributed team. But there’s more to it. 

Skuad’s in-country experts also offer real-time support in navigating the complexities of taxes, compliances, and employee benefits. This leaves you with ample time to refine your business augmentation strategies. Click here to know more.

Additionally, you can also try out Skuad’s cost calculator to know the cost of hiring through an EOR in Sri Lanka, this helps plan your budget. 

Enter the number of employees and salary ranges, and you will get a clearer picture of your financial commitment and make informed decisions about expanding solutions in Sri Lanka.

Sri Lanka At A Glance

• Population: 21.80 million
• Currency: Sri Lankan Rupee (LKR)
• Capital city: Colombo
• Languages spoken: Sinhala, Tamil, English‍
• GDP: $ 306.997 billion (2021)

Hire Employees

A successful business venture might have several elements, but the most crucial will always be your workforce. Hence, you should focus on creating a dedicated, hardworking, and dynamic workforce for your company. So, what are the different ways of hiring in Sri Lanka?

1. Hiring in-house: Do you want to hire talent for your business expansion project in Sri Lanka? If so, this may be the right hiring option for you. Many job boards in Sri Lanka have an outstanding database of qualified and experienced candidates. TopJobs, JobUp, CareerFirst, and JobPal are some of the top job portals in Sri Lanka. However, there have also been instances where employers have encountered misleading profiles.
2. Going for a traditional recruitment agency: Several national and international recruitment agencies can help you hire employees in Sri Lanka. Collaborating with them will give you faster results in less time. However, compliance risks are pretty high with this option. Moreover, hidden charges can also make it an expensive choice for you.
3. Collaborating with a Global EOR: Partnering with reliable hiring companies in Sri Lanka is the best way to hire the right workforce for your project in Sri Lanka. Skuad’s EOR solution will handle all your HR and administrative requirements. It will save your internal resources and ensure 100% local law compliance and safe hiring for you. Book a demo today to learn more about Skaud’s EOR solutions.

Setting Up an Entity in Sri Lanka

When hiring, companies can either set up a local entity or use an employer of record in Sri Lanka. 

Pros

• Skilled labor pool: Sri Lanka has a growing pool of educated professionals, particularly in IT, engineering, and healthcare.
• Government support for training: Various government initiatives support vocational training and skills development, helping businesses find and cultivate the right talent.
• Cultural diversity: A rich cultural heritage can enhance business opportunities, especially in tourism and related industries.

Cons

• Cost: Initial setup cost can be higher when compared to partnering with an EOR.‍
• Business diversions: Managing the legal landscape in a foreign country diverts your focus from core business operations.‍
• Cultural differences: Communicating and collaborating with local markets can be challenging because of significant cultural differences.

Are you planning to create a legal entity in Sri Lanka? 

If yes, you have several options such as a limited company, sole proprietorship, partnership, offshore company, overseas company, joint venture, franchise, wholly foreign-owned subsidiaries, branch office, and representative office to choose from.

It is important to note that there is no minimum capital requirement to establish a subsidiary unit in Sri Lanka. 

As far as taxes are concerned, branch offices have to pay 10% branch tax on their profits.

Employer of Record (EOR)

As per the law, a company cannot hire employees in Sri Lanka if it does not have a legal entity in Sri Lanka. But what if you still want to expand your commercial operations there? In this case, consider partnering with a reliable EOR solution provider to revive your business augmentation process. 

An EOR can help you create a compliant workforce in a foreign land. This can prove to be a boon for employers who are new to the global markets and do not have enough knowledge about the area.

Pros

• Compliance: A Sri Lanka EOR ensures labor laws throughout and compliance with minimal risks. 
• Time and cost savings: Setting up a local entity can be time-consuming and costly. An Employer of record in Sri Lanka takes care of these for you so you can save time and resources.
• Scalability: EORs can hire and onboard employees quickly, ensuring you can scale up quickly.
• Focus on your core business: You can focus on your core business with the help of HR outsourcing.

