What is employment Law?
Employment law is the law the governs the relationship between an employer and an employee. It is a broad area of law that balances employee rights against employer responsibilities and encompasses all matters related to the workplace.
How to establish an employment contract?
As per the employment law in Sri Lanka, a contract of employment can be established in writing, orally, or through conduct. Contracts of Service may have terms that are express or implied through the operation of the Law.
Are employment contracts mandatory for certain types of employees?
While the Law does not explicitly state that all workers must have a contract labeled “employment contract,” the overall regulatory framework presumes the existence of a formal relationship (a “contract of service”) and imposes duties on the employer to provide specific written particulars. The Shop and Office Act, N0. 19 of 1954 (“Shop and Office Act”), essentially applies to persons working in a shop or an office in Sri Lanka. In terms of the Shop and Office Act, employers are required to provide several essential particulars of employment in writing. These written details must include:
- The employee’s name, designation, the specific nature of their employment, and their grade.
- The normal hours of work expected of the employee.
- The rate and frequency of remuneration must also detail any allowances and overtime payments.
- The duration of the probationary period.
- Information regarding normal working hours, leave entitlements, holidays, and superannuation benefits.
- Other benefits offered, such as medical coverage and insurance.
- The prospects of promotion and any other defined conditions of employment.
Fixed-term Employees
This category of Employees is defined by a written contract of employment for a fixed term of time, specified in days, months, or years. A written contract is essential to draw distinction between fixed-term employment and regular employment.
What is the probation period?
The law pertaining to a probationer is set out in the Minimum Retirement Age of Workers Act No. 28 of 2021. Under this Act, a probationer is defined as a worker employed for a period not exceeding 180 days (6 months). During this initial period which is commonly called the ‘probation period’, the employer holds the sole discretion to determine the worker’s suitability for the specific position.
The employer has the option to extend the probation period for another 180 days (6 months). It is a requirement that the period of probation be clearly stipulated in the letter of appointment or the contract of employment.
Furthermore, either party can terminate the contract of employment without notice during the probation period.
What is a fixed term employment contract?
A fixed-term employment contract is a contract of service with a clearly defined tenure. A fixed term employment contract is characterized by the automatic termination of services once the defined term expires. Such a contract can subsequently be renewed for a further period.
However, the continuous renewal or extension of a fixed-term contract without any break in service, establishes a rebuttable presumption of regular employment in the eyes of any labour adjudicative forum extinguishing the employer’s right to rely on the expiry provisions contained in the renewed/extended Fixed term contract.
What are the standard working hours and overtime?
Shop and Office Act-
Standard working hours are specified for Shop & Office employees. The standard work schedule for these employees is 9 hours per day inclusive of a mandatory 1-hour meal interval. A period not exceeding 45 hours per week.
Wages Boards –
Wages Boards are bodies established in terms of the Wages Boards Ordinance of Sri Lanka to regulate conditions for workers in specific trades and industries. The conditions will include minimum wages, working hours and overtime pay.
Different work hours may apply depending on the industry. Overtime –
There is a maximum limit of 12 hours per week placed on overtime work. However, such restriction is not strictly enforced. In practice, executive cadre employees are not paid overtime on the basis that they are not remunerated in relation to hours worked but for discharging of functions and responsibilities relative to their designation. Any employee engaged in the capacity of a management trainee and above is considered to be employed in the capacity of an executive.
What are the minimum salary requirements?
According to the Minimum Wage of Workers Act No. 03 of 2016 (as amended) the National minimum monthly / daily wage payable to an employee in any private sector industry or service in Sri Lanka is as follows:
Effective from 1st April 2025 to 31st December 2025 –
- National minimum monthly wage – Rs. 27,000
- National minimum daily wage – Rs. 1,080
Effective from 01st January 2026 onwards –
- National minimum monthly wage – Rs. 30,000 (an increment of Rs.3,500)
- National minimum daily wage – Rs. 1,200 (an increment of Rs.120)
Budgetary Relief Allowances under the Act no. 36 of 2005 (as amended) and the Act no. 04 of 2016 (as amended) have been incorporated as a component and made part of the employee’s National minimum monthly / daily wages with effect from 31st March 2025 (Section 3, National Minimum Wage of Workers Act No. 03 of 2016 (as amended).
If an employee is covered by a wages board, the respective board retains the authority to prescribe minimum wages higher than the general statutory minimum.
Are there minimum overtime pay rates?
Specific surcharge rates apply to work performed beyond normal hours or on designated holidays:
- Overtime is payable at 1½ times the employee’s normal hourly wage and a proportionate amount for less than an hour. The formula for computation of overtime will be as follows:
- Remuneration on a daily rate- 1/8 of the daily rate;
- Remuneration on a monthly rate- 1/8 of monthly rate divided by 30;
- Remuneration on a fortnightly rate- 1/8 of fortnightly rate divided by 14;
- Remuneration on a weekly rate- 1/8 of weekly rate divided by 7.
- Work on weekly holidays also requires a surcharge of 1½ times the normal hourly wage.
- Work on statutory holidays entitles the employee to either an extra day’s wage or the option of taking an alternative holiday before 31st December of that year.
- Work on a Poya Holiday requires a surcharge of 1½ times the normal hourly wage.
What are the statutory levies an employer must be mindful of?
