Payroll Journal Entries for Sri Lankan Employers
How to post payroll to the books in Sri Lanka: one payroll cost debit, EPF, ETF and APIT payable credits, and the net pay entry, with a worked example.
On this page
- The accounts you need before you start
- Worked entry for a single employee on LKR 100,000
- Employer EPF 12% and ETF 3% are an expense, not a deduction
- The journal entry at the pay run
- APIT: a liability until remitted
- Clearing the liability accounts when you pay in the following month
- Releasing net pay to staff
- Reconciling the journal to the payroll summary and the bank file
- Common errors: netting employer and employee EPF, posting gratuity as cash
- Frequently asked questions
- Do I need a separate journal entry for gratuity?
- Is the employer's EPF and ETF contribution part of the payroll cost debit?
- What if APIT applies to an employee?
- How do I check the journal is right?
- Can I combine several employees into one journal entry?
One payroll run gives you one payroll cost debit and up to four liability credits. A second entry credits the bank when you pay net wages. A further set of entries clears each liability when you remit it the following month. Below is the full working, with a worked example.
The accounts you need before you start
Set these up in your chart of accounts, using names that fit your own system:
- Payroll cost (an expense account for gross wages plus the employer’s EPF and ETF)
- EPF payable (a liability, meaning money the business owes, for both the employee’s 8% and the employer’s 12%)
- ETF payable (a liability, for the employer’s 3%)
- APIT payable (a liability, for tax withheld from staff pay)
- Net pay payable (a liability, for wages owed to staff until paid out)
EPF, ETF and APIT payable each clear out to Bank when you remit them. Net pay payable clears out to Bank when staff are paid. For the five statutory payments behind these figures, see five main statutory payroll payments in Sri Lanka.
Worked entry for a single employee on LKR 100,000
Take one employee on a monthly gross salary of LKR 100,000, with no other allowances.
| Item | Rate | Amount (LKR) |
|---|---|---|
| EPF, employee’s share (withheld from pay) | 8% | 8,000 |
| EPF, employer’s share (a cost, not withheld) | 12% | 12,000 |
| ETF, employer’s share (a cost, not withheld) | 3% | 3,000 |
| APIT withheld | below the LKR 150,000 monthly relief | 0 |
| Net pay | gross less employee EPF and APIT | 92,000 |
Nothing is withheld for APIT here because LKR 100,000 is under the monthly relief-free threshold. On a higher salary, APIT would be withheld too, and posted the same way as EPF and ETF payable below. If a figure turns out wrong after payslips go out, see how to fix a payroll error after payslips have been issued.
Employer EPF 12% and ETF 3% are an expense, not a deduction
Only the employee’s 8% EPF comes out of their pay. The employer’s 12% EPF and 3% ETF are on top of the salary. They are a cost to the business, not money taken from the employee. Mixing the two up, by netting employee and employer EPF into one figure, understates what the business actually pays for that employee.
The journal entry at the pay run
Post the whole pay run as one entry:
| Debit (LKR) | Credit (LKR) | |
|---|---|---|
| Payroll cost (100,000 gross + 12,000 employer EPF + 3,000 employer ETF) | 115,000 | |
| EPF payable (8,000 employee + 12,000 employer) | 20,000 | |
| ETF payable (employer 3%) | 3,000 | |
| APIT payable | 0 | |
| Net pay payable | 92,000 |
Debits and credits both total LKR 115,000.
APIT: a liability until remitted
Where APIT is withheld, it sits in APIT payable until you send it to the Inland Revenue Department. Treat it exactly like EPF and ETF payable: a credit when you run payroll, a debit when you pay it out. Your accounting software does not work out the APIT figure for you. See whether QuickBooks or Xero handles Sri Lankan payroll.
Clearing the liability accounts when you pay in the following month
Pay EPF before the last working day of the month after the pay month. ETF is due on or before that day. APIT is due within 15 days after the month it relates to. When you pay each one:
- Debit EPF payable 20,000, credit Bank 20,000.
- Debit ETF payable 3,000, credit Bank 3,000.
- Debit APIT payable for whatever was withheld, credit Bank for the same amount.
Releasing net pay to staff
When you pay wages into staff bank accounts:
- Debit Net pay payable 92,000.
- Credit Bank 92,000.
Reconciling the journal to the payroll summary and the bank file
Before you close the month, check three things match. Match the payroll summary’s gross pay and deductions, the journal you posted, and the actual bank file sent to staff, EPF, ETF and the Inland Revenue Department. A mismatch usually means a late joiner, a leaver, or a manual adjustment made in one place and not the other.
Common errors: netting employer and employee EPF, posting gratuity as cash
Two mistakes come up often. First, netting the employee’s 8% and the employer’s 12% into a single “EPF expense” line. This hides the true cost of the employee and can misstate what you owe EPF. Second, posting a gratuity payout straight to expense in the month someone leaves, with nothing set aside before then. This understates profit in the years the liability was actually earned. Gratuity needs its own monthly provision, an amount set aside for a cost you know is coming, worked out separately from this journal. See Gratuity Provision: How to Accrue It Every Month for that method and its own journal entries.
Do this automatically in Humanised. Payroll software for accountants works out EPF, ETF and APIT as separate figures every pay run. It then posts the salary journal into QuickBooks Online, Xero or Zoho Books. 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
Do I need a separate journal entry for gratuity?
Yes. Gratuity is a separate monthly provision under its own accounting rule, not part of the EPF, ETF and APIT journal above.
Is the employer’s EPF and ETF contribution part of the payroll cost debit?
Yes. Both are a cost of employing the person, posted as part of the gross payroll cost debit, then credited to their own payable accounts.
What if APIT applies to an employee?
Add it as a fourth credit line, APIT payable, for the amount withheld from that employee’s pay. Clear it the same way as EPF and ETF payable when you remit it.
How do I check the journal is right?
Debits and credits must total the same figure. Also match the journal to the payroll summary and the actual bank payment file for the month.
Can I combine several employees into one journal entry?
Yes. One entry for the whole pay run is the usual approach. Each employee’s figures roll into the totals for payroll cost, EPF payable, ETF payable, APIT payable and net pay payable.
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