Going for an EOR is also a wise decision when diversification is crucial for your business, but you are unfamiliar with local labor laws. An EOR becomes the need of the hour for employers who want to develop a remote team in a foreign country but cannot invest their internal resources to manage taxation, payroll, and other HR functions.

Skuad’s EOR solution sets you free by offering an effective employment lifecycle management solution. Skuad’s unified employment solution will handle regulatory compliance, payroll processing, visa formalities, work permits, and taxes for you. This leaves you with ample time to explore more business opportunities in Sri Lanka and boost your ROI. Click here to learn everything about Skuad’s EOR Solution.

To summarize, you have three options: set up a subsidiary, hire on a contract basis, or use an employer of record (EOR).

• Setting up a subsidiary gives you more control, but due to local regulations, it is time-consuming, expensive, and complex.
• Hiring on a contract basis gives you flexibility but requires legal considerations to ensure compliance.
• Hire employees in Sri Lanka with Skuad, an EOR handler, by simplifying the hiring process and focusing on your core business. 

Skuad takes care of payroll in Sri Lanka, tax management, and employee benefits, so onboarding is seamless.

Types Of Visas In Sri Lanka

Work visas and residential permits are necessary for all employees who want to work, reside, and receive a salary in Sri Lanka. There are two major categories of visas in Sri Lanka: Visit Visa and Residence Visa. The Visit Visa allows non-Sri Lankans to visit the country briefly. On the other hand, a Residence Visa enables them to stay here permanently or for an extended duration.

Types of Work Visa or Visit Visa

• Transit Visa: This is an entry permit for a foreign national traveling to another destination who will pass through Sri Lanka's territory. The visa allows the visitor to stay in Sri Lanka for 48 hours.
• Business Visa: People who want to expand their business operations in Sri Lanka need to apply for a Business Visa. It is a short-term visa that can be extended to three months. According to Sri Lanka Work Visa regulations, you can get this visa for single, double, or multiple visits.
• Tourist Visa: Bonafide tourists who intend to explore Sri Lanka's beauty need to apply for a Tourist Visa. It is a double-entry visa that is valid for 30 days only. However, people coming to Sri Lanka for yoga training can stay here for up to three months with a Tourist Visa. Additionally, visa extensions are permitted for a maximum of six months. All these norms also apply to people entering Sri Lanka’s territory by water mode.

Types of Residence Visa

• Employment Visa: This visa is required for people entering Sri Lanka for employment projects. It is valid for two years and can be renewed as needed.
• Investors Visa: Investors Visa is valid for one year and can be renewed occasionally.
• Students Visa: This visa is for students who plan to pursue an academic course at a state-approved institute or university in Sri Lanka. It is valid for a year and is renewable.
• Religious Visa: Religious Visa is mainly for the members of the clergy.
• The family members of a permanent resident of a Sri Lankan can also get a Residence Visa.
• Ex-Sri Lankans and their dependents also can obtain a Residence Visa.

The list of mandatory documents for getting a work visa in Sri Lanka is as follows:

• Visa application form
• Passport-size photographs
• An invitation letter from the hiring company confirming employment in Sri Lanka is required.
• Certificate of BOI - Board of Investment
• Entity Registration Certificate along with business project documents and employment   contract
• A letter of recommendation from the concerned Ministry in Sri Lanka
• A copy of the Bio-Data page of your passport

The process of applying for a Work Visa In Sri Lanka is as follows:

• The first step is to obtain an Entry Visa. Consult a Sri Lankan Consulate or Embassy for more details.
• If you want to gain a residence permit upon arriving in Sri Lanka, mention it in your visa application. Once you get the entry visa, you can travel to Sri Lanka and then apply for a Resident Visa.
• Once you get a resident visa from the Department of Immigration and Emigration, you can legally start commercial operations in Sri Lanka.

