Hire in Sri Lanka through our Employer of Record (EOR)

An Employer of Record (EOR) is a third-party organization that takes on the legal and administrative responsibilities of employing workers on behalf of another company. This arrangement allows businesses to hire employees in countries where they don't have a legal entity, effectively expanding their global reach without the need to establish a local subsidiary.

For Sri Lanka, an EOR can be particularly useful as it enables foreign companies to tap into the country's skilled workforce and growing economy without navigating the complexities of local labor laws, payroll, and compliance issues. This arrangement can bring new job opportunities to Sri Lankan workers while allowing international businesses to benefit from the country's talent pool.

How Does EOR Work?

An EOR acts as the legal employer for workers in Sri Lanka, handling all aspects of employment, including:

1. Hiring and onboarding: The EOR manages the legal paperwork and contracts required to employ workers in Sri Lanka.

2. Payroll processing: They ensure employees are paid accurately and on time, adhering to local tax regulations and social security contributions.

3. Benefits administration: EORs handle employee benefits, including health insurance and other statutory requirements specific to Sri Lanka.

4. Compliance: They stay up-to-date with Sri Lankan labor laws, ensuring all employment practices meet local regulations.

5. HR support: EORs provide ongoing human resources assistance, addressing employee concerns and managing performance-related issues.

Benefits of Using an EOR

Employing an EOR in Sri Lanka offers several advantages for both international companies and local workers:

1. Rapid market entry: Companies can quickly establish a presence in Sri Lanka without the need to set up a legal entity, saving time and resources.

2. Risk mitigation: EORs assume legal responsibility for employment, reducing the risk of non-compliance with local laws for foreign companies.

3. Cost-effective expansion: Businesses can test the Sri Lankan market without significant upfront investment in infrastructure or legal setup.

4. Access to local expertise: EORs provide valuable insights into Sri Lankan labor practices, cultural norms, and business etiquette.

5. Flexibility: Companies can easily scale their workforce up or down based on business needs without long-term commitments.

6. Focus on core business: By outsourcing employment administration, companies can concentrate on their primary business activities and strategic goals.

7. Enhanced employee experience: Local workers benefit from professional HR support and timely payment, often with access to global opportunities.

8. Compliance assurance: EORs ensure that all employment practices adhere to Sri Lankan labor laws, protecting both the company and the employees.

By leveraging an EOR, businesses can navigate Sri Lanka's unique socio-economic landscape and historical context more effectively, while contributing to the country's economic growth and providing valuable employment opportunities to its workforce.

Sri Lanka's employment landscape is a tapestry of opportunities and challenges, shaped by its young population, high literacy rates, and evolving economic sectors. The country's workforce is diverse, spanning rural agriculture, manufacturing, and a growing services sector. While traditional industries remain significant, there's an increasing focus on developing skills in emerging fields to meet market demands.

Overview of Labor Laws

Sri Lanka's labor laws aim to protect workers' rights while fostering economic growth. Key aspects include:

• The Shop and Office Employees Act, which regulates working hours, leave, and overtime
• The Employees' Provident Fund and Employees' Trust Fund, providing social security benefits
• The Termination of Employment of Workmen Act, governing dismissals and layoffs
• Maternity benefits legislation, ensuring protection for working mothers

These laws establish a framework for fair employment practices, though enforcement can vary across sectors and regions.

Cultural Considerations

When engaging with the Sri Lankan workforce, it's essential to understand and respect local cultural norms:

• Hierarchy and respect for authority are deeply ingrained in workplace interactions
• Building personal relationships is crucial for effective business dealings
• Group harmony and consensus are often prioritized over individual achievement
• Religious beliefs and practices significantly influence work schedules and priorities
• Indirect communication styles are common, especially when addressing sensitive issues

Adapting to these cultural nuances can greatly enhance workplace relationships and productivity.

Challenges of Direct Hiring

Direct hiring in Sri Lanka presents several challenges for foreign companies:

1. Navigating complex labor laws and regulations
2. Understanding and complying with local tax and social security systems
3. Bridging cultural gaps in communication and work styles
4. Managing the recruitment process in a market with varying skill levels
5. Addressing the "brain drain" phenomenon and competition for top talent
6. Adapting to local business practices and bureaucratic processes
7. Ensuring compliance with evolving employment legislation

These challenges underscore the importance of local expertise or partnering with an Employer of Record service to navigate the intricacies of hiring in Sri Lanka.

