Sri Lanka, the island nation, south of India in the Indian Ocean, is a country of paradoxes. It is small in relation to its neighbour both in size and in population. It however has a rich diversity, a population of around 18 million with Buddhists, Hindus, Christians and Muslims . Languages spoken are Sinhala, Tamil and English. Tourism continues to be one of the drivers of this economy with groups from Germany and UK topping the list, yet there is a continuous ethnic conflict in the north and east of the country. Literacy is almost a hundred percent and socio- economic indicators like life expectancy and infant mortality are amongst the best. International bodies have rated Sri Lanka high on Quality of life .
Economic outlook
Inflation has been high in double digits for the last 4 years. The GDP growth has been at 5-6 %, however the defence budget is almost 40 % of the annual budget. The per capita income is around $690/. The defence expenditure places a big strain on the economy. The Asian crisis has not significantly impacted the country, since it did not really experience the boom. Currency depreciation has not been disastrous. The main industries are the traditional tea plantations, shipping, tourism and banking. There are multi-nationals like Ceylon Tobacco ( part of British American Tobacco ) Unilevers, Nestle, Singer , IBM as well as large diversified groups like John Keells, Hayleys and the Maharaja group. Foreign banks are well represented by Hongkong Bank, Standard Chartered bank, ABN-AMRO, Deutsche, Citibank, American Express Bank among others. The city of Colombo is the main business centre with Galle, and Kandy being other important areas. Garments and telecommunications are high growth areas. Garment exports show strong export earnings. There are many Sri Lankans living overseas and overseas remittances from them is an important source of foreign currency earnings. In fact there is a body set up called the Sri Lanka Bureau for Foreign Employment which looks after the interests and welfare of the non residents.
The Budget
The highlight of the recently presented budget for 1999(presented in November 1998) is the increase in the National Security Levy by 1 % (from 4.5 to 5.5 % ) which could be inflationary in nature since it applies to a wide range of goods and services (locally manufactured goods, imports, services like banking and insurance). The construction sector has been accorded a priority as has the information technology sector. Personal income tax rates have remained the same at a maximum of 35 %, though the tax free retirement benefits have been increased to Rs 500,000 ($7462) .
Education and Employment
Education is at a premium at Sri Lanka with English language skills being important. Since the demand for university education far outstrips the supply, there are many institutes that offer distance education programs like MBA's from universities in Australia and the U K, or programs of the Chartered Institute of Management Accountants. The old school network is strong and it matters in the employment market. It is quite a common practice for companies to actively fund and encourage the education of their employees either through loans or through outright grants. The typical courses include professional degrees or diplomas offered by institutes of marketing/accounting, MBA programs, banking exams. These reimbursements cover tuition, exams and other expenses. There is normally an upward limit, around Rs.100,000($1495). Typically an advance is paid to the employee and on successful completion the amount forgiven. In some cases the employee has to put the money up front and it is reimbursed on successful completion. Most companies reimburse membership of professional bodies whether local or foreign. Some have a stated policy, while others are need based.
The official unemployment figures are around 10 %, and paradoxically there is unemployment amongst graduates. While the bulk of employment continues to be in the agricultural sector, the services sector including hotels, travel, banking and shipping would account for over 25 %. Retrenchment of employees at any level requires approval from statutory authorities and is not easy. Retrenchment compensation to be approved as tax free needs to be uniform. A pay-out of 3-5 years salary depending on years of service is not uncommon.
Taxation
Personal taxes have been seeing a declining trend from a high of 50%, ten years ago to a maximum of 35 % today.
Personal tax rates vary from 10 % to 35% on a sliding scale . The first slab of Rs.144,000($2150) is tax exempt . Effective tax rates would range from 3-4% at the lower income levels (Rs.200,000/250,000 per year income ($3000)) to about 30% at higher levels (Rs 2,000,000 ($29850)). Individuals do have an opportunity to reduce the rate by availing of certain deductions like investments in specified companies, charities and provident funds. The ceiling for such payments is small around Rs.25,000($373) per year.
The rate of personal taxation for expatriate employees in specified industries is more liberal at 15% for a period of 5 years.
Terminal benefits like the provident fund/gratuity are taxable with Rs.500,000 ($7465) being tax exempt under the new budget. (earlier Rs.400,000 ($5970)). The maximum rate of tax for terminal benefits is 15%.
If payments are made for retrenchment compensation, under an approved scheme, these are tax exempt. This exemption is a recent introduction. Please note the word approved since this is subject to interpretation.