Complex visa formalities and regulations can derail your business augmentation projects. Therefore, you need a trustworthy ally that can offer you the best employer of record service. This is where Skuad comes into the picture. Skuad’s in-country experts are knowledgeable about Sri Lankan visa regulations. They will handle all your Sri Lanka work visa requirements, offering you an uncomplicated business expansion experience. Book a demo to understand more.

Employment In Sri Lanka

Employers are not legally bound to enter into an employment agreement in Sri Lanka with their employees. Verbal confirmation can be done in most cases. The Sri Lanka labor laws identify the following types of employment in the country:

• Open-ended: No end date, most common, full labor protections.
• Probationary employment: Generally amounts to 6-12 months, depending on technical/supervisory level.
• Regular employment: Contracts lack pre-defined employment end date.
• Casual employment: Employed for a short-term task without guaranteeing future work.
• Seasonal employment: Seasonal employees have limited protection.
• Fixed-term employment: Fixed duration, max five years, then open-ended.‍
• Apprenticeship agreements: Vocational training; not considered regular employees.
  

Probation

According to the Sri Lankan Employment Laws, the standard probation period for technical and supervisor band employees cannot exceed 12 months. On the other hand, the probationary period for other employees cannot exceed six months. The employer has the authority to extend this for three more months.

Onboarding & Agreements

What is Onboarding?  

Onboarding is the process of bringing new employees into a company. It’s about introducing them to the company culture, policies, and expectations. 

Good onboarding helps new hires feel welcome and equipped to do their jobs, which leads to higher retention and employee satisfaction.

Looking for a great EOR solution? Hiring employees from Sri Lanka gets easier with the Skuad EOR policies.

How to Successfully Onboard Talent in Sri Lanka  

To maintain smooth onboarding processes, companies can use an employer of record in Sri Lanka and follow these steps. 

• Be warm and welcoming: Make newbies feel part of the culture and ask them to share.
• Set expectations: Communicate expectations, work norms, and schedules for training, projects, and reviews.
• Onboard efficiently: A structured onboarding process can make a huge difference to employee retention and productivity.
• Promote company culture digitally: Use digital tools to keep engagement and community alive among remote employees.
• Schedule one-on-ones: Build trust and make the transition smoother by connecting with newbies regularly.

Onboarding Checklist  

An onboarding checklist can help simplify the process and make sure everything is covered. These include:

• Welcome email: Send a warm welcome with the essentials.
• Orientation schedule: Outline the first few days.
• Documentation: Provide tax and benefits enrollment forms.
• Training resources: Share training materials for the role.
• Team introductions: Introduce to team members and key stakeholders.

Using a checklist means nothing gets missed during the onboarding process and new hires are set up for success. For more info, check out SKUAD’s article on recruiting and onboarding remote employees.

Taxes

Employer Tax Obligations

An employer of record in Sri Lanka helps manage tax obligations. It is usually 30% of the net profit for employers. 

Per the PAYE(Pay as you earn) system, employers can calculate income tax rates and deduct them in keeping with the IRD(Inland Revenue Department).

Ensure to follow these steps as an employer:

• Calculate and deduct income tax: Withhold the correct average income in Sri Lanka based on salary and tax bands.
• Keep PAYE records: Keep records for audit purposes.
• Pay deducted tax: Pay tax to IRD by the 15th of the following month.
• Issue tax certificates: Give Form T-10 to employees by 30th April.
• File annual declaration: File with IRD by 30th April.

Social Security Contributions

Payroll compliance is quite straightforward in Sri Lanka. The employer can choose to pay the salary daily, weekly, fortnightly, or monthly. However, this wage period cannot exceed one month. Regarding the pay date, the employer must pay the salary only on a working day.

Every individual working in Sri Lanka has to pay income tax every assessment year. The tax rate usually ranges from 4% to 24%, depending on income and profit level. Employers are also responsible for deducting tax from employees' salaries under the PAYE—Pay As You Earn scheme. The PAYE tax rate cannot exceed 16% for any assessment year.

