Payroll

A Sri Lankan payroll run is the same five steps every month: work out gross pay, apply the statutory contributions, deduct tax and anything else owed, pay the employee, then pay the authorities. The detail is in what counts towards each contribution, and in the deadlines.

Build up gross pay#

Gross pay is the basic wage plus whatever the employee earned that month:

• Basic salary, or wages for the days and hours worked
• Allowances — budgetary relief, cost of living, attendance, travel, meal or any allowance your company pays
• Overtime, at the rate the employee's act or wages board sets
• Variable pay — commissions, incentives, bonuses

Not every line counts towards every contribution. Some allowances are part of the EPF base and some are not, so decide once, per allowance, whether it is liable for EPF, ETF and tax, and let payroll apply that consistently rather than re-deciding each month.

EPF and ETF#

Two statutory funds apply to almost every private-sector employee.

So an employee on a 100,000 LKR EPF base has 8,000 deducted, while the company adds 12,000 to EPF and 3,000 to ETF — a statutory cost of 15% above the wage itself.

Both are calculated on total earnings for the month, not on basic salary alone, and both are remitted with a monthly return that lists every member and their contribution. EPF is filed with the Central Bank's EPF Department through the Department of Labour, ETF with the ETF Board.

APIT (PAYE)#

Tax on employment income is deducted at source under the Advance Personal Income Tax rules and remitted to the Inland Revenue Department. In practice you need:

• The employee's TIN, and confirmation of whether they consent to APIT deduction
• The current tax tables and relief threshold for the year of assessment
• Correct treatment of one-off payments — bonuses and arrears are taxed under their own table rather than as ordinary monthly pay

Rates and thresholds move with each budget, so confirm the tables in force before the first run of a new year of assessment rather than carrying last year's forward.

Deductions and net pay#

After statutory items, the usual deductions are:

• No-pay for unapproved absence, calculated on the divisor your act or policy sets
• Salary advances recovered from the month's pay
• Loan instalments, insurance or welfare fund contributions the employee has agreed to
• Anything else you are legally required to withhold

Deductions from wages should be authorised — by law, by the contract or in writing by the employee. Whether an item is taken before or after tax, and whether it reduces the EPF base, has to be settled per deduction.

Payslips and payment#

Employees are entitled to know how their pay was worked out. A payslip should show the period, gross pay broken into its components, each deduction, the EPF employee share, tax deducted and the net amount paid. Employer EPF and ETF are worth showing too — it is 15% of value the employee never sees on their bank statement.

Salaries are normally paid by bank transfer, using a file uploaded to your bank's corporate portal. Each bank has its own layout, so confirm the current template with your bank before relying on a generated file.

The monthly calendar#

A typical month looks like this:

1. Close attendance and approve overtime, leave and no-pay
2. Enter one-off items — allowances, incentives, advances, arrears
3. Run payroll and review the register against last month
4. Pay employees and issue payslips
5. Remit EPF, ETF and APIT with their returns, by the statutory deadline in the following month
6. File the annual returns and issue employee tax certificates after year end

Late statutory payments attract surcharges that rise the longer they are outstanding, so the remittance deadline matters as much as the pay day.

Weave calculates EPF, ETF and APIT on every run, produces payslips for the employee app, and generates the statutory returns and bank transfer files from the same numbers — so the register, the payslips and the returns can never disagree.