Independent contractors or freelancers are self-employed individuals who provide services to companies as a non-employee. This is one of the most common ways companies tend to hire non-local designers, engineers, support reps, etc.
For legal and tax purposes, independent contractors are not classified as employees. They may work for multiple clients, set their own work hours, negotiate their pay rate, and decide how a job gets done.
For example, the IRS says that if an independent contractor or freelancer does work that can be controlled (what will be done and how it will be done) by an employer then they are, in fact, classified as an employee.
As you can imagine, hiring someone as an independent contractor versus an employee is a fine line to tread.
While there are benefits when you choose the contractor route, there are quite a few drawbacks to consider and you’ll need to weigh them carefully to determine the best fit for your company.
A foreign subsidiary is a company that operates overseas as part of a larger company who’s HQ is in another country.
Establishing a foreign entity is great for having an international presence and accessing new markets. Though, setting up a subsidiary in Sri Lanka can be expensive, stressful, and time-consuming. It's not for the faint of heart.
To set up a subsidiary in Sri Lanka, you have to:
If you're lucky, this process can take months. If you're not so lucky, it can take up to a year. And on average, it costs about $50k-$80k, all-in-all, to get setup. And that's just for Sri Lanka.
An employer-of-record (EOR) is a company that hires and pays an employee on behalf of another company.
An EOR is typically used to overcome the financial and regulatory hurdles that often come with employing remote workers.
Each country has its own payroll, employment, and work permit requirements for non-resident companies doing business in their jurisdiction. Meeting those demands can be a huge obstacle when it comes to hiring remotely.
At Panther, we help companies employ and pay people in over 160 countries, without having to set up a foreign subsidiary. Payroll, benefits, taxes, compliance, and more are all handled by us, at a fraction of the cost.
Outside of saving you months and tens of thousands of dollars, other advantages of using Panther are:
Because you no longer have to set up your own subsidiary, you’ll save a ton of time and tens of thousands of dollars using Panther.
Paying employees in Sri Lanka is not the same as paying workers in your own country. Employees have to be paid using Sri Lanka’s employment and payroll standards.
This means that you have to know, understand, and keep up with 1) fluctuating currency changes, and 2) local payroll and tax laws in the countries you’re looking to hire in.
Outside of the laws and regulations around payroll, there may be different conditions surrounding leave, overtime, termination, and more. As you can imagine, maintaining this kind of regulatory knowledge can be challenging. But it is crucial and necessary to follow local legislation.
After, you’ll have to determine the best way to pay your international employees. This can be done in a number of ways, including but not limited to:
One of the most challenging (and expensive) parts of paying international employees is setting up the infrastructure to do so.
Before you start to run payroll, you have to register your company as the local employer in the country the worker resides in. As you can see in the “Set up a subsidiary” section, this is a multi-step process that can take up to a year and put you on your way to bankruptcy.
Outside of EORs acting as the full admin employer, many also provide remote payroll.
For example, at Panther, in just 1-click, you’re able to pay your entire global team, anywhere in the world. We send you an invoice each month, charge you in US Dollars, and pay your employees the same amount in their local currency.
We factor in currency fluctuations and use the mid-market rate plus any applicable fee passed on by our provider at cost at the time of billing.
A normal working week cannot exceed 48 hours.
All work over and beyond that period is considered overtime.
If a worker works beyond the stipulated working hours, he/she is entitled to an overtime pay that is 150% (1.5 of X) of the rate of his ordinary pay.
The overtime hours in a week cannot exceed 12 hours.
Employee (Income Tax)
Wages can be paid on a daily, weekly, fortnightly, or monthly basis. However, a wage period cannot exceed a month.
“13th month payment” is not mandatory.
The employee is entitled to 14 days of annual leave after completing a full year of service. Annual leave for the second year of employment is accrued based on the date the employee joined service.
According to Section 73 of the Factories Ordinance:
As per Sub Section 5 of the Shop and Office Employees Act
There are 23 public holidays.
The duration of sick leave entitlement provided to workers is dependent on how long they have been employed by their employer:
The duration of maternity leave is 12 weeks (84 days) excluding weekly holidays, Poya days and statutory holidays.
Six weeks of maternity leave are given to women with two or more children. Two weeks should be taken before the birth and four weeks immediately following the birth.
It is limited to 3 days for the state sector. The employee must take this leave within three months from the date of birth of the child.
There are no statutory laws regarding paternity leave.
Work-Related Injury Leave:If an employee is absent from work due to injury sustained during work and under the circumstances specifically attributed to the nature of his duties, they are granted accident leave.
Duty Leave: All staff members are granted duty leave for the following purposes:
There is no provision for marriage leave. It is at the employer's discretion.
There is no special provision for bereavement leave in Sri Lanka. It is at the employer's discretion.
Whilst there is no specific definition in either the TEWA or the IDA of what constitutes justifiable cause, case law has identified that the following types of conduct will constitute grounds for justifiable cause to dismiss on disciplinary grounds (these are not exhaustive):
An employer's loss of confidence in an employee has also been held to be a sufficient ground for dismissal, provided that it is coupled with a specific ground of misconduct as set out above.
Even where a loss of confidence cannot be linked to a specific ground of misconduct, it is often pleaded by employers to persuade adjudicating
forums that reinstatement is not a suitable remedy.
Notice periods, or payments in lieu of notice, for dismissal are typically stipulated in the contract of employment.
However, where the provisions concerning notice periods, or payments in lieu of notice, are exercised by the employer during the course of an
unjust dismissal, the employee can challenge that termination on the basis of unjust dismissal.
In the case of a dismissal on disciplinary grounds, the Termination of Employment of Workmen (Special Provisions) Act No 45 of 1971 (TEWA)
makes it mandatory for the employer to inform the employee, in writing, of the reasons for the dismissal before the expiry of the second working day after the dismissal has taken place.
Non-disciplinary termination requires a notice period (typically one month) that is mutually agreed in the contract of employment.
The notice period in Sri Lanka is:
Notice periods, or payments in lieu of notice, should be stipulated in the contract of employment. In Sri lanka generally it is a period if six months.
The quantum of compensation that may be awarded by the Commissioner of Labor (Commissioner) as a result of a successful application for unjust dismissal under the TEWA is regulated as follows, depending on the employee's length of service:
The maximum severance payment that can be made under the above formula is LKR1.25 million.
There is no clear provision in labor laws on the duration of probation period in Sri Lanka.
Generally, probation period is six months.