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Sri Lanka

How Can A PEO And EOR Help You Establish Your Business in Sri Lanka

Doing Business With a Sri Lanka PEO – EOR

Sri Lanka is a South Asian country with 21.5 million inhabitants. Sri Lanka has two official languages – Sinhalese and Tamil, but many other languages are spoken in the country. English is the communication language used for educational, scientific, and commercial purposes. Sri Lanka offers superior-quality and cost-effective services. The business environment is conducive, and the laws are quite easy to comply with compared to other strict countries. You will find an educated and diligent workforce in the country, making it a promising outsourcing destination.

Understanding the benefits of employees and the complexity of the law is the biggest hurdle for employers expanding their businesses in countries like Sri Lanka. You must also be a legal entity to carry out commercial activities in Sri Lanka. You don’t need to worry about understanding the complexities of the law if you use Multiplier’s Employer of Record (EOR) and Professional Employer Organization (PEO) services in Sri Lanka. This unified employment platform manages all employees’ benefits and compliance, making the entire process hassle-free.

Why Use a Sri Lanka PEO?

A professional EOR and PEO solution in Sri Lanka allows clients to conveniently perform payroll processing and handle HR service, tax, and compliance management issues. A PEO Sri Lanka expert manages employment contracts, employee costs, statutory and market interests, severance pay, and employment as needed. If there are any changes in Sri Lanka’s local labor laws, the PEO will immediately notify you.

Multiplier provides one of the most client-savvy Sri Lanka EOR and PEO services and helps you establish a branch or subsidiary in Sri Lanka. Multiplier PEO services handle local labor laws, and an expert is assigned to work for your team and on behalf of your company. With Multiplier, you can quickly harness the best talent and initiate transactions in Sri Lanka speedily and compliantly.

Here are some reasons you must try Multiplier PEO services to improve your overseas business:

Cost-saving

Multiplier allows your company to start operations in Sri Lanka in 48 hours. Sri Lanka PEO services manage salaries, benefits, and expenses for companies. In addition, it oversees HR tasks and labor and tax compliance. It can save up to 85% on expansion costs in the long run.

Management of Resources

PEO Sri Lanka will help you deal with situations when you have a contractor abroad and want to turn him into an employee or if your company has a non-compliant relationship with your contractor. PEO Sri Lanka will help you if your company wants to convert contractors into employees or if you want to improve the status of full-time workers.

Payroll Administration

It is highly suggested to outsource the distribution of salaries, wages, and earnings of employees and monitor the tax deductions, benefits, compensations attributed to employees, social security contributions, etc.

Interim Solutions

Sri Lanka PEO and EOR is the perfect solution for you to establish an overseas branch. PEO Sri Lanka can enable a cost-effective solution to turn an international contractor into an employee without forming a legal entity. 

Sri Lanka PEO Costs

Most high-profile Sri Lanka PEOs charge a separate fee for employee onboarding ($20-$40 per employee/month) and for payroll, benefits, and compliance ($200-250 per month). You can choose a “per-employee” payment system if your employees’ fees are commission-based. But if you pay a stable salary, using a PEO-based payroll system is better.

At Multiplier, we offer Sri Lanka PEO services at the most reasonable prices. With the most competitive pricing models, Multiplier’s Sri Lanka EOR and PEO Sri Lanka services can provide your organization with benefits like local contract formalities, monthly salary and delivery, and compliance with Sri Lankan labor laws. Efficient PEO services handle your legal benefits, health insurance, visa applications (foreign worker), and expense reports. In the same budget, you get other services like allowances, bonuses, commissions, and the freedom to manage a risk-free business in the Sri Lankan market.

How to Hire In Sri Lanka?

A PEO provides registered employer services in Sri Lanka. Many companies outsource employment to minimize the costs and legal risks of expanding their business in Sri Lanka. Agencies like Multiplier – PEO Sri Lanka help foreign companies navigate Sri Lanka’s labor laws and requirements, saving time and allowing them to focus on their core business activities. 

For an enthusiastic, diligent, and dynamic workforce for your company, you can go for:

  • In-house recruitment – to hire, you can go through job boards available in Sri Lanka with a database of qualified and experienced candidates. However, there are times when an employer encounters a misleading profile.
  • Traditional recruitment – Several national and international recruitment agencies support staff recruitment in Sri Lanka. By using them, you can get faster results in less time. However, the compliance risk for this option is very high.

Establishing a local entity in Sri Lanka PEO

There are several kinds of business entities that you can register in Sri Lanka. You have many options to consider if you want to expand your business in the beautiful country:

  • The Sri Lanka Limited Liability Company (LLC)
  • The Sri Lanka Public Liability Company (PLC)
  • Sri Lanka Free Zone Company
  • Sri Lanka Branch Office
  • Sri Lanka Representative Office

Sri Lanka employment contracts

Sri Lankan employment contracts can be technically verbal, but best practices are to draft employment contracts written in concise and clear language. It clearly defines the legal rights and obligations of employers and employees. The contract must include a basic salary, employee responsibilities, compensation, allowances, and retirement protocols.

