EPF. ETF. APIT recut. Gratuity. Sri Lanka payroll, solved.
Sri Lanka’s payroll changed at the root on 1 April 2025. It demands a live EPF + ETF contribution engine on total earnings, APIT (PAYE) recomputed to the new relief and bands, gratuity accrual tracking, and in-country teams with direct authority relationships. Most providers deliver two of these. Mercans delivers all of them – on a single proprietary stack with no intermediaries.
native payroll
vs nearest peer
since inception
- Employee EPF
- 8% of total earnings
- Employer EPF
- 12% of total earnings
- Employer ETF
- 3% (employee 0%)
- Total EPF + ETF
- 23% of total earnings
- APIT (PAYE)
- 6%–36% progressive
- Tax-Free Relief
- LKR 150,000 / month
- APIT Band Recut
- Effective 1 Apr 2025
- Corporate Tax
- 30% standard
- Minimum Wage
- LKR 30,000 / month
- Working Week
- 45 hours (OT 1.5×)
- Annual Leave
- 14 days (from year 2)
- Gratuity
- ½ month / year (5+ yrs)
- APIT Deadline
- 15th of next month
- EPF / ETF Deadline
- Last working day next mo.
- Payment Channel
- Bank transfer · LKR only
Payroll compliance: the details that can’t be missed
Sri Lanka’s payroll rules were rewritten on 1 April 2025. The IRD reconciles APIT against the new relief and bands. The EPF and ETF Board assess contributions on total earnings, not basic-only. The Department of Labour enforces gratuity on long-service staff. Late EPF and ETF payments accrue a 1% per-month surcharge on different deadlines from APIT. None of these failures announce themselves – they accumulate silently until an assessment makes them very visible.
Stale APIT tables over-withholding
From 1 April 2025 monthly relief rose to LKR 150,000, the 12% band was removed, and the first band widened. Payroll run on the old 2024 tables over-withholds tax and triggers employee disputes plus IRD reconciliation queries.
EPF / ETF on basic-only, not total earnings
EPF (20%) and ETF (3%) are due on total monthly earnings – not basic salary alone. Contributing on basic-only understates remittances and triggers retroactive assessment by the EPF division and ETF Board with surcharges.
Gratuity accrual omitted for 5+ year staff
Under the Payment of Gratuity Act, firms with 15 or more workers owe half a month’s last salary per completed year to employees with 5+ years’ service. Failing to accrue this liability creates large unfunded exit settlements.
Late EPF / ETF 1% monthly surcharge
EPF and ETF must be remitted by the last working day of the following month – not the APIT 15th deadline. Each month late attracts a 1% surcharge on the unpaid amount, compounding silently across funds and pay periods.
The three types of providers who struggle with Sri Lanka
Global Aggregator Platforms
Platforms like Deel, Remote, and Rippling operate through a partner network in Sri Lanka — they don’t own the entity, don’t directly manage EPF and ETF filings, and don’t control the compliance relationship. When the IRD recuts APIT bands, the instruction travels: platform → partner → your payroll. Each handoff introduces delay and interpretation risk.
- ×No direct IRD / EPF relationship — third-party intermediary handles filings
- ×APIT relief and band recut (Apr 2025) often applied late by partners
- ×EPF / ETF computed on basic-only rather than total earnings
- ×Regulatory updates filtered through partner SLAs, not live
Large Global Payroll Incumbents
ADP, Ceridian, and similar incumbents have Sri Lanka coverage — in name. In practice, their coverage is often delivered through regional partners or legacy systems that weren’t built for Sri Lanka’s EPF + ETF total-earnings base, the 2025 APIT band recut, or gratuity accrual logic.
- ×APIT tables hardcoded — not dynamically updated to the 2025 recut
- ×EPF / ETF total-earnings base handled as basic-only by default
- ×No gratuity accrual engine for 5+ year service staff
- ×Long implementation timelines — Sri Lanka not a core market
Local Sri Lankan Firms
Local Sri Lankan accounting and audit firms know the market — but they can’t scale with you. No payroll technology platform, no HCM integration, no multi-country consolidation, and no data security certifications that multinationals require. Fine for 20 employees. Inadequate at 200.
