Labor Law Compliance Guide for Sri Lanka

This labor law guide for Sri Lanka has important information for businesses looking to hire employees or contractors in the country. Sri Lanka is a country in South Asia.

Category	Details
Minimum Wage	LKR 30,000 per month (since Jan 2026)
Overtime Wage	1.5x regular rate; 2x on holidays/rest days
Meal Breaks	30 minutes
Rest Breaks	10 minutes per every 4 hours
Working hours	8 hours/day, 48 hours/week
Salary Payment Cycle	Monthly
Payroll Taxes	EPF (employer 12% + employee 8%), ETF (employer 3%)
Paid Vacation	14 days
Overtime Hours	Max 12 hours per week
Night Shift Hours	1.5 times
Holidays	26 gazetted public holidays
No Work Days	Sundays and Public Holidays

Sri Lanka’s economy grew 5.0% in 2024 and continued to expand at 5.4% year-over-year in Q3 2025. The World Bank projects 3.5% growth for 2026, with inflation forecast at around 5.4%. The key sectors driving the economy include textiles and garments, tea production, rubber manufacturing, tourism, and the information technology sector. These sectors form the backbone of Sri Lanka’s economic structure, employing a significant portion of the workforce. Sri Lanka is also a growing destination for BPO operations and call centers, offering competitive costs and a skilled English-speaking talent pool.

The Sri Lankan Rupee (LKR) is the national currency used for all financial transactions.

Hiring Laws in Sri Lanka

When hiring workers in Sri Lanka, businesses need to register locally, typically requiring establishment or incorporation with a cost varying between LKR 10,000 to 50,000 depending on the business size and type. Setting up a business entity usually takes around 1-2 weeks.

Employers must sign an employment contract with their employees that includes essential clauses such as job description, compensation, working hours, overtime policy, leave policy, and termination terms.

Employees and contractors are treated differently under Sri Lankan labor laws; employees have extensive protection under labor legislations, whereas contractors are governed more by civil contracts.

Minimum Wage in Sri Lanka

Sri Lanka enforces a minimum wage law. The national minimum wage increased to LKR 30,000 per month (LKR 1,200 per day) effective January 1, 2026. The previous rate of LKR 27,000 was in effect from April 1, 2025. The Budgetary Relief Allowance (BRA) has been incorporated into the base wage as of March 31, 2025 and is no longer paid separately.

Exceptions to the minimum wage include certain apprentices and trainees, who may be paid a lower rate which should not be less than 70% of the minimum wage for a period not exceeding three years.

Employers are also required to pay holiday pay, equivalent to the normal daily wage when an employee is on a statutory holiday.

Working Hours in Sri Lanka

Standard working hours in Sri Lanka are 8 hours per day and 48 hours per week. Overtime hours are any hours worked beyond the 48-hour weekly threshold, with a maximum of 12 overtime hours per week. Employees working overtime are entitled to 1.5 times the regular hourly rate on normal workdays and 2 times the regular rate on rest days and public holidays.

The legal minimum age for employment is 14 years, but regulations restrict work types and hours for those under 18 to protect against child labor.

Payroll and Taxes in Sri Lanka

Employers are responsible for several payroll deductions as follows:

Fund	Employer Contribution	Employee Contribution	Total
EPF (Employees' Provident Fund)	12%	8%	20%
ETF (Employees' Trust Fund)	3%	0%	3%

Since the BRA is now part of base wages, EPF/ETF contributions must be calculated on the new consolidated wage.

Employers must also withhold income tax (APIT) based on monthly earnings. The individual income tax rates in Sri Lanka for the 2025/2026 year of assessment are:

Taxable Income Slab (LKR)	Tax Rate
Up to 1,800,000	Exempt
First 1,000,000 above threshold	6%
Next 500,000	18%
Next 500,000	24%
Next 500,000	30%
Balance above 2,500,000	36%

The tax-free threshold is LKR 1,800,000 per year (LKR 150,000 per month). For 2025/26, the 6% bracket was doubled from LKR 500,000 to LKR 1,000,000, providing relief to lower-income earners.

Statutory Leave Policies in Sri Lanka

Employers in Sri Lanka are required to provide the following types of leave:

• Vacation Leave: 14 days of paid leave per year after completing one year of service.
• Maternity Leave: 84 working days (for the first two children), reduced to 42 days for any additional children.
• Paternity Leave: Typically 3 days.
• Sick Leave: 7 days of paid sick leave per year.
• Adoption Leave: Parallel to maternity leave regulations.

Sri Lanka has 26 gazetted public holidays in 2026, including 12 Full Moon Poya Days. Key holidays include:

Holiday	2026 Date
New Year's Day	January 1
Duruthu Full Moon Poya Day	January 13
Tamil Thai Pongal Day	February 3
Independence Day	February 4
Navam Full Moon Poya Day	February 12
Medin Full Moon Poya Day	March 13
Id-Ul-Fitr (Ramazan Festival)	March 21
Good Friday	April 3
Bak Full Moon Poya Day	April 12
Day prior to Sinhala & Tamil New Year	April 13
Sinhala & Tamil New Year Day	April 14
May Day / Vesak Full Moon Poya Day	May 1
Day following Vesak Full Moon Poya	May 2
Id-Ul-Alha (Hajj Festival)	May 28
Christmas Day	December 25

Employee Benefits in Sri Lanka

Sri Lankan employers are required to offer the following social security and benefit programs:

• Provident Fund (EPF): Retirement benefits; employers contribute 12% and employees contribute 8% of salary.
• Trust Fund (ETF): Life insurance and other benefits; employers contribute 3%.
• Gratuity: Employees with more than 5 years of service are entitled to gratuity payments, typically half a month's salary for each year of service.
• Annual Bonuses: While not mandated, many employers provide annual bonuses as either a fixed amount or a percentage of the annual salary.

Employee Termination in Sri Lanka

Sri Lanka does not practice 'At Will Employment.' Termination of employment is regulated and employers must follow legal procedures.

The termination process involves providing a notice period of one month for general terminations. For dismissals related to misconduct or inefficiency, necessary documentation and evidence must be provided, and the employee must be given an opportunity for defense.

Termination benefits include gratuity payments and payment in lieu of notice if the notice period is not served. Employees or unions can challenge terminations through the Labour Tribunals. Legal dismissals can occur under circumstances of redundancy, incapacity, conduct issues, and mutual agreement.