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Employer costs, taxes, minimum wage and leave rules for hiring here, plus the faster route: hire a contractor with Ontop, no local entity needed.
2026
Currency
LKR Rs (Sri Lankan Rupee)
Employer contributions
12% EPF employer + 3% ETF employer
Minimum wage
LKR 21,000/month (2026)
Payment frequency
Monthly
April 1 - March 31 (fiscal year)
Capital
Colombo / Sri Jayawardenepura Kotte
Timezone
SLST (GMT+5:30)
Employee or contractor
If the work is project-based or you need to move fast, a contractor gets you the same talent with a fraction of the paperwork.
Employee
~LKR 96,000 total
/month
For a gross salary of
LKR 80,000 gross/month
Setup
Local entity or employer of record, plus tax and social security registration
Employer contributions
12% EPF employer + 3% ETF employer
Mandatory extras
Annual Bonus
Monthly admin
Monthly payroll - EPF/ETF by 15th - APIT withholding - annual November return
Contractor with Ontop
No local entity
$49
/contractor/month
The agreed rate, plus Ontop from $49 per contractor per month.
Sign a contract, yours or an Ontop template. No local registration on your side.
No employer contributions: the contractor handles their own taxes and social security.
One payment per invoice, in one payroll run.
Paid into their Ontop Global Account in USD.
See the full side-by-side comparison
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A contractor's rate usually covers their own taxes, so compare total cost, not just gross pay. Run your numbers in the contractor vs employee calculator.
Hiring here: the full breakdown
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Payroll guide
Employer costs come on top of gross pay. Use these figures to budget a hire and to compare it with a contractor rate.
Total monthly cost
~LKR 96,000 total
Example gross salary
LKR 80,000 gross/month
~LKR 53,600 net
Net pay to the employee
Tax and employee contributions
Withheld from gross pay
~LKR 16,000 employer EPF+ETF
Employer contributions on that salary
Employer contributions
12% EPF employer + 3% ETF employer
Employee contributions
8% EPF employee + income tax (APIT)
Total cost above gross
~20% above gross
Figures are estimates for planning. Rates change with each budget and can vary by sector, so confirm them before you make an offer.
What people earn here, from the legal floor to the main cities, plus the extra pay most employers budget for.
National average
~LKR 60,000
Per month
Colombo
LKR 80,000 - 250,000
~40%
Kandy
LKR 60,000 - 180,000
~10%
Monthly gross. National average salary per year:
~LKR 720,000
Minimum wage
LKR 21,000/month (2026)
Paid:
Monthly
Extra pay
Annual Bonus
Mandatory under APBC; 1 month minimum
December/January
Collective agreements can set sector minimums above the national one. Check whether one applies to the role before you set the salary. Next step: estimate the full cost of an employee.
Who collects what, how often, and what happens when a payment is late.
Income tax brackets
6% up to LKR 3M / 12% / 18% / 24% / 30% / 36%
Tax year:
April 1 - March 31 (fiscal year)
Filing calendar
Monthly EPF/ETF by 15th
Social security payments
November 30 (annual income tax return)
Income tax
By October 30
Employee tax certificate
APIT Certificate
November 30
Annual return
Annual Income Tax Return (IT Form)
Late payment penalties
Late EPF: 5% surcharge; late ETF: 3% surcharge; late APIT: 1.5% monthly
Who collects what
Inland Revenue Department
Income tax (APIT)
EPF Department
Employees Provident Fund
Labour Department
Labour law enforcement
The time off and paid leave every employee is entitled to by law. Budget for it when you compare an employee with a contractor.
Annual leave
Annual Leave
14 days/year
Public holidays
~25 public holidays
Sick leave
Sick Leave
7 days certified + employer discretion
Maternity leave
12 weeks (84 days) maternity
Full pay from employer
The contracts you can use, and what ending an employment relationship costs.
Permanent
Permanent Contract
Fixed term
Fixed-Term Contract
Independent contractor
Service Contract / Freelancer
Collective agreements
Collective Agreement
Ending employment
Gratuity
How it is calculated
0.5 month per year of service (after 5 years)
Calling someone a contractor does not make them one. If the role works like employment in practice, local authorities can reclassify it, with back contributions and penalties.
The errors that most often trigger back payments and penalties here, and what to do instead.
EPF Non-Registration of New Employees
Risk Level: HIGH
All Sri Lankan employees earning over LKR 21,000/month must be registered with EPF within one month of hiring. Many employers delay or omit registration for probationary employees. The Labour Department imposes retroactive contributions plus 5% surcharge.
Bonus Under-Payment (APBC Act)
Risk Level: MEDIUM
The Employees' (Liability) (Consequential Provisions) Act and the Annual Bonus Act require payment of minimum annual bonuses calculated on qualifying earnings. Excluding overtime or allowances from the bonus calculation base is a common oversight generating Department of Labour claims.
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FAQ
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Ontop works with contractors, not employees. As Contractor of Record, Ontop handles contracts, compliance documents and payments for contractors in 150+ countries. To employ someone, you need a local entity or an employer of record. Ontop doesn't act as your employer of record.
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Employers pay contributions on top of gross salary. The cost table on this page shows the rates that apply here and a worked monthly example. A contractor with Ontop costs the agreed rate plus Ontop from $49 per contractor per month.
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Many countries require an extra month or an annual bonus for employees. The salaries section on this page shows the one that applies here and when it is usually paid. Contractors are paid what you agree in the contract.
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Employers withhold income tax and the employee's social security share every pay run, then pay them to the local authorities. The taxes section on this page lists the brackets, rates and filing deadlines that apply here.
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Yes. The contractor vs employee calculator compares the full cost of an employee, employer contributions included, with a contractor rate plus Ontop's monthly fee.
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When the work is project-based, you need to start fast or you don't have a local entity. If the person will work fixed hours, under your direction and only for you, local law may treat them as an employee, so hire them as one.
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Misclassifying employees as contractors, missing tax and social security deadlines, and ignoring collective agreements that set higher wage floors. The mistakes section on this page covers the ones that come up most often here.
Compare employer costs, taxes and contractor rules in nearby countries:
Ready to hire? See Ontop pricing or learn how to build a global team without an employer of record.
Ready to hire? See Ontop pricing or learn how to build a global team without an employer of record.