Sri Lanka's payroll and tax system is designed to ensure both employers and employees contribute their fair share to the country's social welfare and economic development. The system involves various deductions and contributions that are managed through a collaborative effort between employers, employees, and government agencies. This structure helps maintain a balance between providing for the workforce's present needs and securing their future financial stability.

In Sri Lanka, employers play a crucial role in facilitating tax collection and social security contributions. They are responsible for calculating, deducting, and remitting various payments on behalf of their employees. Meanwhile, employees contribute a portion of their earnings towards taxes and retirement savings. This system not only ensures compliance with national regulations but also provides a safety net for workers in their retirement years.

Employer Contributions

Employers in Sri Lanka are required to make several contributions to support their employees' welfare and fulfill their tax obligations. These contributions include:

1. Employees' Provident Fund (EPF): Employers must contribute 12% of each employee's monthly salary to the EPF. This fund serves as a retirement savings scheme for workers in the private sector.

2. Employees' Trust Fund (ETF): A contribution of 3% of each employee's monthly salary is made by the employer to the ETF. This fund provides additional benefits such as unemployment allowance and death benefits.

3. Pay As You Earn (PAYE) Tax: While this is not a direct contribution from the employer, they are responsible for calculating, deducting, and remitting the appropriate PAYE tax amount from their employees' salaries to the Inland Revenue Department (IRD).

4. Maintaining Records: Employers must keep detailed records of all salary payments, tax deductions, and social security contributions for audit purposes.

5. Issuing Tax Certificates: By April 30th of each year, employers must provide their employees with a Certificate of Tax Deduction (Form T-10) detailing the total tax deducted throughout the previous year.

6. Annual Declaration: Employers are required to file an annual declaration with the IRD by April 30th, summarizing the total PAYE deductions made for all employees during the year.

It's important to note that failure to comply with these obligations can result in penalties and personal liability for unpaid taxes.

Employee Contributions

Employees in Sri Lanka also have financial responsibilities within the payroll and tax system. Their contributions include:

1. Pay As You Earn (PAYE) Tax: This is an income tax deducted directly from employees' salaries. The tax rates are progressive, meaning higher income earners pay a higher percentage. Both residents and non-residents earning income in Sri Lanka are subject to PAYE tax, although the specific tax treatment may differ.

2. Employees' Provident Fund (EPF): Employees contribute 8% of their monthly gross salary to the EPF. This is a mandatory contribution for most private sector employees, serving as a retirement savings scheme.

3. Other Deductions: Depending on individual circumstances, employees may have additional deductions such as loan repayments, insurance premiums, or union dues.

It's worth noting that the exact amount of these contributions can vary based on factors such as income level, residency status, and specific employment agreements. Employees should regularly review their pay slips to ensure all deductions are accurate and in line with current regulations.

By understanding and fulfilling these obligations, both employers and employees contribute to a robust social security system and help maintain the economic stability of Sri Lanka. It's always advisable for both parties to stay informed about any changes in tax laws or contribution rates to ensure continued compliance with national regulations.

Sri Lanka offers a comprehensive set of employee benefits, combining mandatory provisions with optional perks that can enhance the overall employment package. As an Employer of Record (EOR), Rivermate expertly manages these benefits, ensuring compliance with local labor laws while also helping companies create attractive compensation packages. By handling the intricacies of both required and voluntary benefits, an EOR allows businesses to focus on their core operations while providing employees with the support and incentives they need to thrive in their roles.

Mandatory Benefits

• Annual Leave: Employees with one year of service receive a minimum of 14 days paid annual leave, excluding public holidays.

• Public Holidays: Workers are entitled to paid leave on designated public holidays throughout the year.

• Sick Leave: Seven days of paid sick leave per year are provided, with a medical certificate requirement.

• Maternity Leave: Female employees are granted paid maternity leave, with duration and eligibility varying by sector.

• Additional Leave: Employees can take leave for specific purposes like military training, language exams, and voting.

• Provident Fund Contributions: Both employers and employees must contribute to the Employees' Provident Fund (EPF) and Employees' Trust Fund (ETF).

• Overtime Pay: Work beyond standard hours is compensated at a higher rate than regular wages.

• Notice Period: A minimum notice period is required before employment termination, varying by length of service.

• Severance Pay: Employees may be entitled to severance pay under certain circumstances, such as redundancy.

Optional Benefits

• Health Insurance: Employers can offer comprehensive health coverage beyond basic plans.

