Cap on Compensation Awarded by Commissioner of Labour Increased from LKR 1.25 million to LKR 2.5 million.

Cap on Compensation Awarded by Commissioner of Labour

Termination of employment in Sri Lanka is governed by 2 principal statutes namely the Industrial Disputes Act No.43 of 1950, as amended (“IDA”) and the Termination of Employment of Workmen (Special Provisions) Act No.45 of 1971, as amended (“TEWA”). On a collective reading of these statutes, termination can only be effected in the following circumstances:

  1. With the employee’s consent (generally in the form of a resignation);
  2. With the prior written approval of the Commissioner of Labour (“COL”);
  3. For justifiable cause

Where the COL gives approval for termination, the compensation payable for termination will be as per the formula set out in the Gazette setout in Annexure A hereto (“Termination Gazette”). The formula for computation of the quantum of compensation is as follows:

No. of years of service completed at the date of termination No. of months salary to be paid as compensation for each year of service Maximum compensation
1 to 5 2.5 12.5 months
6 to 14 2 30.5 months
15 to 19 1.5 38 months
20 to 24 1 43 months
25 to 34 0.5 48 months

The maximum compensation payable to an employee according to the above formula has been LKR 1.25 million. However, the Cabinet of Ministers has approved the proposal presented by the Minister of Labour to increase this cap on compensation from 1.25 million to 2.5 million.


ANNEXURE A Cap on Compensation
ANNEXURE A Cap on Compensation