The Compensation Scenario
Given the economic backdrop, compensation and benefits in the organised sector have at best kept pace with inflation. In certain sectors even this has not been possible. There has been no significant boom in compensation levels except in the garment trade. While employee turnover is not a major issue, there continue to be certain islands of high demand. These include merchandisers, accounting, marketing and information technology professionals. There is currently a very high demand for programmers and other technology professionals due to substantial migration to western economies. Compensation differentials between levels are in the ratio of 1:20.
Senior Management / Executive Compensation
This refers to the compensation of board level or equivalent positions (CEO's are at the upper end). Base salary ranges are Rs.1,000,000-Rs.2,800,000 per year ($15,000-$41,800). Aggressive performance pay systems or stock options are not yet well entrenched. However they are being actively considered .
Housing is selectively provided. It appears that this trend is on the decline. Asset purchase schemes ranging in value from Rs.50,000 per year to Rs.300,000 ($745-$4477) are common. In addition to expatriate CEOs large multi-nationals continue to have other expatriate managers. Large Sri Lankan groups also hire expatriate managers. Expatriates are almost always provided housing and it costs between Rs 50,000 -Rs 100,000 per month ($750-$1500 per month) in the premium Colombo residential area popularly known as "Colombo 7". A one year rent advance is common. These houses catering to expatriate needs are normally furnished.
A company maintained car with a chauffeur, indicative cost for the chauffeur (Rs.6,000 per month, ($90)) is the norm for this level. Company chauffeurs are now being discouraged with a reimbursement for divers wages being more common. The car is fully paid for with unlimited fuel, insurance/taxes and maintenance at actuals. In larger companies, the CEO would have a premium car like a Mercedes Benz, or a BMW. Direct reports of the CEO below would have a 1500-2000 cc car, typical models being a Mitsubishi Lancer, Honda Civic or a Honda Accord . The replacement norm is 4 years and buy back of these cars is not a common practice. The income tax add back for a 1500 cc car is Rs.1,250 per month ($20) and Rs.2,000 per month ($30) for a cars over 2000 cc. Provision of cars is therefore a very tax effective compensation mechanism. It must be noted that a car is a very important status symbol in Sri Lanka.
Club membership in one or more clubs in Colombo is common. These could range from 5 star hotel health clubs to corporate memberships in golf clubs. Memberships can range from Rs 35,000 to Rs 100,000 per year ($523-$1493).
Middle management
This level would typically include persons designated as managers, but one or two levels below the management committee level. Designations are very important in Sri Lanka. Typical positions would include Brand Mangers, Area sales Managers, Customer Service Managers, Information Systems Managers. There is a wide range of salaries prevalent here ranging from Rs.20,000 per month to Rs 75,000 per month ($300 to $1,120).
At this level a car is provided selectively. Normally sales staff would get a car and some finance persons too. The type of car would be a 1300 cc car, a typical model being a Nissan Sunny. Reconditioned Japanese cars are also popular. Recently the Indian made Maruti is being provided to the more junior levels. Sales staff would travel between 60-100 km per day. While providing a car has been historically a practice and continues to be a powerful attraction, from an employee perspective, some companies are thinking in terms of a loan to the employee with reimbursement of official mileage (Rs.10 -Rs.15 per litre). This is a win-win situation since the employee ultimately has an asset and the company is not responsible for the day to day administration.
For those who are not provided with a car an allowance may be provided ranging from Rs. 2,500 per month to Rs.8,000 per month ($37-$120).
Junior level management staff
Depending on qualifications and experience there is a wide range in compensation. Base salaries at this level would range from Rs.8,000 per month to Rs.22,000 ($120 to $330). In addition to base salaries it is common to provide allowances ranging from Rs.2,000 per month to Rs.6,000 per month ($30-$90). These allowances are typically for transport. Secretaries, especially executive secretaries are at a premium with base salaries ranging from Rs.25,000 to Rs 45,000 per month ($373$ to 4672 ). It is common for large organizations to have a separate grade for this position.
Fresh management trainees with a university degree or an MBA could earn a consolidated salary of Rs.15,000 to Rs.25000 per month ($268-$373). After completion of the probation or training period they are typically absorbed at middle management levels .
While provision of housing is not a common practice, large organisations do provide company leased accommodations in locations outside Colombo, typically for sales staff.
Non exempt / clerical salaries
In larger/older companies these salaries are determined by collective bargaining agreements. An entry level salary can range from Rs.6,000 ($90) to Rs.8,000 ($120)per month (inclusive of a cost of living allowance, "COLA" factor). Allowances are not common but an annual bonus of 2 months is the norm. Senior clerical salaries could range from Rs.12,000 ($180) to as high as Rs.20,000 ($299) per month depending on the service years. Overtime rates are prescribed by law. It is at this level that there is hardly any turnover of employees and redundancy exists.
