Running payroll in Sri Lanka involves more than calculating an employee’s basic salary. Employers must correctly calculate earnings, EPF, ETF and APIT, maintain payroll records and meet the required payment deadlines.
Minimum Wage in Sri Lanka for 2026
From 1 January 2026, the national minimum wage is:
| Wage type | Minimum amount |
|---|---|
| Monthly wage | Rs. 30,000 |
| Daily wage | Rs. 1,200 |
Employers must also check whether a higher minimum wage applies under a relevant Wages Board decision, collective agreement or employment contract.
EPF and ETF Contributions
The standard contribution rates are:
| Contribution | Rate | Paid by |
| Employee EPF | 8% | Deducted from employee earnings |
| Employer EPF | 12% | Employer |
| Employer ETF | 3% | Employer |
The employer therefore contributes 15% of the employee’s applicable contribution base. However, this is not necessarily 15% of the employee’s entire gross pay.
For EPF purposes, total monthly earnings generally include:
- salary, wages or fees;
- cost-of-living and similar allowances;
- holiday pay;
- food allowances and the cash value of food supplied;
- commissions, piece-rate payments and contract-based payments.
Overtime, reimbursable travelling expenses, incentive payments and bonuses are excluded from the EPF contribution calculation. ETF is calculated at 3% of the employee’s total monthly earnings under the ETF rules.
Most private-sector employees are covered, including permanent, temporary, casual, contract, piece-rate and trainee workers. However, statutory exemptions exist, so the rule should not be described as applying to every employee without exception.
EPF and ETF Payment Deadline
Monthly EPF and ETF contributions must reach the relevant authority by the last working day of the following month.
For example, contributions relating to January payroll must be paid by the last working day of February.
Late-payment surcharges are:
| Delay | Surcharge |
| Up to 10 days | 5% |
| 11 days to one month | 15% |
| One to three months | 20% |
| Three to six months | 30% |
| Six to twelve months | 40% |
| More than twelve months | 50% |
These are fixed surcharge brackets. They should not be described as monthly compounding charges.
APIT on Employment Income
Employers must deduct Advance Personal Income Tax from employees who are liable for tax and remit the amount to the Inland Revenue Department by the 15th day of the following month.
For the year of assessment beginning 1 April 2025:
- personal relief is Rs. 1,800,000 per year;
- the equivalent monthly threshold is Rs. 150,000;
- taxable income bands are charged at 6%, 18%, 24%, 30% and 36%.
The Rs. 1,800,000 personal relief is available to resident individuals and non-resident individuals who are Sri Lankan citizens. Non-resident employees who are not Sri Lankan citizens are taxed under a separate APIT table without this personal relief.
Is Employee EPF Deductible for APIT?
No. The employee’s 8% EPF contribution should not be deducted before applying the APIT table.
The personal relief has already been incorporated into the APIT tables, and the IRD instructs employers to apply the tables without deducting any amount from employment profits.
Employers should also issue the applicable annual APIT/T-10 certificate showing employment income and tax deductions.
Calculating Gross and Net Pay
Employers should calculate each component separately:
Total cash earnings
Basic salary + allowances + overtime + holiday pay + bonuses and other applicable payments
EPF contribution base
Only the earnings included under EPF rules
APIT remuneration
Employment income and benefits included under the IRD’s APIT rules
Net pay
Total cash earnings − employee EPF − APIT − other authorised deductions
Overtime may be subject to the Shop and Office Employees Act, a Wages Board decision, a collective agreement or the employment contract. A single salary divisor such as 200 or 240 should not be presented as universally applicable to every employee.
Annual and Casual Leave
The following entitlements apply to employees covered by the Shop and Office Employees Act.
First-year annual leave depends on when employment commenced:
| Employment commenced | Annual leave entitlement |
| January to March | 14 days |
| April to June | 10 days |
| July to September | 7 days |
| October to December | 4 days |
For the second and subsequent years, the employee is entitled to 14 days of annual leave, with at least seven days taken consecutively.
Casual leave is limited to seven days per year. During the first year of employment, it accrues one day for every two completed months of service rather than automatically providing all seven days from the first day of employment.
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Current as of July 2026. Based on current guidance from the Inland Revenue Department, Department of Labour, Employees’ Provident Fund and Employees’ Trust Fund Board. Requirements may vary depending on the employee category, industry and applicable Wages Board. This article provides general information and does not constitute tax or legal advice.