Employer Taxation

Capital Gains Tax - 10%

Corporate Income Tax - 28%

Branch Tax - 14%

Employees’ Provident Fund - 12%

Employees’ Trust Fund - 3%

Employee Taxation

Employees’ Provident Fund - 8%

Payroll and taxation compliance in Sri Lanka might initially seem easy and doable. But several less-talked-about regulations remain that, if overlooked, can invite penalties.

In such a case, opting for Skuad’s payroll outsourcing in Sri Lanka will prove to be a wise decision. Skuad’s unified employment platform will take all the payroll and taxation compliances off your shoulders. Connect with Skuad here to know everything about it.

VAT

Wondering if VAT applies to Sri Lankan laws? That’s right. 

VAT may also apply to businesses in Sri Lanka. If a company’s turnover exceeds a certain threshold, it must register for VAT and charge VAT on the goods and services it provides. Companies must file VAT returns and pay the taxes collected by the government. Sri Lanka recently increased their VAT rates from 15% to 18% starting the first of January, 2024.

Other Tax Contributions and Incentives

In addition to the above, there may be other taxes and incentives an employer of record Sri Lanka can handle. 

This can be tax holidays or reduced rates in certain industries or areas. Here’s a detailed insight:

Corporate Income Tax

• Standard rate: 28%
• BOI(Board of Investment) incentives: 14% for a specific period for BOI-approved companies.
• Other reduced rates: 14% for certain sectors like agriculture, education and IT.
• Tax holidays: Complete tax exemption for the initial period under BOI.

Exemptions and Deductions

• Import duty and excise duty exemptions: For BOI-approved companies.
• Enhanced depreciation allowances: For qualifying assets.‍
• Investment allowances: Deduction of a portion of capital investment.

Compliance

Legal Landscape (Employment Laws)  

How does an employer ensure that they are treated lawfully? Employers in Sri Lanka must be aware of these laws to meet all the legal requirements and protect their workforce.

• Termination of Employment Act No. 19 of 2006: The compensation for termination of employment, including notice periods, severance pay, and unfair dismissal.
• National Employment Services Act: Provides for the establishment of a national employment service to facilitate job placement.
• Shop and Office Employees Act: Governs working hours, overtime, and even employee leave policy in Sri Lanka. These include entitlements and wages for employees in shops and offices.
• Industrial Disputes Act: Establishes procedures for resolving industrial disputes through conciliation, arbitration, or collective bargaining.
• Trade Unions Act: Regulates the formation and functioning of trade unions in Sri Lanka.
• Employees Provident Fund Act: Mandates employers to contribute to a provident fund for their employees, providing retirement benefits.
• Minimum Wages Ordinance: Sets minimum wage rates for various categories of workers.
• Employees Trust Fund Act: Requires employers to contribute to a trust fund for employees, providing medical and welfare benefits.
• Maternity Leave Act: The maternity leave policy in Sri Lanka grants maternity leave to female employees, including pre-confinement and post-confinement leave.

Employee/Contractor Classification

Proper classification of workers as employees or independent contractors per employer of record in Sri Lanka is vital for compliance. Misclassification can lead to legal penalties and financial liabilities. Employers should assess the nature of their working relationships and follow the guidelines set by Sri Lankan labor laws for classification.

Fines/Penalties

Wondering if fines and penalties apply to employees and employers? Non-compliance with labor laws can result in heavy fines and penalties. This includes wage payments, working conditions, and employee rights. Companies must be vigilant in following the rules to avoid these costs.

IP Protection  

Intellectual Property (IP) protection is another area of compliance that businesses must consider. Sri Lankan made the headlines by being the first South Asian country to order independent legislation for personal data protection. This is included in the Personal Data Protection Act No. 9 of 2022 (PDPA).

