Gratuity Calculator for Sri Lanka

Gratuity is a statutory terminal benefit payable to eligible employees upon termination of employment. It is governed primarily by the Payment of Gratuity Act No. 12 of 1983, which requires employers to pay a lump-sum amount based on the employee's completed years of service and final salary. It is a recognition of long-term service and provides financial security at the end of employment.

Under the Payment of Gratuity Act 1983, any employee who has completed five or more years of continuous service with the same employer is entitled to gratuity upon termination (including resignation, retirement, death, or dismissal, subject to conditions). Eligibility criteria may vary if there is a collective agreement or employment contract that provides more favourable terms.

The statutory formula under the Payment of Gratuity Act No. 12 of 1983 is: (Last drawn monthly salary × 0.5) × completed years of service. Example: an employee with 10 completed years and a salary of LKR 100,000 is entitled to LKR 100,000 × 0.5 × 10 = LKR 500,000. Only completed whole years count; partial years do not qualify unless the employment contract specifies otherwise.

The last drawn salary for gratuity purposes is typically the basic monthly wage at the time of termination. It generally excludes overtime payments, allowances, bonuses, and other irregular payments unless the employment contract or collective agreement specifies otherwise. Always verify the applicable definition in your specific contract.

Under the Payment of Gratuity Act 1983, the minimum qualifying period is five years of continuous service. Employees who leave before completing five years are generally not entitled to statutory gratuity, although some employment contracts or collective agreements may provide entitlement after a shorter period.

The Payment of Gratuity Act requires that gratuity be paid within one month of the date of termination of employment. Failure to pay on time can result in the employer being liable for additional interest. Disputes regarding gratuity can be referred to the Labour Commissioner.

Gratuity received by an employee may be exempt from income tax up to a specified threshold under current IRD rules. Amounts above the exempt threshold may be subject to income tax. Tax treatment can also depend on how the gratuity is classified and whether it is paid under the Payment of Gratuity Act or a voluntary scheme. Confirm the applicable tax position with a qualified tax professional before processing final settlements.

Whether a contract employee qualifies for gratuity depends on whether the engagement constitutes continuous service under the Payment of Gratuity Act. Employees on fixed-term contracts renewed consecutively may be considered to have continuous service. Independent contractors who are not employees in the statutory sense generally do not qualify. Each case should be assessed individually.

Yes. Employers may choose to pay more than the statutory minimum through a voluntary gratuity scheme or as specified in an employment contract or collective agreement. The statutory formula is the minimum floor, not the maximum. Enhanced gratuity is common as part of competitive employment packages, particularly in larger organisations.