Travel, Fuel and Per-Diem Policy for SL Employers
Set a per-diem for meals, paid as an allowance. Reimburse travel and lodging on receipts, tax and EPF free. See the rule, table and a worked example.
On this page
- Why a per-diem is simpler than receipts for small amounts
- Deciding your rates: what to benchmark against
- Fuel: rate per kilometre or a monthly allowance
- The tax and EPF result of each choice
- Approval and advance rules before the trip
- A one-page travel policy outline
- Frequently asked questions
- Is a travel allowance taxable in Sri Lanka?
- Is a per-diem the same as an allowance for tax purposes?
- Do I need a different rate for overseas travel?
- What if a client is billing us back for the employee's travel?
- Do field staff who travel every day need a per-diem?
- Does a company car or fuel card change the treatment?
Set a fixed per-diem for meals and small daily costs on a trip. Pay it as an allowance. Reimburse actual travel, fuel and lodging against receipts. That part is not pay. This is one of several allowance types applicable to small business payroll; here is the rule for travel, fuel and per-diems.
Why a per-diem is simpler than receipts for small amounts
Small costs on a trip, like meals and short taxi rides, are hard to receipt one by one. A flat daily per-diem covers them in one number, set before the trip. Big costs, like flights, hotels and fuel, still need a real receipt. Keep the two apart. Mixing a per-diem and receipted costs into one lump sum blurs which part is pay.
Deciding your rates: what to benchmark against
No source sets a per-diem amount or a fuel rate in law. You choose the figure. One way to set it: check what meals, transport and a room actually cost in the town the staff member is visiting.
Write the rate in your policy. Review it if travel costs move.
Fuel: rate per kilometre or a monthly allowance
Two ways to pay for fuel:
- Rate per kilometre. The employee logs the distance driven for business. You pay a rate per kilometre, tied to logged trips. Whether this counts as a reimbursement is not settled. Ask the EPF Department for your case.
- Monthly fuel allowance. A fixed sum every month, paid whether or not the employee drives that much. This is pay, not a reimbursement. See allowance or reimbursement, and which attracts EPF. The minimum wage and basic salary guide lists a fixed transport or fuel allowance as taxable, unless it is a reimbursement.
No source sets either rate. The tax and EPF result depends on how you structure the payment, not on the amount you choose.
The tax and EPF result of each choice
| Structure | EPF, ETF | Tax (APIT) |
|---|---|---|
| Fixed monthly travel or fuel allowance | Usually yes | Usually yes |
| Fixed daily per-diem, no receipts needed | Usually yes | Usually yes |
| Reimbursement of actual travel and lodging on receipts | No | No |
Source: Inland Revenue Act No. 24 of 2017, s.5(2)(b), s.5(2)(c) and s.5(3)(b) (ird.gov.lk); EPF Act No. 15 of 1958, s.47; checked 20 September 2026.
The Inland Revenue Act’s general rule, Section 5(2)(c), includes in employment income any “discharge or reimbursement of expenses incurred by the individual”. Section 5(2)(b) also includes “any cost of living, subsistence, rent, entertainment or travel allowance” by name. Section 5(3)(b) then excludes one kind of payment from that general rule: “a discharge or reimbursement of expenses incurred by the individual on behalf of the employer.”
A receipted reimbursement, for a cost the employee paid on the employer’s behalf, fits that exclusion. A fixed per-diem does not. It is not matched to what the employee actually spent.
Worked example. These figures are examples only, not a rate Humanised recommends or a rate set by law. Example: an employee gets a fixed per-diem of LKR 5,000 a day for a 3-day trip, no receipts asked: LKR 15,000. That amount joins gross pay for the month, and EPF, ETF and APIT are worked out on it. Example: the same employee instead claims LKR 11,400 in receipted meals, taxis and a hotel room for the same trip. That LKR 11,400 sits outside gross pay. No EPF, ETF or APIT applies to it.
Approval and advance rules before the trip
- Employee requests the trip, with the dates and the estimated cost.
- Manager approves the trip, the per-diem days and the travel method.
- Any cash advance is settled against real receipts once the employee is back.
- An unreceipted balance the employee keeps is pay, not a reimbursement. See whether expense reimbursements are taxable in Sri Lanka.
- The claim needs the fields set out in what an employee expense claim form should contain. These are: claimant, date of expense, date submitted, business purpose, category, amount, receipt or invoice, approver name and signature, and payment method.
A one-page travel policy outline
Put these on one page:
- Who can travel, and who approves it.
- The per-diem rate, and what it covers: meals and incidentals.
- What needs a receipt: flights, hotels, fuel and any taxi over a set amount.
- The fuel structure for this trip: a per-kilometre rate or a fixed allowance, not both.
- How to request and settle a cash advance.
- Where the payment lands: payroll or petty cash.
Do this automatically in Humanised. Expense management software keeps receipted claims on their own line, with no EPF, ETF or APIT added. Support is there 9am to 5pm.
This is general payroll guidance. Every case is different. For your own case, speak to a payroll practitioner or a lawyer.
Frequently asked questions
Is a travel allowance taxable in Sri Lanka?
A flat travel allowance, paid whether or not the employee travels that much, is taxable and usually attracts EPF and ETF. A receipted reimbursement of the actual cost is not.
Is a per-diem the same as an allowance for tax purposes?
Yes. A fixed daily per-diem, not matched to receipts, is a personal allowance under the Inland Revenue Act’s own words. It is taxed, and usually EPF and ETF-liable, the same as any other allowance.
Do I need a different rate for overseas travel?
You can set one. No law requires it, and no law sets either rate.
What if a client is billing us back for the employee’s travel?
Treat it as a normal claim on your side, with a receipt. Its tax and EPF treatment does not change because a client later reimburses your business.
Do field staff who travel every day need a per-diem?
A per-diem suits occasional or overnight travel. For frequent local travel, a mileage rate or a fixed transport allowance may fit better.
Does a company car or fuel card change the treatment?
A company car or fuel card is a benefit in kind, valued under the IRD’s own rules for tax. Whether it also attracts EPF and ETF is not settled. Ask the EPF Department for your case.
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