What Are EPF and ETF?
In Sri Lanka, EPF (Employees’ Provident Fund) and ETF (Employees’ Trust Fund) are the two foundational statutory social security and terminal benefit schemes that Parliament established for private and semi-government sector employees.
Any private sector employer with even a single employee is legally required to register with the Department of Labour and remit monthly contributions to both funds.
What Is EPF?
The Employees’ Provident Fund (EPF) was established under the Employees’ Provident Fund Act No. 15 of 1958 and is the largest social security scheme in Sri Lanka.
- Primary Purpose: To provide financial security upon retirement, permanent incapacity, or to legal heirs in the event of death.
- Governing Body: Jointly administered by the Department of Labour (statutory compliance, registration, enforcement) and the Central Bank of Sri Lanka (EPF Department, fund management, member accounts, interest crediting).
- Funding: Funded jointly by employee and employer contributions.
What Is ETF?
The Employees’ Trust Fund (ETF) was established under the Employees’ Trust Fund Act No. 46 of 1980 to provide non-contributory employee welfare and financial security while actively employed.
- Primary Purpose: To provide terminal lump-sum benefits upon cessation of employment, while simultaneously offering practical welfare benefits (health insurance, permanent disability compensation, critical illness assistance, and Grade 5 & A/L educational scholarships for members’ children).
- Governing Body: Administered independently by the Employees’ Trust Fund Board (ETFB) under the Ministry of Labour.
- Funding: Funded strictly and exclusively by the employer.
EPF vs ETF: Key Differences
| Feature | Employees’ Provident Fund (EPF) | Employees’ Trust Fund (ETF) |
|---|---|---|
| Governing Act | EPF Act No. 15 of 1958 | ETF Act No. 46 of 1980 |
| Employee Contribution | Minimum 8% (Deducted from salary) | 0% (Never deducted) |
| Employer Contribution | Minimum 12% | 3% |
| Total Statutory Rate | 20% of monthly earnings | 3% of monthly earnings |
| Managing Entity | Central Bank of Sri Lanka & Dept of Labour | Employees’ Trust Fund Board (ETFB) |
| Primary Objective | Long-term retirement lump-sum | Terminal benefit + interim welfare |
| Interim Welfare Benefits | Housing loan security guarantee | Heart surgery, disability, health, scholarships |
| Withdrawal Conditions | Men at 55 / Women at 50 upon leaving employment; permanent migration; marriage for females | Once every 5 years upon termination/resignation; retirement; permanent disability |
Who Pays EPF and ETF?
The Employees’ Provident Fund Act and the ETF Act set these minimum rates. You contribute a minimum of 8% to EPF, deducted straight from your salary. Your employer contributes separately (a minimum of 12% to EPF and 3% to ETF) for a combined employer payment of 15%. Employers and employees may agree to higher contribution percentages under Section 11 of the EPF Act.
What Is Deducted from Your Salary
- Only your 8% Employee EPF is deducted from your monthly gross remuneration.
- No other statutory retirement or trust fund contribution can be deducted from your pay.
What Is Paid by Your Employer
- Your employer separately pays 12% EPF and 3% ETF entirely out of company funds (a combined employer contribution of 15% over and above gross salary).
- ETF is NEVER deducted from the employee: Under Section 16(2) of the ETF Act No. 46 of 1980, it’s a criminal offence for an employer to deduct any portion of the 3% ETF contribution from an employee’s salary or remuneration.
Common Misunderstandings
- Myth: “ETF is deducted from my salary.”
- Fact: Under Section 16 of the ETF Act, ETF is paid 100% by the employer. If your pay stub shows an ETF deduction, your employer is violating statutory labour regulations.
- Myth: “My employer contributes only 12%.”
- Fact: The employer contributes 12% to the EPF and an additional 3% to the ETF, amounting to a total employer commitment of 15%.
- Myth: “EPF and ETF are calculated on basic salary alone.”