- ×No proprietary payroll technology — manual spreadsheet-based processing
- ×No HCM connector — Workday, SAP, Oracle feeds require custom work
- ×No data security certifications (SOC 1/2, ISO 27701, BCR)
- ×No APAC consolidation — cannot report across Sri Lanka + other entities
The only provider that closes every gap
Mercans is the only Sri Lanka payroll provider that combines a proprietary payroll technology stack, full-time in-country compliance teams, direct authority relationships, and enterprise-grade data security – simultaneously, on one contract, with no intermediaries.
The only engine built for Sri Lanka’s actual payroll architecture
G2N Nova™ is the world’s only API-first gross-to-net payroll engine. It natively models Sri Lanka’s EPF 8% / 12% and ETF 3% on total earnings, APIT (PAYE) computation under the recut 1 April 2025 relief and bands, gratuity accrual for long-service staff, and overtime at 1.5×. This isn’t configuration. It’s engineering.
Full-time Sri Lanka team – not a partner you phone when things break
Mercans employs full-time payroll and compliance professionals in Sri Lanka. They maintain active relationships with the IRD, the EPF division at the Central Bank, and the ETF Board – not through a contact directory, but through ongoing regulatory engagement. When the IRD revises APIT, when the EPF updates remittance formats, when the Department of Labour issues guidance – we know before it reaches your inbox.
The security posture multinationals require – and Sri Lanka now mandates
Sri Lanka’s Personal Data Protection Act (PDPA) No. 9 of 2022 requires entities processing employee personal data to maintain documented privacy controls and lawful-processing frameworks. Mercans holds BCR approval, ISO 27701 certification, SOC 1 & 2 certifications, and ISO 27017/27018 – the only payroll provider in the region with this complete certification stack. Zero security breaches since inception.
Where Mercans wins on every Sri Lanka-specific capability
Each row is a Sri Lanka-specific capability. Each cell shows native coverage as a fill bar – full = native in-platform, half = partial / manual workaround, empty = gap.
Sri Lanka Capability Coverage · 10 dimensions
8% EE + 12% ER
LKR 150K · 6%–36%
½ month / year · 5+ yrs
APIT 15th · EPF/ETF month-end
Workday · SAP · Oracle
Every rate. Every cap. Every obligation.
Sri Lanka payroll operates on exact numbers with hard deadlines across the IRD, EPF, and ETF Board. Mercans builds every figure below into G2N Nova™ and monitors them proactively – so you’re never discovering a rate change from a penalty notice.
Sri Lanka · Rate & Compliance Dashboard
Live 2025–26EPF + ETF Apply to Total Earnings – Not Basic-Only
EPF (employee 8% + employer 12% = 20%) and ETF (employer 3%) are due on an employee’s total monthly earnings, not basic salary alone. Allowances and regular cash payments fall in the base. Contributing on basic-only understates remittances and invites retroactive assessment with surcharges.
→ Total-earnings base modelled natively in G2N Nova™APIT Was Recut on 1 April 2025
The Inland Revenue (Amendment) Act No. 2 of 2025 raised monthly tax-free relief to LKR 150,000, removed the 12% band, and widened the first band to 6%. Payroll computed on 2024 tables over-withholds. APIT applies to Sri Lanka-source employment income for both residents and expats.
→ Live APIT band recut on every Sri Lanka payroll runGratuity Accrues for 5+ Year Staff in Larger Firms
Under the Payment of Gratuity Act, employers with 15 or more workers owe half a month’s last drawn salary for each completed year of service to employees with 5 or more years. This is an accruing liability – not a figure to discover at exit. Continuous tracking prevents large unfunded settlements.
→ Gratuity accrual ledger maintained in HR Blizz™PDPA Compliance Is a Payroll Processor Obligation
Sri Lanka’s Personal Data Protection Act No. 9 of 2022 places obligations on entities that process employee personal data – including payroll providers. Non-compliant processors create direct liability for the employers they serve, requiring documented controls and lawful-processing frameworks.
