What an Employee Really Costs in Sri Lanka
A Sri Lankan employee costs about 15% more than salary in EPF and ETF alone, plus gratuity accrual. The worked example, and what else to budget for.
On this page
- Employer EPF 12% and ETF 3%
- The gratuity accrual an SME budget often leaves out
- Paid leave, Poya days and holidays as a cost of hours
- Optional costs: insurance, meals, transport, training
- Worked example: LKR 75,000 basic, full employer cost
- How to build a hiring budget from this number
- Frequently asked questions
- Does a probationer cost the same on-costs as a confirmed employee?
- What about part-time or casual staff?
- Do contractors carry the same on-costs?
- Why include gratuity in a hiring budget if it is only paid after 5 years?
Roughly 15% on top of earnings in statutory contributions alone: 12% EPF and 3% ETF. Add gratuity accrual, and paid leave you already cover, and the real figure runs higher. This is what to put in a hiring budget.
Employer EPF 12% and ETF 3%
Every month, on top of what you pay an employee, you owe 12% of their total monthly earnings to the EPF and 3% to the ETF. Neither comes out of the employee’s pay. Both are pure employer cost. Together they add 15% to those earnings. This applies from the first month of employment, including for staff on probation.
The gratuity accrual an SME budget often leaves out
Both of these must be true: you had 15 or more workmen on any day in the 12 months before the employee left, and the employee has 5 years of continuous service. Then they are entitled to gratuity: half a month’s wage or salary, at the rate last drawn, for each completed year of service. This applies to a monthly-rated employee. Many small businesses only think about this bill when someone actually leaves. Good accounting practice says the cost is earned every month the employee works, long before year 5. A simple monthly accrual is the person’s current monthly salary, divided by 24. See Gratuity Provision: How to Accrue It Every Month for the full method.
Paid leave, Poya days and holidays as a cost of hours
Annual leave, casual leave, maternity leave and public holidays are all paid days when no work happens. None of them add a new rupee figure to the payslip. They still raise the true cost of an hour of work. You pay the same monthly salary for fewer working hours than a plain calendar suggests.
Optional costs: insurance, meals, transport, training
Beyond the statutory minimum, many employers add health insurance, meals or a meal allowance, transport, and training. None of these are required by law. Each employer sets its own policy. Add whatever you actually offer to the statutory figure below to get your real cost per employee.
Worked example: LKR 75,000 basic, full employer cost
| Item | Calculation | Amount (LKR) |
|---|---|---|
| Basic salary, with no other allowances | — | 75,000 |
| Employer EPF (12%) | 75,000 × 12% | 9,000 |
| Employer ETF (3%) | 75,000 × 3% | 2,250 |
| Gratuity accrual (monthly) | 75,000 ÷ 24 | 3,125 |
| Total monthly cost | 89,375 |
That is about 19% more than the basic salary, before any optional costs like insurance or transport. For the statutory payments behind these figures, see five main statutory payroll payments in Sri Lanka.
How to build a hiring budget from this number
- Start with the basic salary you plan to offer.
- Add 15% of the employee’s earnings for employer EPF and ETF.
- Add the salary divided by 24 for gratuity accrual.
- Add any optional benefits you offer as policy.
- That total, not the basic salary, is what the role actually costs each month.
Once payroll runs each month, post these figures the same way as any other payroll cost. See Payroll Journal Entries for Sri Lankan Employers for the double entry.
Do this automatically in Humanised. Payroll software in Sri Lanka calculates employer EPF and ETF for every employee, every month. That is the employer cost on top of each salary. The free 7-day assisted trial is set up by the Humanised team on your own data.
This is general payroll guidance. Every case is different. For your own case, speak to a payroll practitioner or a lawyer.
Frequently asked questions
Does a probationer cost the same on-costs as a confirmed employee?
Yes. EPF and ETF are worked out on total monthly earnings from the first month of paid work. There is no waiting period before contributions start.
What about part-time or casual staff?
EPF and ETF apply to whatever they actually earn. Gratuity still needs 5 years of continuous service and an employer with 15 or more workmen on any day in the 12 months before they left. It is the same test as for full-time staff.
Do contractors carry the same on-costs?
No, genuine independent contractors are not employees, so EPF, ETF and gratuity do not apply. See Contractor or Employee? EPF, ETF and Gratuity for how to tell the difference.
Why include gratuity in a hiring budget if it is only paid after 5 years?
Because the liability builds up from year one. Leaving it out understates what a long-serving employee actually costs, even years before payment is due. See payroll and work-life balance for the non-cost side of steady payroll.
Was this article helpful?
Your feedback helps us improve these guides.