Employee Termination Procedure Checklist (Sri Lanka)

Track 1: Misconduct dismissal — disciplinary inquiry checklist

A lawful misconduct dismissal requires a proper internal inquiry. Procedural shortcuts are the most common grounds for reinstatement at the Labour Tribunal.

1. Issue a written charge letter specifying the alleged misconduct
2. Give the employee a reasonable opportunity to respond in writing
3. Conduct an internal inquiry with a genuinely independent finding
4. Assess whether dismissal is proportionate to the misconduct (avoid disproportionate penalties for minor issues)
5. Document the inquiry findings and the decision rationale
6. Issue the termination letter referencing the inquiry outcome
7. Calculate and prepare final pay including any statutory entitlements

Track 2: Retrenchment — TEWA procedure checklist

Retrenchment for economic or operational reasons follows the Termination of Employment of Workmen (Special Provisions) Act No. 45 of 1971.

1. Confirm the role elimination is genuine (economic or operational restructuring)
2. Apply through the Commissioner of Labour for retrenchment approval
3. Follow the TEWA notice and consultation requirements
4. Determine severance pay entitlements under the applicable formula
5. Issue formal retrenchment notices to affected employees
6. Calculate and prepare final pay including gratuity, leave, and severance
7. Document the business justification and approval trail

Final-pay calculation items

• Outstanding salary and wages up to the last working day
• Accrued but untaken annual leave — encashment amount
• Notice period pay (if payment in lieu of notice is used)
• Gratuity — half-month formula for employees with 5+ years of continuous service
• Any outstanding advances, loans, or recoveries to be deducted
• EPF/ETF contributions for the final month
• APIT deduction on terminal benefits (Schedule 02 of the APIT annual statement)

Document retention for terminated employees

• Employment contract and all amendments
• Disciplinary inquiry records (charge letter, responses, findings)
• Termination letter and acknowledgement of receipt
• Final-pay calculation and payment evidence
• Gratuity calculation worksheet
• EPF/ETF final contribution records
• Retain for a minimum of 7 years post-termination

Labour Tribunal dispute readiness

The Labour Tribunal has jurisdiction over dismissals going back one year. Employers lose most cases due to incomplete procedure, not unfair reasons.

• Ensure every termination decision has a complete document trail
• Keep written evidence of the employee being given opportunity to respond
• Retain attendance, performance, and disciplinary records
• Compensation awards typically range from 3 to 12 months' salary
• Reinstatement orders are possible alongside compensation