Rmuneration Components
Allowances: It is a practice to provide a package of allowances that do not attract retirement benefits. These come under various names ranging from transport, parking , and holiday allowances. It is difficult to specify a typical range of allowances since there is significant variation between organisations. Allowances could be as high as Rs.30,000($448) per month depending on the compensation structure.
Bonus: It is a common practice to provide a two/two and a half bonus to all levels of staff.
Medical Benefits: Medical benefits are seen as key in a compensation package since medical expenses especially for surgery can be high. It is common to provide for two types of medical facilities. The first is for out patient expenses like "Over the Counter medicines" and doctors fees for minor ailments. This is typically a graded scale with senior levels being reimbursed in full. A typical full reimbursement would be Rs.15,000 per year ($224). Hospitalisation insurance is also common with both government and private insurance carriers. The coverage ranges from Rs.35,000 per individual to Rs.120,000 per cover ($552 to $1790). Some of the insurance schemes are comprehensive covering both hospitalisation and outpatient treatment, including dental and vision cover. Typically the employee, the spouse and dependent children are covered. Most organisations prefer to cover maternity through the insurance scheme. Special coverage for catastrophic medical is available though not very popular. It is not a common practice to cover parents though some organizations do permit this benefit for unmarried persons only. Many in Sri Lanka do prefer to use medical facilities outside the country and in case of complicated surgeries (heart by pass/kidney transplant ) India and Singapore are seen as preferred locations. Insurance carriers sometimes provide a special sub limit for this.
Loans: Interest rates are high in Sri Lanka. Subsidised interest is therefore a valuable benefit. A housing loan commercially could be at 18% interest. While housing loans are common amongst the banks, loans for cars are increasingly being considered by other industry segments. Housing loans at banks have a wide range and could be upto Rs.4,500,000 ($67,165). These are typically repayable over 25 years or through retirement. Loans for cars typically do not exceed Rs.1,000,000($14,925). As per the law, all deductions put together cannot exceed 60% of the salary.
Retirement benefits/Termination benefits: There are 3 types of retirement benefits. The age of retirement is normally 55 years, with some companies permitting employees to avail of full retirement benefits at the age of 50.
Provident fund is legislated (Employees Provident Fund Act ) at 12 % of base salary by the employer and 8% by the employee. Contributions can be higher by the employee but are then not allowed to be changed. This fund is run by the government except in specified cases where banks/older organisations have permission to run their own funds. A return of 12% per year on the fund is common. Some companies do contribute in excess of the specified minimum sometimes as much as 20%. The provident fund is sacrosanct and set off, against dues of any kind is not allowed. In addition there is mandated 3 % contribution to the Employee Trust Fund.
Gratuity or severance pay is mandated (Payment of Gratuity Act ) at half a months base salary per year of service subject to a qualifying service period of 5 years. Some companies contribute upto 1 months salary.
Pension schemes are not mandated but are common in the banking sector since they originated with collective bargaining agreements. These schemes are defined benefit schemes ranging from 55% to 66% of the last drawn base pay. An employee can get as terminal benefits either gratuity or pension. The funding of these schemes is expensive since employee turnover is not high. Some schemes are inflation indexed and have substantial survivor benefits.
Vacation and Holidays: Sri Lanka enjoys a very liberal vacation and holiday pattern. A 5 day week is common with an 8 hour day and a half hour/three fourth hour lunch break. Paid holidays can be as high as 21 days in a year. This is due to the closure on all Poya days (Full moon holiday). In addition paid vacation normally ranges from 14 to 21 working days. Casual leave is sometimes given upto 7 days and sick leave can go upto 21 days a year. Vacation carry forwards do exist but are not common. It is common for companies to have holiday homes at beach/hill resorts like Nuwara Eliya/Bentota. This benefit can cover all levels of staff. At senior levels, hotel/holiday stays may be permitted.
Maternity: Maternity leave is mandated at 84 working days /12 weeks for the first two children. Two nursing breaks of 1 ½ hours each per day are permitted for the first one year.
Accident Insurance: Most companies prefer to cover their employees for amounts in excess of the statutory Workmens compensation. Cover ranges from 5 to 10 years base salary. International coverage is also possible and smaller multi-nationals sometimes prefer this. Riot, Strike and Terrorist cover is available at a premium .
Lunch: Subsidised lunch is a practice especially among multi-national companies which have a common factory/office location. Subsidy ranges from 85%-90%.
While Sri Lanka has historically had a complex compensation structure consisting of many elements, the trend is towards simplification since all allowances are generally taxable. Benefits however continue to play an important role with the Company car and medical being seen as major attractions.
Sri Lanka: Compensation and Benefits Overview