What Does a Hire Really Cost?

Gross pay is not what a hire costs

Most founders budget a new hire at the salary in the offer letter. The real cost is higher. On top of gross pay, every employer in Sri Lanka pays EPF and ETF, and should set money aside for gratuity. Together these typically add 15% to 19% to the salary.

Your employee also takes home less than their gross pay, because their own EPF contribution and APIT (income tax on salary) are deducted before they are paid. The calculator above shows both sides.

EPF: 8% from the employee, 12% from you

The Employees' Provident Fund is a retirement fund. The employee contributes 8% of their total earnings, deducted from their pay, and the employer adds 12% on top. Total earnings means the basic salary plus allowances that form part of regular pay, such as a cost of living allowance. Payments like overtime and reimbursed expenses are generally left out.

ETF: 3%, paid only by the employer

The Employees' Trust Fund is a separate contribution of 3% of total earnings, paid entirely by the employer. Nothing is deducted from the employee for ETF.

APIT: income tax on salary

Advance Personal Income Tax (APIT) is deducted from monthly pay above Rs 150,000. The rate starts at 6% and rises in steps to 36% on higher pay. For example, on Rs 250,000 a month the APIT is Rs 8,000. APIT is calculated on the full monthly pay, including taxable allowances, and you pay it to the Inland Revenue Department by the 15th of the following month.

Gratuity: the cost that arrives years later

Under the Payment of Gratuity Act, an employee who leaves after at least five years of service is owed half a month's salary for each completed year. It is a legal requirement for employers with 15 or more staff, and many smaller employers provide it too.

Because it is paid years later, gratuity is easy to forget. Setting aside about 4.2% of basic salary each month (half a month a year) means it never lands as a surprise.