All salaries must be in Sri Lankan Rupee (LKR). When a business partner works with a Sri Lanka PEO, ensure all employment contracts comply with Sri Lankan labor regulations. By Sri Lankan labor law, the standard probationary period of Sri Lankan technical and supervisor band staff should not exceed 12 months. The probationary period of other employees in Sri Lanka cannot exceed six months. The employer can extend this for another three months.

Employers are not legally required to enter employment contracts with Sri Lankan employees. In most cases, verbal confirmation is sufficient. Sri Lankan labor law specifies the following types of employment in the country: employment in court (probationary), regular employment, temporary employment, seasonal employment, and fixed-term employment. 

It is important to note that all Sri Lankan workers have the right to insurance under the labor insurance system. In addition, the Shop and Office Act of 1954 provides welfare and social benefits to Sri Lankan workers.

Taxation in Sri Lanka

Total income depends on how much workers earn in Sri Lanka. If an employee’s monthly income exceeds LKR 250,000 or LKR 3,000,000 per year, the employee must pay income tax. The following sources of income are considered part of taxable income:

  • Income from employment
  • Business income
  • Investment income
  • Other income

Personal income tax rates in Sri Lanka

Tax rates commencing from 1 January 2020 are as follows:

Taxable income (LKR)

Tax rate (%)

Cumulative tax on the taxable income equal to the higher of the range (LKR)

 

Over

Not over

  

0

3 million

6

180,000

3 million

6 million

12

540,000

6 million

and above

18



Tax rates on retirement benefits, effective from 1 January 2020, are as follows:

Retirement benefit

Tax rate (%)

On the first LKR 10 million

Nil

On the next LKR 10 million

6

On the balance

12

Withholding tax (WHT) rates

Income

Paid to person outside Sri Lanka (%) (1)

 

Dividends

0

 

Interest

5

 

Interest or discount paid by banks and financial institutions to resident and non-resident persons (WHT will not apply to interest or discount paid to any person on security or Treasury bond or Treasury bill). Interest income up to LKR 250,000 per month shall be exempted from the WHT, with effect from 1 January 2020.

5

 

Royalty and annuity

14

 

Prescribed service fees (2)

 

Service fees and insurance premium

14

 

Rents

14

 

Income  

Paid to person in Sri Lanka (%) 

Paid to person outside Sri Lanka (%)

Winnings from a lottery if exceeds LKR 500,000 

14

14

Winnings from gambling reward betting 

14

14

Mandatory social security contribution in Sri Lanka:

Under the Employees’ Provident Fund Act, an employee’s contribution is 8% of his/her total earnings while an employer’s contribution is 12% of the worker’s earnings. The employer must remit 20% of the total employee earnings to the EPF department of the Central Bank of Sri Lanka before the last day of the following month.

PEO Sri Lanka payroll

Sri Lanka has 4 payroll options to choose from:

  • Internal: An internal wage structure is when you manage your payroll from your branch in Sri Lanka. With this option, you need a larger branch with an entire human resources staff to help you manage compliance.
  • Remote: You can add Sri Lankan employees to the existing payroll of your parent company if your company has many branches. But you must consider that different rules are stipulated for every employee working in a different country.
  • Payroll Processing Company in Sri Lanka: A payroll processing company in Sri Lanka is one of two options for outsourcing wherein a local company manages your payroll for you, but your company remains responsible for compliance.
  • Hire Sri Lanka PEO: A professional PEO Sri Lanka like Multiplier can help you manage your employee payroll efficiently and deal with all compliance and legal issues.

Employment benefits in Sri Lanka

Employment benefits offered to the employees in Sri Lanka include:

Health Insurance

Sri Lanka has a universal health insurance system that provides free medical care to all citizens. OPD facilities are readily available in public hospitals in major cities; in most cases, laboratory and radiation facilities are common. Despite low health costs, Sri Lanka’s health indicators are comparable to those of more developed countries.

The public health system also has a long waiting list for professional treatment and advanced procedures. This increases your reliability in private care. Most of the private health market (up to 75% in some estimates) is concentrated in 4-5 healthcare companies operating in Colombo.

Weekly Holiday in Sri Lanka

Employees working more than 28 hours a week are entitled to a 1.5-day weekly break. This usually includes full-day payments on Sundays and half-day payments on Saturdays. However, it is also common for employers to take a day off on Saturdays. Public institution managers or managerial employees are not entitled to weekly offs. Weekly leave allowances are paid in the same week or the following week.

Employees who need to work on weekly holidays are entitled to overtime pay 1.5 times their standard hourly wage.

