How to Run Payroll in Sri Lanka: 2026 Employer Guide

Sri Lankan payroll rests on four pillars: the Employees’ Provident Fund (EPF), the Employees’ Trust Fund (ETF), Advance Personal Income Tax (APIT) and gratuity. Each has its own rate, base and deadline. Get them right every month, and year-end becomes significantly easier.

Here is the cycle, step by step.

Step 1: Register as an employer

Register with the EPF Department of the Central Bank of Sri Lanka, the Employees’ Trust Fund Board and the Inland Revenue Department before the first payroll. Each new employee then needs an EPF member number and the details required for APIT.

Step 2: Calculate gross earnings and check the minimum wage

Gross earnings include basic salary and the allowances that form part of total earnings. From 1 January 2026, the national minimum wage is LKR 30,000 a month, or LKR 1,200 a day. Check every employee’s pay against that floor, as well as any higher rate set by a sector wages board.

Step 3: Apply EPF and ETF

Contribution	Employee	Employer
Employees’ Provident Fund	8%	12%
Employees’ Trust Fund	–	3%

Both are calculated on total earnings. The employer deducts the employee’s 8% and adds its own 12% for EPF, plus 3% for ETF. Payment is generally due by the end of the following month.

Step 4: Calculate APIT

APIT is the employer’s monthly deduction of income tax from employment income, using the Inland Revenue Department’s tax tables. Since 1 April 2025, the personal relief has been LKR 1,800,000 a year, or LKR 150,000 a month. Based on published guidance available as at October 2026, no change has been announced for the 2026/2027 year of assessment.

Monthly taxable income above LKR 150,000	Rate
First LKR 83,333	6%
Next LKR 41,667	18%
Next LKR 41,667	24%
Next LKR 41,667	30%
Balance	36%

The bands are marginal: each rate applies only to the slice of income inside it. Use the table that matches the employee: primary employment, secondary employment or non-resident.

Step 5: Pay and issue payslips

Pay net salary and issue payslips that show gross pay, EPF, APIT and any other deductions. Clear payslips reduce queries and support employees’ own records.

Step 6: Remit and report

Remit APIT to the Inland Revenue Department and EPF and ETF contributions to their respective bodies by the statutory dates, with the supporting returns. Build a monthly calendar so every remittance has a named owner and a check before submission.

Step 7: Provide for gratuity

Under the Payment of Gratuity Act, No. 12 of 1983, an employer that employs, or has employed, 15 or more workmen on any day in the 12 months before a termination must pay gratuity to a workman with at least five completed years of service. For monthly-paid staff, the established rate is half a month’s salary for each completed year of service. Different calculation methods may apply to certain categories of workers.

Gratuity must be paid within 30 days of termination, whether the employee resigns, retires, is dismissed or dies in service. Late payment attracts surcharges under the Act. Provision for it monthly rather than discovering the liability at exit.

Step 8: Close the year

At the end of the year of assessment, on 31 March, reconcile APIT deductions to payroll, issue employee tax certificates, and complete the annual EPF and ETF reconciliations. Monthly reconciliations make this a check rather than a reconstruction.

Common mistakes

• Calculating EPF on basic salary only, when allowances form part of total earnings.

• Applying the old LKR 100,000 relief or the old 12% band after April 2025.

• Using the primary employment table for a secondary employer.

• Missing gratuity eligibility because service dates are wrong.

• Paying below LKR 30,000 after January 2026.

Where systems help

MiHCM Enterprise applies current EPF, ETF and APIT rules in every payroll run, keeps service dates and salary history for gratuity, and produces the returns HR teams need.

Frequently Asked Questions

What are the EPF and ETF rates in Sri Lanka?

Employees contribute 8% of total earnings to EPF and employers contribute 12%. Employers also pay 3% to the Employees’ Trust Fund.

What is the APIT tax-free threshold in Sri Lanka?

LKR 150,000 a month, or LKR 1,800,000 a year, since 1 April 2025. Income above that is taxed at 6%, 18%, 24%, 30% and 36%.

What is the minimum wage in Sri Lanka in 2026?

LKR 30,000 a month, or LKR 1,200 a day, from 1 January 2026.

Who is entitled to gratuity in Sri Lanka?

Workmen with at least five completed years of service under an employer that employs, or has employed, 15 or more workmen in the 12 months before termination. Gratuity must be paid within 30 days.

How much is gratuity in Sri Lanka?

For monthly-paid staff, half a month’s salary for each completed year of service. Different calculation methods may apply to certain categories of workers.