Hiring in Sri Lanka

The terms set out role, salary in LKR, working hours, leave, probation, notice and any restrictive covenants. The EOR is the counterparty to the employee, which is what removes the need for your own entity.

English is the standard contract language for commercial roles.

Fixed-term contracts are permitted, but continuous renewal without a break creates a presumption of permanent employment, so most EORs default to indefinite terms.

Set probation from day one. Probation is the only window in which an exit is straightforward. Assess properly and confirm any extension in writing before the first six months end.

Some EORs apply their own standard probation terms because they, not you, carry the dismissal risk. Ask before you agree a start date.

Overtime is paid at 1.5 times the normal hourly rate and capped at 12 hours a week. Work on weekly holidays and Poya days attracts the same premium.

Most professional hires are treated as executive grade, which is a market convention rather than a statutory exemption. Put the position in writing either way.

Many employers of professional staff grant leave from the start rather than wait for the statutory accrual, so check what the EOR's standard contract offers and budget on that.

There is no statutory paid sick leave, so casual leave covers illness unless the contract adds medical leave. Maternity leave is 84 working days on full pay, funded by the employer, and there is no statutory paternity leave.

Contracts usually allow notice or pay in lieu, but that alone does not make a dismissal lawful. Outside resignation or misconduct, termination needs the employee's consent or the Commissioner of Labour's prior written approval, with compensation set by gazetted formula at up to 2.5 months' salary per year of service, capped at LKR 2.5 million.

The 15-worker threshold that triggers these rules is measured on the EOR's headcount, not yours, so assume it applies. The EOR runs the process as the legal employer and will want the paperwork in order, including final pay, gratuity where due and any contractual severance. Labour tribunals take a pro-employee, just and equitable approach and put the onus on the employer, so keep a documented reason and hold a proper disciplinary inquiry.

Private medical insurance and group life are standard for professional roles even though they are not mandatory.

EORs often bundle benefits through a group scheme. Ask what is included in the fee and what is billed on top.

Employer contributions add 15% on top of gross salary: 12% EPF and 3% ETF, charged on total earnings with no ceiling. That is before the EOR fee.

Gratuity is the trap. Once an employee completes five years' service with an employer of 15 or more workers, half a month's final salary is owed for every year served, so accrue for it from the start.

Ask whether the EOR sponsors directly or refers to a partner. A partner-model EOR often cannot sponsor at all, and the recommendation route depends on how the sponsoring entity is registered, not on you.

The hire enters on an entry visa for employment, converts it to a residence visa after arrival and renews it each year. Set start dates after approval, not before.

Get the data processing terms in the service agreement, not just the privacy notice. The Act sets contract requirements between controllers and processors and regulates cross-border transfers.

Ask where payroll data is hosted and who in the partner chain can see it.

Incorporation here is straightforward, but the running cost is the point: a resident company secretary, a registered office, a statutory audit, foreign investment paperwork and payroll registrations set an annual floor. An entity of your own with fewer than 15 workers also sits outside the termination approval regime, which an EOR's workforce rarely does.

Permanent establishment risk is about what people do, not where payroll sits. Revenue-generating activity can create exposure regardless of the employment route.