How to set up payroll as a new employer in Sri Lanka

Last verified against the primary sources on 15 October 2026.

Leave EPF registration until after the first salary and you are already behind. Miss the APIT threshold check and the first taxable month slips by undeducted. Payroll problems in a new business almost always start before the first salary is paid.

If the setup is rushed, you can run your first payroll and still already be non-compliant on three fronts.

Quick answer: Lock TIN and PIN access first, collect a complete employee master file before the first payday, decide the salary structure before issuing offers, register APIT and EPF/ETF on time, and dry-run the first payroll cycle before live payment.

A printable version is our payroll setup checklist for new employers.

Stage 0: Assign owners before you build anything

Before you create the first payroll file, define who owns:

• employee onboarding data
• salary and allowance approvals
• APIT and statutory registration
• payroll calculation review
• bank transfer release
• evidence-pack archiving

If one person is expected to do all of it with no reviewer, the first payroll run will be fragile from day one.

Stage 1: Complete tax access first

Payroll cannot operate cleanly if the business does not yet control its IRD access.

Close these items first:

• business TIN issued
• PIN access requested and tested
• registered email confirmed with IRD
• tax calendar owner assigned
• payroll filer authorised for e-Services where required

Use tax registration checklist if the business is still closing its wider onboarding.

Stage 2: Build the employee master file before the first salary run

Every employee should be in a controlled master file before the first payroll close.

Minimum fields:

• full legal name
• NIC or passport details
• start date
• job title and department
• applicable labour-law coverage note (shop and office, wage-board, or other)
• agreed salary structure
• bank details
• tax and statutory registration status where relevant
• leave and attendance profile

Do not start with incomplete employee records and plan to clean them later. That is how APIT, EPF, and ETF mismatches begin.

Before approving the first run, reconcile gross salary, statutory deductions and take-home pay for a sample employee.

Stage 3: Finalise the salary structure before offers are treated as live

The salary letter and the payroll setup must match.

Before first payroll, confirm:

• basic salary amount
• fixed allowances
• variable-pay rules
• overtime treatment
• normal hours, weekly-rest pattern, and leave basis under the applicable labour rule
• EPF/ETF contribution basis policy
• whether the employee is expected to cross the APIT threshold

If the commercial offer says one thing and the payroll file treats the components differently, the employer creates a problem before day one.

Use the salary calculator and EPF calculator to test offer structures before they are finalised.

Stage 4: Register and configure APIT before the first taxable payroll

If any employee crosses the live employment-income threshold, APIT setup should not wait until month-end.

Checklist:

• confirm whether any employee crosses the current APIT threshold
• activate the APIT tax type where needed
• confirm who prepares the monthly deduction control
• make sure deductions can be shown clearly on payslips
• confirm the due-date workflow for monthly remittance

If tax is not withheld when it should be, the employer must pay it itself, even if the salary has already been paid [1]. For a joiner part way through the year, see our guide to APIT Table 05 for mid-year joiners and leavers.

Use the APIT registration guide for the setup sequence.

Stage 5: Register for EPF and set up ETF

For EPF, the employer sends Form D to the Labour Office within two weeks of becoming liable to contribute [2], which the EPF Department puts as "within 14 days of the recruitment of the first employee" [3]. ETF has no separate registration: the employer is registered with the ETF Board when it pays its first contribution, quoting its EPF number [4].

For the first compliant month, close these items:

• employer Labour Department registration completed
• EPF reference available and verified
• employee member-number process defined
• ETF payment route set up: employers with 15 or more employees must pay ETF and submit returns electronically from the July 2026 contributions, and cheques, cash and manual returns are no longer accepted from them [5]
• monthly remittance owner assigned
• archive path created for Form C, e-return, R1, or R4 evidence

Remember the monthly remittance discipline:

• APIT deductions: within 15 days after the end of the month [1]
• EPF contributions: by the last day of the following month [6]; the EPF Department asks for the last working day [7]
• ETF contributions: by the same date [8]

Use the EPF and ETF monthly payment procedures guide to design the operating calendar.

