Conditions of employment & benefits by Jayadeva de Silva
Conditions of Employment & Benefits in
By. M.U.J. de Silva M.Sc, MBIM, FITD, FIPM.
1. Employment and its Termination
1.1 Letters of Appointment.
Letters of appointments are not required by law, except under the Shop & Office Employees
'Act', which requires that, the basic terms of employment should be given in writing to an
employee. However, it is now becoming a standard practice to issue a letter of appointment to
employees setting out the terms of employment. The duplicate of the letter should be signed in
acknowledgement by the employee. If the letter is in English, a translation should be, ideally,
provided. It is of great evidentiary value in proving what the specific contractual obligations
were or what financial benefits were agreed to.
A Labour Tribunal, Arbitrator or the Commissioner of Labour could by assessing the facts
decide whether in a particular situation there is a contract of employment, despite the fact that
there is a written document which says that a particular person was a mere agent. Courts have,
however, cautioned that equity must apply to both the employee as well as the employer and
that the discretion given does not imply the freedom of the 'wild horse', Tests such as:
Who supervises the Person
Who has the right to hire and fire
The integrator test, what is the integral or core business and is the person a vital part of
The 'Economic reality test' - is the person in business on his own account, are applied to
decided the legal question of whether a contract of employment exists.
b). Types of Employment
b).1. Monthly Contract of Employment
A monthly contract of employment is one, which automatically renews every month,
unless and until either party terminates it. A Monthly Contract of, Employment therefore, gives
an employee the right to remain in employment until he/she reaches the retirement age unless
the employer terminates it prior to that. It is therefore often referred to by employers and
workman as 'permanent employment' and may be regarded as the normal type of contract for
employment which is regular.
A probationer is generally appointed for a job of a permanent nature and is selected
with reference to his general ability for the job for which is intended. Probation has been
defined in judicial decision as a 'fixed and limited period of time for which an organization
employs a new employee in order to assess his/her aptitude, abilities and characteristics and
the amount of interest he/she shows his /her job'. The Employee has a trial period to prove
himself/herself. A Court would interfere with the dismissal of a probationer only if the employer
has acted mala fide and would not interfere with the employer's rights to assess the
probationer's competence or conduct.
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b).3. Fixed Term Contract of Employment
A Fixed Term Contract of Employment is one, which is entered in to for fixed term without any
guarantee that the Contract would be renewed on the expiry of the period stipulated. At the end
of the period stipulated, the Contract automatically comes to an end. Renewal is at the
discretion of the employer.
Where an employer has, as a matter of practice, renewed fixed term contracts, it may be argued
that there is an implied understanding that the employer would renew the Contract in the
absence of bad conduct, redundancy, inefficiency, medical or physical incapacity or irrelevancy
A Casual employee should be any person who has no right to expect daily or regular
employment and conversely the employer will have no right to expect him/her to report for
work. In other words, a casual employee may report for work as and when he/she likes and he/
she can be employed as and when the employer pleases. The Practice of having casual
employees to be substituted for absence of permanent employee is very common. However, it
must be born in mind that the Termination of Employment (Special Provisions) Act gives
coverage to an employee who has worked 180 days in a period of 12 Months immediately
A temporary employee is one who is employed to perform a particular job; based on a
temporary need eg; when a permanent employee has gone on long leave.
It is preferable where possible, to employ a temporary worker on a contract of employment
which defines the time period to which the contract is limited. If the nature of the job is such
that it is not possible to stipulate the period of the temporary employment by reference to the
date on which it will cease, the contract should state that it will automatically terminate on
completion of the particular job. If the need continues beyond the defined period it is advisable
to issue a new Temporary Contract of Employment on similar terms.
Employees engaged in employments, which are seasonal, are termed 'Seasonal Workers' Eg: in a
residential hotel during the tourist season in the staff to meet the increased demand which is
not necessarily consistent throughout the year.