→ BCR · ISO 27701 · PDPA agreements standardRun a Sri Lanka payroll. Right here, right now.
Switch worker type. Move the slider. Every number you see is the same calculation G2N Nova™ runs in production – EPF + ETF on total earnings, APIT (PAYE) on the recut bands, and true cost of employment exposed live.
Sri Lanka Payroll Sample · Live
G2N Nova™ engineEight things only Sri Lanka experts know to handle
These are the compliance details that don’t appear in standard payroll setup guides – but appear in every IRD reconciliation, EPF inspection, and Department of Labour case we’ve encountered in Sri Lanka over 15 years.
EPF Is 20% Combined on Total Earnings
EPF is employee 8% plus employer 12% – a combined 20% – calculated on total monthly earnings, not basic salary alone. Allowances and regular cash payments enter the base. Computing EPF on basic-only is the single most common Sri Lanka contribution error, and the EPF division assesses the shortfall retroactively.
ETF Is an Employer-Only 3% Charge
The Employees’ Trust Fund is funded entirely by the employer at 3% of total earnings – the employee contributes nothing. It is separate from EPF, paid to the ETF Board, and easy to omit because there is no employee deduction line to prompt it. Returns are also filed half-yearly, distinct from monthly EPF.
APIT Was Recut at 1 April 2025
The Inland Revenue (Amendment) Act No. 2 of 2025 lifted monthly tax-free relief to LKR 150,000, removed the 12% band, and widened the first band to 6%. Annual bands above relief run 6%, 18%, 24%, 30%, then 36%. Payroll still on 2024 tables over-withholds and triggers IRD reconciliation queries.
Gratuity Is Half a Month Per Year After 5 Years
The Payment of Gratuity Act applies to employers with 15 or more workers. Eligible employees with 5+ years’ service receive half a month’s last drawn salary for each completed year on exit. This is an accruing liability that must be tracked continuously, not calculated only at separation.
APIT and EPF/ETF Have Different Due Dates
APIT (PAYE) is remitted to the IRD by the 15th of the following month. EPF and ETF are due by the last working day of the following month. ETF returns are filed half-yearly (H1 by 31 August, H2 by 28 February). Treating all funds as a single deadline guarantees a late-payment surcharge somewhere.
45-Hour Week with Overtime at 1.5×
The standard working week is 45 hours. Overtime is paid at 1.5 times the normal rate. Sri Lanka also distinguishes shop-and-office workers from factory workers under separate ordinances, with different rest-day and overtime ceilings that must be tracked per worker category.
Statutory Leave Splits Annual and Casual Entitlements
Employees earn 14 days of annual leave from their second year of service, plus 7 days of casual leave. First-year annual leave accrues on a pro-rata basis tied to the month of joining. Unused statutory leave and its encashment rules feed directly into final settlement calculations.
Expats Are Taxed on Sri Lanka-Source Income
APIT applies to Sri Lanka-source employment income for expatriate staff, subject to treaty relief and secondment structuring. EPF and ETF generally apply to local employees; expat coverage depends on the engagement and any totalisation arrangements. Misreading this creates both over-withholding and contribution gaps.
One workforce. Two entirely different compliance tracks.
The foundational split in Sri Lanka payroll – local employees on full EPF, ETF, APIT, and gratuity coverage vs. expatriate and seconded workers on source-based and treaty-driven obligations – is not a configuration toggle. It requires parallel calculation engines, different filing obligations, and different terminal settlement frameworks. Mercans runs both simultaneously on every pay cycle.
Parallel Compliance Engines
EPF and ETF apply from Day 1 on total earnings. Employee 8% + employer 12% to EPF, plus employer 3% to ETF – all on total monthly earnings, not basic-only. Remitted by the last working day of the following month.