If the business falls under the Shop and Office framework or another labour-law bucket with its own roster and leave rules, align those controls before the first live month. The labour law guide for employers and the Shop and Office Employees Act guide are the right place to do that cross-check.

Stage 6: Decide what the payslip and evidence pack will look like

Before first payment, decide what documents the business will produce and retain.

Minimum payroll evidence pack per month:

• approved payroll register
• employee-level deductions and employer contributions
• bank transfer schedule
• APIT, EPF, and ETF payment references
• reviewer sign-off
• final archived copy of the period pack

If the business cannot show what was paid and why, it does not have a payroll system yet. It only has a bank-transfer habit.

Stage 7: Dry-run the first payroll cycle before the live date

Run one internal dry run before the first real salary date.

The dry run should answer:

• do the employee records load correctly
• do salary components calculate as expected
• do APIT and statutory deductions calculate correctly
• do totals match the bank transfer file
• can the reviewer trace every number back to source records

This one rehearsal usually catches more problems than weeks of discussion.

Stage 8: Common setup failures to avoid

These are the failures that show up most often in new-employer payroll launches:

• hiring before employee records are complete
• ignoring labour-law coverage when salary structure and attendance rules are set
• agreeing salary structures before testing statutory deductions
• delaying APIT registration until after the first taxable payroll
• treating EPF and ETF as a later admin step
• no reviewer in the first payroll cycle
• no evidence pack after salary payment is released

Fixing a bad first payroll setup is harder than building it correctly from the start.

Use these guides alongside this checklist

• Tax registration checklist for businesses in Sri Lanka
• APIT registration guide for Sri Lankan employers
• EPF and ETF monthly payment procedures in Sri Lanka
• Labour law guide in Sri Lanka for employers
• Shop and Office Employees Act in Sri Lanka: employer guide
• PDPA compliance checklist for Sri Lankan employers

Talk to us. If you are a new employer and want the first payroll cycle set up correctly, from APIT and EPF registration to payslips and the evidence pack, our payroll team can help; book a consultation at our contact page.

This guide is general information on the law as at 15 October 2026 and is not advice on your specific situation.

References

1. Inland Revenue Department. Inland Revenue Act, No. 24 of 2017, consolidated, ss.83A, 86(1) and 86(3). https://www.ird.gov.lk/en/publications/Acts_Income%20Tax_2017/IRA_Cons_Act_-_2025_Changes.pdf . Primary. Accessed 15 October 2026.

1. Department of Labour. Employees' Provident Fund Regulations, 1958, regulation 8 (Form D within two weeks of becoming liable). https://labourdept.gov.lk/downloads/labour_code/48.pdf . Primary. Accessed 15 October 2026.

1. Employees' Provident Fund Department. Registering for EPF, employer registration on Form D. https://epf.lk/?p=163 . Primary. Accessed 15 October 2026.

1. Employees' Trust Fund Board. Employers FAQ, registration on first contribution using the EPF number. https://etfb.lk/employers-faq/ . Primary. Accessed 15 October 2026.

1. Employees' Trust Fund Board. Notice: mandatory electronic payment of ETF contributions, citing Gazette Extraordinary 2311/39 of 22 December 2022. https://etfb.lk/wp-content/uploads/2026/04/NOTICE-Mandatory-Electronic-Payment-English.pdf . Primary. Accessed 15 October 2026.

1. Central Bank of Sri Lanka. Employees' Provident Fund Act No. 15 of 1958 (reprint), s.10. https://www.cbsl.gov.lk/sites/default/files/cbslweb_documents/laws/acts/en/epf_act.pdf . Primary. Accessed 15 October 2026.

1. Employees' Provident Fund Department. Frequently asked questions for employers, question 5. https://epf.lk/?p=811 . Primary. Accessed 15 October 2026.

1. Employees' Trust Fund Board. Employees' Trust Fund Act No. 46 of 1980, s.16. https://etfb.lk/wp-content/uploads/2021/03/ETF-Act.pdf . Primary. Accessed 15 October 2026.