There is no obligation on an employer to renew the contract in the succeeding year. A
letter of appointment is advisable. Seasonal employment is permitted in agriculture, tourism,
confectionary, and soft drinks industry &, in the case of other special cases, the Commissioner
of Labour should be asked for his approval.
b).7. Apprenticeship or Training
A contract of Apprenticeship is one where the employer agrees to teach the apprentice his trade
so that the apprentice learns and acquires the necessary skill to perform the job for which he
will be trained. The apprentice in turn agrees to learn the particular trade of the employer and
serve the employer during the period of training. During the pendency of the contract, the
employer is obliged to pay an allowance and not a wage to the apprentice as an apprentice
enters in to a Contract of Apprenticeship not necessarily to earn money by such contract, but
with the intention of being and thus acquires skills which would be of value to him in securing
The State Apprenticeship Scheme is handled by the National Apprenticeship & Industrial
Training Authority (NAITA).
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C). Independent Contractor/ Contract Labour
Contract labour is labour supplied by an independent contractor, i.e. a person who is in
business on his/her own account. Applying the 'economic reality' test designed by the Courts, it
could be said that the Contractor is one who performs the service for profit and is not an
employee of the Principal.
D). Cessation of Employment
d). 1. Termination of employment on disciplinary grounds and constructive dismissal.
d). 1. (a). Disciplinary Grounds
The contract of employment may terminate in a variety of ways. The Employer for
disciplinary reasons could terminate a contract. Statute l does not define the degree of
misconduct or the type of misconduct, which should result in the termination of a
Contract of employment. These factors are to be found in the common law as developed
or modified by our Labor Courts and Appellate Courts. Broadly speaking it is the nature
of the particular business and the position held by the employee in that business which
determines the gravity of the misconduct. Misconduct broadly is conduct explicitly or
implicitly in violation of contractual obligations. It is important to bear in mind that the
test whether an obligation is fair would be an objective one of whether a reasonable
employer would or could expect compliance. An obligation, which is illegal, cannot be
d). 1. (b). Constructive Termination
The termination of Contract of Employment could also arise in consequence of a breach
of the Contract by the employer. For instance: In a situation where the employer, without
any justification, refuses to pay an employee's salary, the employee can treat the
employer's refusal as a 'Constructive Termination' of his Contract of Employment, and he
will have the right to have recourse to a Labour Tribunal on the termination of his
employment. A common situation is where a demotion is unilaterally imposed. This is not
d). 2. Termination of employment on Non –Disciplinary Grounds
Where an employee is in a Scheduled Employment as defined in the Termination of
Employment (Special Provision) Act and has worked for more than 180 years in period of
12 months, the employer has to comply with the provision of the Act (Please see section
on the Termination Act for further discussion).
If the employer argues that a termination was for disciplinary reasons, then he should
have, within 48 hours of the dismissal, issued a letter of termination specifying the
grounds for dismissal.
d). 3. Frustration of Contract and impossibility of Performance
A contract is deemed by law to have automatically come to an end in situations were
performance of the contractual obligations becomes impossible. In other words, a
contract could come to an end in circumstances where without the default of either party,
the contract becomes inoperative due to factors beyond the control of the parties to the
contract. 'frustration', means that there has been such a change in the circumstances,
that the performance of the contractual obligations has become unlawful or that the
circumstances have made it physically impossible for the contract to be performed. For
instance, a situation where the business is destroyed by fire, the contracts deemed to be
terminated as the contractual obligation between the employer and the employee
becomes impossible to perform. Frustration cannot be caused by the party pleading it.
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d). 4. Resignation
'Resignation' more or less means a termination of the Contract by the Employee. It is
fundamental to a Contract of Employment that an employee cannot be compelled to
perform his contract if he wishes to terminate it. Therefore, where an employee leaves his
job without notice in breach of his contract of employment, the employer's only remedy
is on of damages for breach of contract and the employee cannot be compelled to
perform his contract. His refusal to accept the resignation only means that the employee
then has an open-ended right to return to employment. It is advisable to accept a
resignation in writing.
d). 5. Retirement
The law does not specify a retirement age and therefore, reference is effected in terms of
the contract of employment or a Collective Agreement as the case may be. Many
employers retire employees at the age of 55 years. An employee if he is to continue
beyond this age is put on a fixed term contract. Executives usually are retired at the age
of 60 years. The Termination Act requires the consent of the employee, or a clause for
retirement in a letter of appointment or an age of retirement in a collective agreement to
create the possibility of retirement without the need for permission by the Commissioner
of Labour. It is therefore important to include the age of retirement in all permanent
letters of appointments.
d). 6 Vacation of Employment
In a situation where an employee is absent from work without leave/authority or
intimation for a long period of time, the employer is entitled to act on the basis that the
employee has abandoned employment and treat the contract of employment as having
been terminated by the employee. However the circumstances should reveal an intention
not to return to work. If the employee has indicated that he is ill, the presumption of
vacation cannot be drawn.
