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Conditions of Employment & Benefits in SriLanka

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 that process.

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.

b).2. Probation

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.

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 of skills.

b).4. Casual

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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 proceeding termination.

b).5. Temporary

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.

b).6 Seasonal

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 employment.

The State Apprenticeship Scheme is handled by the National Apprenticeship & Industrial Training Authority (NAITA).

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 enforced.

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

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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 acceptable.

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.

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

a. Remuneration

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.

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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 10th 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

Benefits

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

iii) Uniforms

iv) Bonuses

v) Incentives – These must be distinguished from piece rates, the latter being a system of computing wages.

vi) Transport allowances – This is not common

Bonus

Bonuses are not mandatory unless specifically agreed to in letters of appointment or Collective Agreements. Bonuses, if paid, are in many forms.

Customary Bonuses

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.

Attendance Bonuses

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

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must be looked at as a mater requiring professional industrial relations advice and guidance.

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 leave.

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 observed).

Overtime

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.

Holidays

Weekly

Employees who work for not less than twenty - eight (28) hours (excluding overtime and meal intervals) in any one week must be allowed 1 1/2 days paid holidays. Most

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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 following week.

Statutory

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 day's pay.

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.

Annual Leave

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.

Poya Holidays

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.

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 10.00 p.m.

Jayadeva de Silva can be contacted by e mail

djayadeva@gmail.com

Tel 077 72 72 295

Your notes

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