• Life and Disability Insurance: These provide additional financial security for employees and their families.

• Wellness Programs: On-site fitness facilities or gym memberships promote employee health and well-being.

• Additional Paid Time Off: Extra vacation days or sick leave can improve work-life balance.

• Flexible Work Arrangements: Options like remote work or flexible hours can boost employee satisfaction.

• Childcare Assistance: Subsidies or on-site facilities can greatly benefit working parents.

• Transportation Allowances: Help with commuting costs can ease financial burdens, especially in urban areas.

• Housing Allowances: This benefit can be particularly valuable in regions with high living costs.

• Performance-Based Bonuses: Incentivize and motivate employees with rewards tied to achievement.

By offering a mix of these mandatory and optional benefits, companies operating in Sri Lanka can create competitive compensation packages that attract and retain top talent while ensuring compliance with local labor laws.

The process of termination and offboarding in Sri Lanka involves several important steps and considerations. Understanding these procedures is crucial for both employers and employees to ensure a smooth and lawful transition.

Termination Process

In Sri Lanka, employment termination must be carried out in accordance with labor laws, which provide certain protections for employees. Employers cannot terminate an employee's contract without a valid reason, which typically falls into two categories:

1. Disciplinary grounds: This includes misconduct such as incompetence, neglect of duty, dishonesty, insubordination, habitual absence without leave, or willful damage to company property.

2. Non-disciplinary grounds: This covers situations like redundancy due to economic or business necessity, retirement, or medical incapacity.

Notice Requirements

The notice period for termination depends on the employee's length of service:

• Less than one year: May not be entitled to notice (refer to the employment contract)
• 1-5 years: Typically one month's notice
• Over 5 years: Notice period may increase based on tenure

Severance Pay

For non-disciplinary terminations, employees with at least five years of continuous service are generally eligible for severance pay. This is usually calculated as half a month's salary for each year of service.

Legal Considerations

In most cases of non-disciplinary termination, employers must obtain prior written approval from the Commissioner of Labour. Alternatively, an employee may agree to voluntary termination by providing their consent in writing.

Offboarding Process

The offboarding process is equally important to ensure a smooth transition for both the departing employee and the company. Key steps include:

1. Conducting an exit interview
2. Retrieving company property (e.g., laptops, access cards)
3. Revoking access to company systems and accounts
4. Transferring knowledge and responsibilities to other team members
5. Processing final paycheck and any outstanding benefits
6. Providing necessary documentation (e.g., service letter, tax forms)

By following these procedures, employers can maintain compliance with Sri Lankan labor laws while ensuring a professional and respectful termination and offboarding process.

Sri Lanka, with its growing economy and diverse industries, attracts foreign workers from various countries. However, navigating the visa and work permit requirements can be complex for both employers and employees. Here's a concise overview of the key points to consider:

Visa Types

Foreign nationals intending to work in Sri Lanka typically need to obtain one of the following visas:

1. Employment Visa (Resident Visa): This is the most common visa for foreign workers in Sri Lanka. It's issued for a specific job with a particular employer.

2. Business Purpose Visa: Suitable for short-term business activities, such as attending meetings or conferences.

Work Permit Process

To legally work in Sri Lanka, foreign nationals must obtain a work permit, which is closely tied to the visa application process:

1. Employer Sponsorship: The Sri Lankan employer must sponsor the foreign worker's visa and work permit application.

2. Board of Investment (BOI) Approval: For certain industries, the employer may need to obtain approval from the BOI before hiring foreign workers.

3. Department of Immigration and Emigration: This department processes and issues work permits and visas.

Key Requirements

When applying for a work visa and permit, foreign nationals typically need to provide:

• A valid passport
• Completed visa application form
• Passport-sized photographs
• Letter of employment or job offer from the Sri Lankan employer
• Educational and professional qualifications
• Police clearance certificate from their home country

Duration and Renewal

• Employment visas are usually issued for one year and can be renewed annually.
• The renewal process should be initiated at least one month before the current visa expires.

Important Considerations

• Quota System: Sri Lanka maintains a quota system for foreign workers in certain industries to protect local employment opportunities.
• Changing Employers: If a foreign worker wishes to change employers, they must obtain a new work permit and visa.
• Family Members: Dependents of foreign workers may be eligible for dependent visas.

Navigating Sri Lanka's visa and work permit requirements can be challenging. It's advisable for both employers and employees to consult with local immigration experts or legal professionals to ensure compliance with all regulations and smooth processing of applications.