- Fact: All standard fixed allowances (such as COLA and food allowances) form part of total monthly earnings and must be included in the contribution base.
- Myth: “Probationary and temporary employees do not get EPF/ETF.”
- Fact: Every employee — whether permanent, temporary, probationary, contract, or casual — is entitled to EPF and ETF from their very first day of employment.
What Counts as Total Monthly Earnings?
EPF and ETF calculations are not based solely on basic salary. Sri Lankan labour law requires contributions to be calculated on total monthly earnings (gross remuneration).
Included in Total Monthly Earnings
Under official Department of Labour and EPF Department statutory circulars, the following remuneration items must be included:
- Basic salary or wages: Fixed base salary or contracted monthly pay.
- Cost of Living Allowance (COLA): Mandatory and voluntary cost-of-living adjustments.
- Special living or interim allowances: Budgetary relief allowances and special allowances.
- Food allowances: Cash allowances for food and meals, or the assessed cash value of cooked/uncooked food supplied by the employer.
- Commissions & piece-rate payments: Sales commissions, production incentives, or piece-rate wages.
- Holiday pay: Wages or compensation paid in respect of public, mercantile, or annual holidays.
Excluded from Total Monthly Earnings
- Overtime (OT) pay: Payments made for hours worked outside standard working hours.
- Traveling & fuel reimbursements: Bona fide expense reimbursements for official business travel.
- Discretionary ex-gratia bonuses: Occasional, non-contractual performance or annual bonuses not linked to regular earnings.
How Is EPF/ETF Calculated?
To illustrate how statutory percentages apply in practice, consider an employee with the following monthly components:
- Basic Salary: Rs. 70,000
- Cost of Living Allowance (COLA): Rs. 20,000
- Food Allowance: Rs. 10,000
- Overtime (OT) Payment: Rs. 15,000 (Excluded from the contribution base)
Worked Calculation Breakdown
- Total Qualifying Earnings: Rs. 70,000 + Rs. 20,000 + Rs. 10,000 = Rs. 100,000 (overtime is excluded).
- Employee EPF Deduction (8%): Rs. 100,000 × 0.08 = Rs. 8,000 deducted from monthly pay. Estimated Earnings After Employee EPF Deduction: Rs. 92,000 (this figure only subtracts the employee EPF contribution; it doesn’t account for personal taxes (APIT) or other payroll deductions).
- Employer Remittances (15% Total):
- Employer EPF (12%): Rs. 100,000 × 0.12 = Rs. 12,000
- Employer ETF (3%): Rs. 100,000 × 0.03 = Rs. 3,000
- Total employer contribution paid out of company funds = Rs. 15,000.
- Total Combined Monthly Fund Inflow (23%): Rs. 20,000 total EPF (8% employee + 12% employer) + Rs. 3,000 ETF = Rs. 23,000 deposited across the statutory funds.
Employer Requirements & Official Information
Monthly Remittance Deadlines
Both EPF and ETF remittances must reach the respective boards on or before the last working day of the month following the contribution month. Employers who miss this deadline face statutory surcharges and penalties under the EPF and ETF Acts.
Mandatory ETF Electronic Remittance (Effective July 2026)
The Employees’ Trust Fund Board (ETFB) requires employers with 15 or more employees to remit monthly ETF contributions and submit member returns electronically (via approved commercial banking e-return portals or direct debit) starting from July 2026 contributions onward. Physical cheques and paper returns are discontinued for these employers.
Official Authorities & Primary Sources
- EPF Department (Central Bank of Sri Lanka): Official portal for member account statements, employer registrations, and contribution guidelines — epf.lk
- Employees’ Trust Fund Board (ETFB): Official portal for member claims, scholarship applications, and employer e-banking remittances — etfb.lk
- Department of Labour: Statutory enforcement authority for employee rights and labour standard compliance — labourdept.gov.lk