APIT (PAYE) computed monthly on the 2025 bands. Tax-free relief of LKR 150,000/month, then 6%, 18%, 24%, 30%, and 36% bands. Remitted to the IRD by the 15th of the following month, separate from EPF/ETF.
Gratuity accrues for long-service staff. In firms with 15+ workers, employees with 5+ years earn half a month’s last salary per completed year on exit – an accruing liability tracked continuously, not at separation.
Overtime, annual leave, and casual leave are statutory. 45-hour week with overtime at 1.5×, 14 annual-leave days from year two, and 7 casual-leave days – all feeding into payroll and final settlement.
APIT applies to Sri Lanka-source employment income. Expatriate staff are taxed on income attributable to Sri Lanka duties at the same 6%–36% bands, subject to double-tax treaty relief where applicable.
EPF and ETF eligibility depends on the engagement. EPF and ETF generally cover local employees. Expat coverage turns on the contract structure and any totalisation or secondment arrangement – not an automatic inclusion.
Treaty relief must be applied with documentation. Double-tax treaties can reduce or eliminate Sri Lanka withholding, but only with valid residency and beneficial-ownership evidence. Incorrect withholding creates employer liability.
Secondment structure drives the whole calculation. Whether the worker is locally employed, seconded, or paid offshore changes APIT, EPF/ETF, and permanent-establishment exposure. Payroll structure must mirror the legal arrangement.
Every obligation. Every authority. Mercans owns the calendar.
Sri Lanka compliance runs across the IRD, the EPF division, the ETF Board, and the Department of Labour on monthly, half-yearly, and annual cadences. Mercans’ managed payroll absorbs every filing as standard scope – you don’t track deadlines. We do.
APIT (PAYE) Remittance
Advance Personal Income Tax deducted from employee earnings and remitted to the IRD by the 15th of the following month. Computed on the 2025 relief of LKR 150,000/month and the 6%–36% bands. Late remittance attracts interest and penalty.
EPF Contribution
Employee 8% + employer 12% of total earnings remitted to the EPF division by the last working day of the following month. Contributing on basic-only understates the remittance and triggers retroactive assessment with a 1% per-month surcharge.
ETF Contribution
Employer-only 3% of total earnings remitted to the ETF Board by the last working day of the following month. The employee contributes nothing, so the line is easy to omit. Late payment carries a 1% per-month surcharge.
ETF Half-Yearly Return
ETF returns are filed half-yearly – H1 by 31 August and H2 by 28 February – reconciling member contributions to the ETF Board. Discrepancies against monthly remittances trigger assessment and member-account corrections.
Corporate Income Tax Return
Annual CIT return filed with the IRD by 30 November. Standard rate 30%, with 15% concessionary treatment for qualifying service exports and IT-BPO, and 45% for betting/gaming and liquor/tobacco. Payroll cost data feeds the computation.
Gratuity & Final Settlement
Terminal settlement applying gratuity at half a month’s last salary per completed year for 5+ year staff in firms of 15 or more workers, plus leave encashment and notice adjustment. Must reflect accrued, not freshly calculated, liability.
Gratuity Accrual Tracking
Continuous accrual of the gratuity liability per eligible employee, updated each pay cycle on last drawn salary and completed years of service. Required so exit settlements are funded and provisioned, not discovered at separation.
Overtime & Leave Tracking
Running calculation of overtime at 1.5× against the 45-hour week, plus 14 annual-leave and 7 casual-leave days per worker. Category rules differ between shop-and-office and factory staff. Feeds payroll and final settlement.
Sri Lanka is one market.
Mercans covers the entire region.
For companies running payroll across multiple Asian markets, complexity multiplies – not adds. Each country runs its own labour authority, social insurance body, and tax regime. Mercans covers all major South Asia and APAC markets on a single platform with country-specific compliance engines running in parallel.
covered
1 contract
consolidation
South Asia / APAC
Every filing. Every format. Submission-ready.
Mercans generates the exact file types that the IRD, EPF division, ETF Board, and Department of Labour expect to receive — not formatted summaries that need reformatting before you can submit them.