Mandatory statutory levies involve contributions to the Employees Provident Fund (EPF) and the Employees Trust Fund (ETF), alongside personal income tax.
| Levy | Employer Contribution | Employee Contribution |
|---|---|---|
| Personal Income Tax Rate (Applicable to monthly remuneration from 150,000/= onwards) | N/A | 6–36% |
| Employees Provident Fund (EPF) | 12% | 8% |
| Employees Trust Fund (ETF) | 3% | N/A |
Are employee entitled to sick leave and payments during illness?
Payment during periods of illness is not mandatory under Sri Lankan law.
However, Shop & Office employees are entitled to casual leave with full pay as follows:
- First calendar year: ½ day for every completed month of service.
- From second calendar year onward: 7 days per year.
This Casual Leave allocation would also include leave taken on medical grounds/ill-health.
What are employees’ annual leave entitlements?
Annual leave entitlements depend on tenure:
In Sri Lanka, Annual Leave is provided on an accrued/earned basis.
- Employees are not entitled to annual leave in their first calendar year of employment (i.e. the year in which the employee commences employment)
- Second calendar year of employment: entitlement is computed based on commencement date on their first calendar year and is as follows:—
- January 1 – March 31 → 14 days
- April 1 – June 30 → 10 days
- July 1 – September 30 → 7 days
- October 1 – December 31 → 4 days
- From the third calendar year of employment onward, 14 days of annual leave.
Are there any maternity benefits and workplace protection for employees in Sri Lanka?
Sri Lankan law provides strong maternity leave and workplace protection for female employees:
- Maternity leave consists of 84 days of paid leave for the delivery of a live child. This period excludes weekly holidays, public holidays, and full moon poya holidays. The female employee has the option to take 14 days prior to confinement and 70 days after the confinement)
- If the confinement does not result in the delivery of a live child, the employee is entitled to 42 days of paid leave (The female employee has the option to take 14 days prior to confinement and 28 days after the confinement).
- Female employees who have worked for less than 40 weeks may apply for up to 10 weeks of unpaid maternity leave,
- A female employee’s services cannot be terminated on account of pregnancy/confinement.
- Women in confinement must be assigned light work during the three months preceding and the three months following confinement. This assigned light work must not be injurious to the health of the female worker or the child conceived.
- Female employees nursing a child under one year of age are entitled to two nursing intervals per day. The duration of this interval is 30 minutes if the employer provides a creche, or one hour if a creche is not provided.
How can an employer terminate employment and what is the process?
It is common for Contracts of Employment to provide for termination by either party with notice or payment in lieu of notice. 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 application of these statutes, termination can only be effected in the following circumstances:
- With the employee’s consent (generally in the form of a resignation or mutual separation); or
- With the prior written approval of the Commissioner of Labour (“COL”); or
- For justifiable cause.
Remedies available to the employee:
An aggrieved employee may seek redress by filing an application within six months of such termination to either to a Labour Tribunal under the IDA or the Termination Unit of the Labour Department under TEWA, where the termination is not on account of disciplinary grounds, provided that the other pre-requisites are met.
The amount of compensation that may be awarded by COL under TEWA is regulated by specific provisions. Labour Tribunals in Sri Lanka award relief that they deem “just and equitable” based on the unique circumstances of each case based on the evidence presented before it.
Are non-compete covenants in employment contract enforceable?
Non-compete clauses are enforceable when expressly stated in employment contracts and are subject to reasonableness and public policy tests under Sri Lankan law. A non-compete obligation exceeding 12 months is likely to be struck down as unreasonable and thus unenforceable.
What are employee representation and collective rights?
Sri Lankan employees have several representation options:
- Trade Unions — may be registered under the Registrar of Trade Unions to advance workers’ collective interests. For a trade union to be deemed a “recognized trade union” a minimum of 40% of the employees must belong to the trade union.
- Collective Agreements — legally binding agreements between unions and employers/employer associations.
- Employee Councils — voluntary internal bodies to improve communication between employees and management.
Is employment of foreign nationals permitted in Sri Lanka?
Any foreign employee intending to work in Sri Lanka must obtain a valid residence visa or work permit prior to commencing employment. The employment of foreign nationals is subject to the same laws as those governing Sri Lankan nationals.
Are workers supplied by private employment agencies and temporary assignments to companies considered employees of the company?
Workers provided by private employment agencies are treated as employees of the agency, and not the company to which they were supplied. But the company should take steps to ensure the applicable supply agreement and the terms of the workers services are documented and structured in a way to ensure that, their true employment relationship may not be reassessed through judicial tests to determine the actual nature of service.
What are the country-specific labour insights?
- There is no formal categorization of employment under Sri Lankan law.Labour forums and tribunals are empowered to set aside the contract of employment and make their own objective assessment of the Employer-Employee relationship.
- Labour tribunals are not bound by law and are required to make a “Just and Equitable” order and generally adopt a pro-employee approach in adjudicating disputes.
- Termination where not sanctioned by the Commissioner of Labour can be challenged by the Employee, and the onus is on the Employer to justify termination.
Key Takeaways for Employers and HR Professionals
- Ensure written particulars of employment for all staff under the Shop & Office Act.
- Maintain compliance with EPF/ETF contribution requirements.
- Apply the correct probation, leave, and termination procedures to avoid liability.
- Implement fair maternity and workplace safety policies in line with national standards.