Payroll

How to Pay Talent in Sri Lanka

Businesses should choose payment methods that are easy for employees. This can be a direct deposit, digital wallet, or check. They must pay on time to avoid disruptions. Employers are allowed to pay daily, weekly, fortnightly, or monthly but should not exceed a period of one month. 

Businesses prosper with efficient payroll systems and an employer of record in Sri Lanka helps you with that.

Best Ways to Pay

Best practices for payroll are meant to serve several functions. Follow these practices: 

• Automate the payroll management system in Sri Lanka with software that integrates with other HR systems.
• Keep clear records of all transactions and employee info for compliance and transparency.
• Calculate and withhold the necessary deductions from employees’ salaries.
• Fulfill reporting requirements for payroll like submitting reports to tax authorities and keeping accurate records of employee earnings and deductions. 

Looking for an efficient EOR process? Skuad is your one-stop solution.

Benefits & Compensation

Government Benefits

Employers should also be aware of government-mandated benefits such as contributions to the Employees’ Provident Fund (EPF) and Employees’ Trust Fund (ETF). These contributions help employees secure their future and are part of the overall compensation package.

Insurance

Are you working and seeking insurance? 

The insurance policies offered by employers of record in Sri Lanka can vary depending on the company, company size, and the needs of the employees. Here are some common types of insurance that employers of record may offer to their employees in Sri Lanka:

1. Group life insurance: Death benefit to the employee’s beneficiaries in case of the employee’s untimely death.
2. Group medical insurance: Medical expenses including hospitalization, surgeries, and medications.
3. Disability insurance: Financial support in case of a disability that prevents the employee from working.
4. Retirement plans: Pension plans or provident funds to help employees save for retirement.
5. Accident insurance: Medical expenses and other benefits in case of accidental injury.‍
6. Travel insurance: May be offered to employees who travel frequently for work, medical expenses, trip cancellation, and other travel-related risks.

Worker Rights

Work Permits

The DI&E - Department of Immigration and Emigration handles visa processing and work permits in Sri Lanka. People who intend to come to Sri Lanka for employment purposes should get a prior visa and work permit from the nearest Sri Lankan Embassy.

Skuad’s Sri Lanka EOR solution can help you sponsor Sri Lanka work permits for foreigners and complete documentation formalities. By utilizing the Skuad platform, you are assured of 100% compliance with the local labor regulations in Sri Lanka and work towards mitigating challenges and risks that come in the way of getting a Sri Lanka work permit without a job offer. Click here to know more about it.

Minimum Wage

Employers must comply with the minimum wage of LKR21,000.00 per month set by the government. 

Specific Labor Laws  

The Shop and Office Employees Act (2018) in covers various aspects of employment in shops and offices in Sri Lanka. The primary provisions include:

• Working hours: Maximum daily and weekly working hours and overtime rules.
• Overtime pay: Overtime pay at a higher rate for work done beyond regular hours.
• Leave entitlements: Annual leave, sick leave, and other types of leave for employees in shops and offices.
• Wages and salaries: Minimum wage rates and wage payment rules.‍
• Others: Rest periods, maternity leave, and employee welfare.

Notice Period

Looking to cut ties with your employer? The notice period is different for certain employment periods. These include:

• Less than 1 year: No notice may be required.
• 1 to 5 years: 1 month notice.
• 5 years or more: Longer notice periods apply based on tenure.

Severance Pay

Severance pay refers to the labor tribunal which can order reinstatement, back pay or severance pay. Employees can challenge unjust dismissal and apply for severance pay within 6 months of termination. Severance pay will be calculated based on the length of service.

Working Conditions

The working conditions for Sri Lankan employees include:

• Work hours: 45 hours per week excluding meal and rest periods as per Sri Lankan labor laws.
• Rest periods: One hour break for every 8 hours worked.
• Ergonomic requirements: While not explicitly mentioned, employers are required to provide a safe and healthy working environment which includes ergonomic considerations.

