Employment Entitlements · Sri Lanka
Know what you are owed when employment ends.
Gratuity under the Payment of Gratuity Act No. 12 of 1983, with EPF and ETF contributions and the true monthly cost of employment.
Formula
Half a month's salary x each completed year
Payment of Gratuity Act No. 12 of 1983
Gratuity Payable
Only fully completed years count towards the payment. Terminal benefits up to LKR 5,000,000 carry no APIT retention.
Indicative only · Gratuity under Act No. 12 of 1983 · EPF and ETF at statutory rates · Confirm entitlements with the Department of Labour or an attorney.
Eligibility
Four conditions decide whether gratuity is payable.
01
Five Years of Service
The employee must have completed at least five years of continuous service with the employer. Only fully completed years count towards the payment.
02
Fifteen or More Employees
The Act applies where the employer has employed fifteen or more workers in the twelve months preceding the termination.
03
Any Form of Termination
Gratuity is payable on resignation, retirement, dismissal or death in service, subject to the Act. It is not limited to redundancy.
04
Payable Within 30 Days
The employer must pay the gratuity within thirty days of the termination. Late payment can attract a surcharge under the Act.
Worked Example
How the half-month rule works in practice.
Gratuity is not a percentage of total earnings over a career. It is calculated on the last drawn salary, which means a promotion or increment shortly before leaving raises the entire entitlement. Partial years are disregarded, so an employee who leaves at six years and eleven months is paid for six.
Where an employee is dismissed for serious misconduct, the employer may in defined circumstances forfeit part of the payment. That is a contested area, and it is worth taking advice before accepting a reduced figure.
Monthly-paid worker
Provident Fund & Trust Fund
Separate from gratuity, and payable from day one.
8%
Employee EPF
Deducted from the employee's gross salary each month and credited to their provident fund account under the EPF Act No. 15 of 1958.
12%
Employer EPF
Paid by the employer on top of salary into the same provident fund account, bringing total EPF credit to 20 per cent of gross.
3%
Employer ETF
Funded entirely by the employer under the ETF Act No. 46 of 1980. Nothing is deducted from the employee for this.
Frequently Asked
Gratuity and provident funds, in plain language.
How is gratuity calculated in Sri Lanka?+
For a monthly-paid worker, gratuity is half of the last drawn salary multiplied by each completed year of service. A worker on LKR 75,000 with 7 completed years receives LKR 262,500. Daily-paid workers accrue 14 days' wages for each completed year.
Who is entitled to gratuity?+
Under the Payment of Gratuity Act No. 12 of 1983, an employee who has completed five years of continuous service with an employer that has fifteen or more employees is entitled to gratuity on termination of employment.
Does the salary used include allowances?+
The base salary for gratuity is the basic or consolidated salary together with any cost of living, special living or similar allowance paid to the employee. It is the last drawn figure that applies.
Do I get gratuity if I resign?+
Yes. Gratuity is payable on termination of employment generally, which includes resignation, provided the five years of continuous service and the employee-threshold conditions are met.
What are the EPF and ETF contribution rates?+
The employee contributes 8 per cent of gross salary to the Employees' Provident Fund and the employer contributes 12 per cent. The employer separately contributes 3 per cent to the Employees' Trust Fund. Statutory on-costs therefore add 15 per cent above gross salary.
Is EPF the same as gratuity?+
No. EPF is a monthly contributory retirement fund built from employee and employer contributions throughout employment. Gratuity is a separate lump sum paid by the employer on termination after five years of service.
Is gratuity taxed in Sri Lanka?+
Only the larger payments are. Gratuity is a terminal benefit under IRD Tax Table 03. Where your terminal benefits for the year add up to more than LKR 5,000,000, the payer retains 12 per cent of the amount above that figure. Below LKR 5,000,000 nothing is retained.
Is the 12 per cent the final tax?+
Not necessarily. It is a retention made at the point of payment. The retiring employee can apply to the Clearance and Directions Unit of the Inland Revenue Department within 90 days for a direction on the correct treatment.
Do partial years count?+
No. Only whole completed years are used. Someone who leaves after six years and eleven months is paid for six years, which is why timing a resignation close to an anniversary can matter.
What can I do if my gratuity is not paid?+
Unpaid gratuity can be pursued through the Commissioner of Labour, and disputes over termination entitlements may also be taken to a labour tribunal. Take advice early, because time limits apply.
In accordance with Supreme Court Rules 1988, these tools and documents are provided for informational purposes only. AW Chambers maintains this repository as a public utility to support legal literacy.
Gratuity unpaid, or a termination you want reviewed?