2. Remuneration and Benefits
Generally in Sri Lanka, permanent employees are paid salaries on a monthly basis and casual
employees on a daily rate payable daily, but for purposes of convenience, computed weekly.
Remuneration could consist of time rated pay, piece rates, incentives, commissions, and
other allowances such as for attendance. Service charges paid by hotels are not regarded as
part of remuneration although it is a substantial monetary benefit to employees in this sector.
A cost of living payment, if paid on a monthly basis, could be regarded as part of
remuneration although an annual lump sum to compensate for increases in inflation on any
basis would not be treated as such.
If they are due daily as in the case of casuals, the payment should be made at the end of the
day. Weekly wages are due within three days of the end of the period, fortnightly wages
within seven days and monthly wages within 10 days.
Many employers who pay monthly salaries, pay the previous month's salary on the 10 th of the
following month, which is the last date allowed for such payments. However, in shops and
offices the norm would be to make payment by the 25th of the same month in which the
salary is earned. Other payments, such as overtime and incentives, are paid between wage
payments to ensure that employees receive some payment twice in the month.
Where a Wages Board exists for a trade, the rate prescribed is the minimum. Employees or
their unions may negotiate higher salaries. Most wage Boards rates are time rated and
presence at work qualifies an employee to payment
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Other benefits on which a monetary value could be placed are:
i) Medical Benefits- Usually given only to the employees. Insurance schemes are
available for this purpose.
ii) Meals or meals allowance
v) Incentives – These must be distinguished from piece rates, the latter being a system
of computing wages.
vi) Transport allowances – This is not common
Bonuses are not mandatory unless specifically agreed to in letters of appointment or
Collective Agreements. Bonuses, if paid, are in many forms.
These are payments made annually to coincide with festivals such as Christmas or
the Sinhala / Tamil New Year.
The quantum could be a flat rate to all employees or paid on the basis of a number
of months salary, which then gives different amounts to different employees.
These payments are not tied to profits to losses and would be looked at for
accounting purposes as fixed cost.
Profit / Performance Bonuses
Many companies pay a bonus only if profits are made if they exceed a certain
amount. The payment is determined by the Management. Some companies however
have a negotiated formula.
Bonus formulae may take in to account factors such as attendance and performance
of individual employees.
Production Bonuses / Incentive Bonuses
These are paid monthly, quarterly and seldom on an annual basis. The concept is to
give a lump sum, free of provident and trust fund payments, to supplement wages
and as a reward for performance, individually or collectively.
Since attendance at work is a major problem, these payments are quite popular. They
are paid usually on a monthly or quarterly basis. Those who have been on no pay for
unauthorized absence are not paid any part of the bonuses. The scheme usually
permits a day or two of authorized leave and thereafter the payment gets reduced for
more leave taken. After a fixed point, even authorized leave will disentitle the
employee to any payment at all.
It must be noted that the non-payment of an annual bonus becomes an industrial
dispute and has been the cause of many strikes. Once payments have been made,
the employees tend to view the payment as a right and bonus payment must be
looked at as a mater requiring professional industrial relations advice and guidance.
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General Aspects of State Intervention
a). The Labour Commissioner and his Officers could inspect any work place and examine records
in order to satisfy themselves that laws are being compiled with.
b). 'The Industrial' Dispute Act gives the Commissioner the right to intervene in disputes and
attempt to conciliate.
c). An unresolved dispute could be referred to compulsory arbitration.
d). For a violation of the law, prosecutions are launched by the Commissioner
e). The Commissioner intervenes in the event of a non-disciplinary termination in violation of the
Termination of Employment Act.
f). A Labour Tribunal may order reinstatement or compensation to a dismissed employee.
