5 Things you need to know before moving to a company with pegged salaries

After 2 weeks of intensive research, I found 125+ companies pegged to USD, EURO, AUD, SGD, SEK, GBP, NZD, NOK, CAD, and BTC in Sri Lanka (All the companies are listed at https://peggedplacetowork.lk). The total engagement was more than 200K so I believe I have done my duty to bring some Forex to the country.

Why are all these companies starting to pay salaries at a?fixed exchange rate?for the?U.S. dollar?

The local currency Sri Lankan Rupee depreciated more than 50% from the month May - to April 2022. According to the World bank statistics in 2017 Sri Lanka imports 29.25% of goods and services as a percentage of GDP. Because of the floating exchange rates, and the high percentage of imports, all the essential services skyrocketed.

With high inflation skilled workers started to migrate, so to reduce brain drain companies introduced pegged salaries.

Does it mean I'm supposed to earn in dollars?

No, you are not supposed to earn in dollars, you will still earn in LKR. This is the reason according to the law if the company has Business Registration(BR) in Sri Lanka they are bounded to pay in local currency.

Note: But I know some companies do pay in dollars if the employee have NRFC account. Those companies have BR in foreign countries as well. So they can either pay in dollars or offer pegged amount in local currency.        

Below is *one way* of pegging the salary to a stable currency. (Originally written by Mahasen Bandara)

1. Declare the employee salary in a stable currency (for example US$ 5,000 per month)

2. Declare a floor exchange rate at which should the rupee appreciate, the company would protect the employee salaries. (For example 200:1 - meaning the employee will get the exchange rate of 200 rupees per US$ even if the exchange rate drops to 100 rupees per US$)

3. Make the rupee value at the floor exchange rate the fixed salary of the employee (i.e. The employee who's getting US$ 5,000 will get a fixed salary of 1,000,000 rupees if the floor exchange rate is 200:1)

4. Pay the remainder of the exchange rate margin as an incentive (i.e the same employee above will get 540,000 rupees as an incentive on a month in which the exchange rate is 308:1 against the US$) - making it an incentive to transfer the full benefits to the employee immediately.

5. EPF, ETF is calculated on fixed salary - tax is calculated on the full payments made including an incentive.

If I ask for 100,000LKR from my employer what would be my salary in the first month?

It depends on the Floor value of the company.

Let's assume the floor value is 202.5LKR and apply the above theory to our scenario,

So we can declare 100,000LKR in the stable currency as 493.82USD (100,000/202.5)

Today(11th April 2022) the official buying rate of the Dollar was around LKR 308.2 for one USD. So 493.82USD is equal to 152,195.3LKR(493.82x308.2). If your salary is pegged you can have this additional 52,195.3LKR(152,195.3-100,000) as an allowance.

Employee EPF/ETF(8%) would be calculated for the base payment(100,000). So after deducting EPF/ETF your salary would be 144,195.3LKR(100,000 x 0.92+52,195.3).

Let's assume the floor value is 245LKR and apply the above theory to our scenario,

So we can declare 100,00LKR in the stable currency as 408.16USD (100,000/245)

Today(11th April 2022) the official buying rate of the Dollar was around LKR 308.2 for one USD. So 408.16USD is equal to 125,794.9LKR(408.16x308.2). If your salary is pegged you can have this additional 25,794.9LKR(125,794.9-100,000) as an allowance.

Employee EPF/ETF(8%) would be calculated for the base payment(100,000). So after deducting EPF/ETF your salary would be 117,794.9LKR(100,000 x 0.92+25794.9).

Carefully check the floor value whenever someone say they do pegging. Depending on the floor value your allowance gonna change.

What if by any chance dollar hit 100LKR?(Highly unlikely) Is there any catch?

Many companies protect their employees from rupee gain as well. If the rupee gained back to 100LKR, the company will consider the floor value as the current rupee value. So the base salary won't be affected.

Companies use pegged salaries as a fishing rod to attract smart people and I do not see anything wrong with it. For me it makes sense, they bring their profit to a devaluing currency to reduce employee retention and attract smart minds.

Note: But keep in mind some shady companies could use this as a marketing gimmick. Just market the trend, but not offer a fully pegged salary. eg: Maybe pegged salaries are only for senior employees or only a small portion of salary getting pegged.        

Any other negative sequences I should be aware of?

Anuradha Gajanayaka has nicely elaborated on the negative effect on the economy and the people. So I recommend you to go through his wisdom before joining a dollar-pegged company.

Final thoughts

In this article, I wrote about 5 things to consider before joining a dollar-pegged company. I want to take this space to thank all the individuals who helped me to gather information and the legal aspects of it. Finally cheers to all the companies that started dollar pegging to stop the brain drain in our country.

I do belive pegging is not the best thing for economy in long run, but it's the only thing employers can do at least for now. So local companies please do not be angry with me for promoting this.