Anti-discrimination Laws/Acts

• Equal Opportunities Act No. 20 of 2005: No discrimination on race, religion, sex, disability
• Women’s Charter: Women’s rights in the workplace, equal pay, maternity leave, protection from harassment
• National Human Rights Commission (1996): Investigates human rights violations, including discrimination.
• Other laws: Shop and Office Employees Act (1954), Employees Provident Fund Act (1958)

Health & Safety

Under health and safety standards, employees are required to work in these conditions:

• Safe working conditions: Guarding machinery, and personal protective equipment.
• Workroom environment: Adequate lighting, temperature, and ventilation.‍
• Sanitary facilities: One washroom per 25 workers.

Remote & Hybrid Work

While there's no specific WFH law, the Shop and Office Employees (Regulation of Employment and Remuneration) Act No. 19 of 1954 guides maximum working hours, which can be relevant to remote work arrangements.

Flexible Work Arrangements  

Here are some flexibility employer of record Sri Lanka suggestions that can support remote work arrangements:

• Shop and Office Employees Act: This act allows flexible working hours which can accommodate remote work schedules. 
• Termination of Employment Act: Not directly related to remote work but this act provides protection to employees including those working remotely in case of termination.

Technology Requirements

These technological requirements are expected from the working arrangement:

• Employer obligations: Employers are generally responsible for providing the necessary technology and equipment for remote work. This includes laptops, computers, or other devices, and internet connectivity.
• Employee responsibilities: Employees may be required to maintain their own devices or internet connections depending on the agreement with the employer.

Infrastructure Requirements

In terms of infrastructure requirements, these measures can be taken:

• Remote work policies: Employers should have policies in place for remote work including expectations, guidelines, and support for remote employees.
• IT Support: IT support is necessary to help remote employees with technical issues and data security.‍
• Performance management: Employers can establish performance metrics and evaluation processes to note the remote working performance and outcome. Remember, good performance management leads to a better and more efficient workplace.

Salary

Salary Calculator

A salary calculator is a useful tool that businesses can use to determine the right pay based on industry standards and the local market.

Entitlements and Explanation

Statutory Working Hours

According to Sri Lankan employment laws, the total working hours cannot exceed eight hours in a day and 45 hours a week.

Overtime Compensation

The overtime working hours in Sri Lanka cannot exceed 12 hours in a week. Moreover, employees working overtime get 150% times their average hourly wage rate.

Retirals

In Sri Lanka, the retirement age of male and female employees is 55 and 50, respectively. Both categories of employees are eligible to receive a pension at their respective retirement ages. However, the pension pay depends upon the employment category and pay scale of the workers.

It is important to note that every Sri Lankan employee is eligible for insurance coverage under the Employment Insurance System. Moreover, the Shop and Office Act 1954 provides all employee health benefits in Sri Lanka.

The biggest hurdle for employers expanding operations in a country like Sri Lanka is understanding the complex employee benefits and laws. But, that’s not all; they also need to have a legal entity to start commercial operations in Sri Lanka. You won’t have to worry about all of this if you collaborate with Skuad. Skuad’s unified employment platform handles all employee benefits and compliances. Click here to get more details.‍

Leave Policy

According to the government gazette, one whole day and one half day per week are considered weekly holidays. The full moon Poya Day is a paid holiday each month.

If you need clarity, here is a list of all public holidays in Sri Lanka:

Annual Paid Leave

Employees are eligible for 14 days of annual paid leave after completing 12 months of employment. However, the first seven days of leave must be taken consecutively.

Casual Leave

Employees get seven days of paid casual leaves in a year. However, they can avail of this benefit only from the second year of their employment. During the first 12 months of employment, they only get one day of paid casual leave after every two months of work.

Maternity Leave

Female employees in Sri Lanka get 84 days of maternity leave. They also get nursing breaks and rest breaks for their one-year-old child. However, maternity leave is cut short to only 42 days for the second and third children.

