Payroll and Benefits Guide Sri Lanka

Termination Process

Employers can terminate a fix-term contract by giving the following reasons – business, personal, or employees misconduct. It requires notice and a written explanation for the termination.
Employers are required to pay a half month’s salary for each year of completion if the employee’s service period exceeds five years at the time of retirement, resignation, or retrenchment.
Concessionary tax rates apply to sums paid to an employee on cessation of employment when the scheme is uniformly applicable to all employees by way of compensation, commuted pension, retirement gratuity, and contributions to the Employees’ Trust Fund. Accumulated employer’s contribution to an approved or regulated provident fund when withdrawn, is exempt from tax.

Notice Period

The minimum statutory notice period is determined within the job role and respective contract/agreement, however, general notice periods are for a maximum of six months.

Severance Pay

Employers are required to pay a half month’s salary for each year of completion if the employee’s service exceeds 5 years at the time of retirement, resignation, or dismissal.

Probation Period

There is no clear provision in labor laws on the duration of the probation period in Sri Lanka. Generally, the probation period is six months, however, it cannot be for longer than one year for senior employees or six months for other employees (in some cases the maximum limit on a probationary period is three months).