Statutory Holidays in Sri Lanka

Employees subject to Shop and Office Employees Act No. 19 of 1954 are entitled to paid leave on all public holidays. The Labor Relations Commission must approve shop and office employees who work on holidays. In this situation, the worker is usually given an alternative leave on another day or paid for an additional day. Employees working in departments with wage rooms can take paid leave on all holidays. All workers are entitled to one paid leave on the day of the full moon Poya. These dates vary each year.

Annual Leave

Sri Lankan employees are given 14 days of paid leave for each year of service. You can take this vacation in your second year of service. Holiday eligibility depends on the start of the employment relationship. Details:

  • Employment from January 1st to March 31st of the previous year – 14 days
  • From April 1st to June 30th of the previous year – 10 days
  • From July 1st to September 30th – 7 days
  • From October 1st to December of the previous year – 4 days

Leaves should be considered for at least 7 consecutive days. However, employees can only credit for up to 14 days, regardless of their length of service. Employers can carry over unused vacations to the following year. This information should always be included in your employment contract.

Casual Leave and Sick Leave

Workers subject to the Shop and Office Employees Act will be given 7 days of casual leave from the second year onward. You can take one day of paid leave every two months in the first year of work. Employees can take casual leave for illness or their business. Sri Lanka is not legally eligible for unpaid leave.

Maternity and Paternity Leave

Pregnant women are entitled to 84 days of paid maternity leave for their first and second children. This includes 14 and 70 days before and after childbirth, while after hospitalization and childbirth. For the third and subsequent children, mothers can avail leave for 42 days, 14 days before childbirth, and 28 days after birth. Maternity leave payments are made without considering the account weekly, public, or full moon Poya holidays. There is no legal qualification for paternity leave in Sri Lanka.

Guaranteed benefits in Sri Lanka

To succeed in welfare management strategies, Sri Lanka employers have guaranteed benefits. Sri Lanka celebrates 26 holidays each year. Only eight of these paid vacations are reserved for workers in some industries.

Other Statutory Benefits Include:

  • 14 days of annual paid leave after the first full-year employment
  • 7 days of sick leave in the first year of employment
  • 84 days of paid leave for new mothers with first or second child-most often counted as 14. Increasingly, the day before and 70 days after the delivery

Employee severance and termination in Sri Lanka

Sri Lanka has some crucial regulations governing how employees are dismissed and the types of dismissals they are eligible for. The notice period is generally mentioned in the employment contract. If the employer terminates the employment relationship due to disciplinary action, the employer must notify the employee in writing. The reason for dismissal must be stated within 2 business days from the date of dismissal. Under Sri Lanka’s major labor laws, most employees are dismissed for the following reasons:

  • Employee Consent
  • The Labor Relations Commission has given prior approval to a legitimate reason, and the employer provides sufficient evidence to support their decision. This is the case if the employee disagrees with the unfair dismissal with the Labor Commissioner or the Labor Court.

Justified Reason is not defined by law but is interpreted as follows:

  • Cheating or violation of contract terms
  • Inadequate performance or inefficiency
  • Disobedience, incompetence, or abusive or unruly behavior
  • Serious negligence in fulfilling obligations
  • Addiction at work, illegal theft, or convicted of a crime
  • Punished for imprisonment or defamation

An important consideration in determining justification is whether the employer has acted in good faith. Under Sri Lankan Labor Law, termination-related disputes may be referred to alternative dispute resolution mechanisms such as mediation and arbitration. These cases may also be referred to an employment court that may order reinstatement and repayment or award severance pay at an amount deemed appropriate by the court. In addition, employees may object to dismissal on the grounds of unfair dismissal and claim severance pay by applying within six months of the dismissal.

Why Multiplier?

Multiplier’s platform not only helps employees onboarding but also assists employers in finding outstanding global talent.

This can benefit employers new to the global market and who lack sufficient knowledge in this area. 

Diversification is the key to your business, but if you are not familiar with local labor law, Sri Lanka EOR is a wise decision.

EOR Srilanka is becoming a time-saving need for employers who want to build teams abroad but cannot invest internal resources in managing taxes, payroll, and other HR functions.

Our Sri Lanka PEO Simplifies Your Expansion

  • Non-requirement of a local entity
  • 100% compliance with local Sri Lankan labor regulations
  • Timely processing of global payroll
  • Seamless management of visa procedures and regulations

Frequently Asked Questions

Here are a few quick statistics about the country:

  • Currency: Sri Lankan Rupee (LKR)
  • Capital city: Colombo
  • GDP: In 2021 – reported as $306.997 billion

Sri Lankan labor law specifies the following types of employment in the country:

  • Employment in court (probationary)
  • Regular employment
  • Temporary employment
  • Seasonal work
  • Fixed-term employment

Collaborating with Multiplier allows you to grow your business without establishing physical entities in other countries. Our integrated and automated platform helps establish and govern globally distributed teams. Our experts also provide real-time assistance in navigating the complexity of compliance, tax, and employee benefits. You get ample time to work on your business expansion, decision-making, and growth strategies.

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