Sick Leave

Employees working in Sri Lanka get seven days of paid sick leaves. They must produce a sickness certificate from the doctor to take their sick leave.

Paternity Leave

The father is entitled to three days of paid paternity leave for the State sector only which must be taken within 3 months of the birth.

Duty Leave

Employees get duty leave for the following.

• Casting votes in local elections
• Attending examinations of language proficiency
• Attending medical examinations
• Volunteering in the Armed Forces

Contractors Vs. Full-Time Employees

Companies planning to expand their business in Sri Lanka have to choose between hiring contractors or full-time employees. Ideally, hiring contractors would be a good idea for short-term business diversification projects as this incurs no liabilities for employee compliances and benefits management.

However, employers planning long-term projects in Sri Lanka should always choose full-time employees. This will help foster long-term relationships with the employees and guarantee continuous productive contributions to the project.

Companies should connect with a global HR partner like Skuad to understand the right option. With operations in over 150 countries, Skuad’s solution has an excellent hold on all the local laws and regulations of Sri Lanka. Book a demo to understand more about Skuad’s extensive network.

Background Checks

Need to get your documents in order? The background check in Sri Lanka deals with these four areas:

• Public Utilities Commission of Sri Lanka: Verifies utility bills and credit history.
• Education verification: Verifies educational qualifications.
• Pre-employment verification: Substantiates previous employment history and references.‍
• Criminal verification: Obtains police certificates to check criminal records.

Termination & Offboarding

Severance

Workers with five years of service are also eligible for severance pay from their employers. Per the Employment Contract Law in Sri Lanka, such employees will receive half a month’s salary for every year of service. The severance pay is validated on a minimum of five years of service and more. Workers are generally eligible for severance pay on non-disciplinary termination.

Notice Period

Employers are obliged to give one month’s notice and a logical explanation for terminating employment contracts in Sri Lanka. Any termination of the agreement for non-disciplinary reasons needs prior approval from the Commissioner of Labor. In terms of retrenchment, the TEWA(Termination of Employment of Workmen) requires one month's notice for employees with one or more years of service.

Companies that want to focus solely on their business expansion projects should join hands with Skuad. Skuad enables management of all employee-related functions, including probation and termination compliance. Moreover, everything Skuad does for you in Sri Lanka will be well within the Sri Lankan Employment Laws. What more can you ask for a smooth business expansion? Find out more about Skuad here.

Offboarding Checklist

Use an offboarding checklist to make it easier and ensure everything is done. Include:

• A return of company property: Get back all company assets, laptops, and access cards.
• Transfer of responsibilities: Plan how the departing employee’s tasks will be handed over.
• Documentation: This involves paperwork, tax forms, or benefit information.

Steps to Incorporating a Holding Company in Sri Lanka

Reserve a unique name for your entity and register it online with the Registrar of Companies, Sri Lanka.

• Get the consent form signed personally by the directors and company secretary.
• The consent form and the Articles of Association are submitted to the Registrar of Companies.
• Then, file a note of incorporation with the Government Publication Bureau and Daily Newspapers.
• Additionally, contact the Taxpayer Service Unit to get a Tax Identification Number for your entity.
• The last step is to register your entity for VAT and EFP numbers.

The entire process might take around ten days to complete. However, if you plan to set up a remote team in Sri Lanka without a subsidiary establishment, you should collaborate with a local EOR like Skuad. Skuad’s unified employment platform enables employee hiring and onboarding.  Click here to learn more.

Cultural Considerations

Diversity

Employer of record Sri Lanka is incomplete without accounting for its rich cultural heritage, values, and social norms. Sri Lankan culture is a mix of many ethnicities, with Sinhalese and Tamils being the largest. 

Each community has its own customs and traditions, which can impact communication style and teamwork.

Importance of Family and Community  

The extent of family and community is considerably large in Sri Lankan culture. Employees often put family first, impacting their availability and work-life balance. 