3. Relevant Labour Legislation
There are several laws in respect of different categories of employees. However, the principle
enactments are as follows
Shop and Office Employees' Act
The Shop & Office Employees' Act Provides for the regulation of hours of employment in shops and
offices, regulation of remuneration, fixing of wage periods and also provides for authorized
deductions from wages, and for matters connected there with. The Act also deals with health and
comfort of employees. Maternity benefits, weekly, annual holidays, statutory holidays as well as
Application of the Act
Broadly speaking, the Shop & Office Employees' Act is applicable to Shops and offices in
Sri Lanka and to all those who are employed in and about the business of a shop or office
in Sri Lanka. The Act however, has exempted certain categories of employees and
premises from the operation of the Act in whole or part. For instance: persons employed
in the capacity of a Watcher or Caretaker, are exempted from the operation of the Act
and persons employed as sales representatives or in similar or comparable field activities
are exempted from the provision in the Act regarding hours of employment (other
provisions are applicable to them).
Hours of Employment
The normal period during which any person may be employed in a shop or office should
not exceed eight (8) hours on any one day and should not exceed forty five (45) hours in
any one week. In effect a person may be employed for eight hours during the five week
days and five hours on the Saturday or Sunday (if these are the weekly holidays
Any work performed beyond the normal hours of work should be remunerated at the rate
of 1 1/2 times the normal hourly rate and a proportionate amount for less than an hour. In
other words, any person employed beyond eight hours on any full working day in a week
should be paid overtime for working in excess of eight hours on that day. Similarly if any
person works in excess of forty five hours in any one week overtime should be paid
notwithstanding that he /she may not have exceeded eight hours on any week day in that
week. However, an employee cannot be employed on overtime for more than twelve (12)
hours in any one week.
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Employees who work for not less than twenty - eight (28) hours (excluding overtime and
meal intervals) in any one week must be allowed 1 /2 days paid holidays. Most
establishments observe the weekly holidays as Saturday and Sunday. The Act however,
does not specify the days on which the weekly holidays should be given. If a weekly
holiday is not given in any one week an alternative holiday must be allowed in the
The Act entitles the Minister to declare in each year a total of nine statutory holidays.
Statutory holidays must be allowed on full pay. Employment on statutory holidays is not
permitted unless with the prior permission of the Commissioner of Labour. If an
employee is required to work on a statutory holiday, an alternative holiday must be
allowed before the calendar year or the employee should be remunerated at twice the
daily rate. In the case of a monthly paid employee, the extra payment is one additional
Statutory Holiday Coinciding with A Weekly Holiday
Where a statutory holiday falls on what is customarily a weekly holiday or half holiday, an
alternative holiday or half holiday must be allowed as the weekly holiday or half holiday
as the case may be.
In the first calendar year of employment, an employee is not entitled to utilize annual
leave if the employee is in continuous employment until the end of the first calendar
year; he earns a certain quota of leave, which can be taken in the succeeding calendar
year. The quota of leave depends on the length of service in the first calendar year. On
this basis the following proportionate leave is given to employee in the second calendar
year of employment.
14 days - if employment commenced on or after 1st January and before 1st April.
10 days - if employment commenced on or after 1st April and before 1st July.
7 days- if employment commenced on or after 1st July and before 1st October.
4 Days- if employment commenced on or after 1st October.
Every employee in a shop or office should be granted a holiday on a full moon Poya day.
An employee may be employed on a full moon Poya day. An Employee may be employed
on a Full Moon Poya Day subject however, that the Period of employment does not
exceed the normal working hours and is remunerated at not less than 1 1/2 times the
normal daily rate of remuneration. If the employee is on a monthly salary, strictly, the
extra payment is only additional half days remuneration, but most employees pay the
same rate as for a statutory holiday.
Where a full moon Poya day falls on a statutory or weekly holiday, no additional holiday
need be given to employees in lieu of the Poya Holiday.
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Restriction of Employment of Persons Under 18 Years of Age
The Act totally prohibits the employment of any person who is under fourteen (14) Years of age .Persons
under 18 years of age shall not be employed in or about the business of a shop or office before 6.00. a.m.
or after 6.p.m. on any day, provided that. Any male who has attained the age of sixteen (16) years can be
employed in or about the business of a hotel, restaurant or place of entertainment between 6.00 p.m. and
Jayadeva de Silva can be contacted by e mail
Tel 077 72 72 295
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