Employers should recognize these values by offering flexible work arrangements and understanding when personal commitments come up. This is precisely what an employer of record Sri Lanka handbook deals with.

Festivals and Holidays  

Sri Lanka has numerous public holidays and festivals important to different communities. 

Major celebrations are the Sinhala and Tamil New Year, Vesak, and Deepavali. Employers should be aware of these holidays and give employees paid time off to celebrate.

PEO

A Professional Employer Organization (PEO) handles a majority of HR functions for their clients. When associating with a PEO, you will continue to be in charge of hiring your employees, but the PEO will handle all other responsibilities like benefits management, payroll, and compliances. A professional employer organization in Sri Lanka will become a co-employer that will manage HR functions for the principal employer. This arrangement is great for employers with a limited presence and cannot handle all employee needs alone.

On the other hand, an EOR will offer the same HR services as PEO. However, they go one step further to hire employees on your behalf and become their legal entity. EORs will enter into a service agreement with you. Moreover, all the major employee decisions will largely lie in the hands of the EOR. All the employment contracts will stay between the EOR and the employees, setting you free from all employee liabilities and responsibilities.

Employers who cannot afford to divert their time and resources away from business diversification in Sri Lanka should opt for EOR solutions. Skuad’s EOR solutions offer a seamless mix of workforce management and compliance adherence. In addition, Skuad’s professionals follow a 360° approach to offer you a hassle-free business scale-up experience. Find out more about Skuad here.

Conclusion

Sri Lanka’s proximity to India, low cost of living, investor-friendly compliances, and excellent international likes make it one of the most attractive options for business diversification. But despite all these, there are still several challenges that can act as a roadblock in your business expansion process. That’s why it is worth seeking assistance from one of the best employers of record companies in Sri Lanka, Skuad.

What makes Skuad stand out from the crowd? Well, Skuad’s platform will onboard employees for you and help you explore exceptional global talent. Skuad’s tech-enriched HR platform will remove every obstacle and, thus, give mileage to your business augmentation process.

It will also spare you from the hassles of establishing entities in Sri Lanka and managing compliance, taxes, and payrolls. You name it, and Skuad’s Sri Lanka employers of record EOR does it for you.

FAQs

1) What is an employer of record in Sri Lanka?

An Employer of Record (EOR) in Sri Lanka legally hires and manages a company's distributed teams. This includes payroll, taxes, and benefits and ensuring compliance with local labor laws. Using an EOR, businesses can hire employees in Sri Lanka without setting up a regional entity.

2) How to get an employer of record in Sri Lanka?

To get an employer of record in Sri Lanka, you must research and select a reputable EOR service provider with regional experience, like Skuad. Once you choose a provider, you will enter into an agreement detailing the services they will manage, such as payroll, compliance, and employee benefits. 

3) What is the difference between PEO and EOR?

A PEO co-employs workers alongside the client company, sharing employment liabilities and responsibilities. However, an EOR like Skuad assumes all legal responsibilities for compliance, payroll, and taxes. The EOR model is particularly beneficial for companies hiring internationally without setting up a local entity.

4) What is the severance pay in Sri Lanka?

In Sri Lanka, severance pay, or gratuity, is provided to employees only if they have five years of continuous service. The standard severance pay is half a month's salary for each year of service. This gratuity is payable upon termination, resignation, retirement, or death of the employee, ensuring financial relief for employees.

5) What are the types of employment in Sri Lanka?

Sri Lanka has several types of employment, including permanent, temporary, and contract employment. Permanent employees have continuous employment with full benefits and job security. Temporary employees are hired for a specific period of work and have limited benefits. Contract employees work under particular terms outlined in a contract, which vary in duration and scope. 

6) What are the benefits of an employer of record in Sri Lanka?

An Employer of Record (EOR) manages Sri Lanka payroll, taxes, and compliance, allowing businesses to expand quickly without setting up a local entity.