Gratuity Not Paid on Time: Surcharge and Recovery
Gratuity is due within 30 days of termination. Miss the date and a surcharge of 10% to 30% runs on the unpaid sum. How it is calculated and recovered.
On this page
- When does the 30-day clock start?
- How is the surcharge worked out?
- How does a worker recover unpaid gratuity?
- What can the Commissioner of Labour do?
- What if you disagree on the amount, not just the delay?
- How to avoid the problem: set money aside every month
- Frequently asked questions
- What if the business has closed or you cannot find the employer?
- Does the surcharge apply if the delay was not your fault?
- What if the years of service are disputed, not just the payment date?
- Can an employer negotiate a lower surcharge directly with the worker?
- Is the 30-day deadline different for a smaller employer?
You must pay gratuity within 30 days of the worker’s last day. Miss the date and you owe a surcharge (a fine added for paying late) on top. It starts at 10% and can rise to 30%. The worker can ask the Commissioner of Labour to confirm the debt in writing. A Magistrate can then enforce it like a court fine.
When does the 30-day clock start?
The Payment of Gratuity Act No. 12 of 1983 sets the rule. It applies if you employed 15 or more workmen (workers, in the Act’s words) on any day in the 12 months before the worker left. It covers any worker with at least 5 completed years of service. You must pay gratuity “within a period of thirty days of such termination” (s.5(1)).
The Act sets the due date exactly (s.5(4)). It is the thirtieth day after the worker’s last day. This applies whether the worker resigned, was dismissed, retired, died, or left in any other way. There is no grace period. The worker does not need to ask for the money first. The 30 days start automatically from the last day worked. They do not start when a claim is made, or when you agree the figure.
How is the surcharge worked out?
Section 5(4) of the Act sets a rising scale. It is based on how late the payment is, past the due date:
| Delay past the due date | Surcharge on the unpaid gratuity |
|---|---|
| Up to 1 month | 10% |
| Over 1 month, up to 3 months | 15% |
| Over 3 months, up to 6 months | 20% |
| Over 6 months, up to 12 months | 25% |
| Over 12 months | 30% |
Source: Payment of Gratuity Act No. 12 of 1983, s.5(4).
The surcharge is worked out on the unpaid gratuity, not on the salary. You owe it on top of the gratuity, not instead of it. The surcharge never goes past 30%, even years after the due date. But 30% of a larger gratuity is a much bigger sum. Section 8(8) says the word “gratuity” includes the surcharge once it is added. So the whole amount, gratuity plus surcharge, is recovered together.
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How does a worker recover unpaid gratuity?
A worker who has not been paid can complain to the nearest Labour Office. A Labour Officer or the Commissioner looks into the case. If you still do not pay, the Commissioner issues a certificate. It states the sum due and your details as employer (s.8(1)).
That certificate goes to the Magistrate for your area, who calls you in to explain. If you cannot show good cause, the court treats the unpaid amount like a criminal fine. It can be recovered the same way courts collect fines: in instalments, or by prison time if you still do not pay (s.8(1), s.8(5)). The court accepts the Commissioner’s certificate as proof that the amount is correct and unpaid, unless you show otherwise (s.8(2)).
If the worker dies before getting the gratuity owed, the Act says you must pay their heirs, the people who inherit from them, instead (s.9).
What can the Commissioner of Labour do?
The Commissioner, or an officer with written authority, can enter and inspect your workplace at reasonable hours. They can examine gratuity records, take copies, and question anyone believed to be an employer or in default (s.11). The Commissioner can also order you in writing to produce specific records (s.12). Blocking an inspection is itself an offence.
Separate from the surcharge, not paying gratuity, or breaking any other part of the Act, is a criminal offence. It carries a fine of up to Rs 500, up to six months in prison, or both (s.15). That fine was set in 1983, and is now small next to the surcharge, where the real cost sits.
What if you disagree on the amount, not just the delay?
The Commissioner’s certificate route in section 8 is for gratuity that is not seriously disputed, just unpaid. You and the worker might disagree on the amount, for example over years counted or whether a bonus counts as “wage or salary”. Then the question goes to a Labour Tribunal under the Industrial Disputes Act, not the Magistrate’s Court. If you employ fewer than 15 workmen, the Payment of Gratuity Act does not cover you. Every gratuity question then goes straight to the Labour Tribunal.
A collective agreement, Industrial Court award, or other settlement can replace the Act’s formula. But only if it is better for the worker, and the worker cannot claim both (s.10).
You can forfeit gratuity (keep it back) if you ended the worker’s job for one of four reasons (s.13). Those are fraud, taking your funds, damaging your property on purpose, or causing you to lose goods or property. Forfeiture can be of the whole gratuity, or only up to the value of the loss. This rule is narrow, not a general excuse for paying late.
How to avoid the problem: set money aside every month
Most late-gratuity cases are cash-flow problems, not legal ones. No money gets set aside, so you get caught short when several long-serving staff leave close together.
The fix: treat gratuity as a cost that builds up every month from a worker’s first year, not a bill that lands on their last day. See Gratuity Provision: How to Accrue It Every Month for the method. Add the payout to your leaver checklist too, using Final Settlement in Sri Lanka: What to Pay a Leaver. Get the years-of-service figure right first, using Length of Service: Counting Years for Gratuity. For who qualifies and how much is owed, see 6 things to know about gratuity in Sri Lanka. Check any figure with the gratuity calculator.
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This is general payroll guidance. Every case is different. For your own case, speak to a payroll practitioner or a lawyer.
Frequently asked questions
What if the business has closed or you cannot find the employer?
The debt does not disappear. If the employer has died, their legal representative must pay it (s.5(2)). If a business has stopped trading, the worker should still complain to the Labour Office. Recovery gets harder in practice, but the Commissioner and courts route stays open.
Does the surcharge apply if the delay was not your fault?
The Act does not give a general excuse for delay. But you can raise your reasons when asked to explain to the Magistrate under section 8. This defence is not automatic; go through the process first.
What if the years of service are disputed, not just the payment date?
That is a dispute about the amount, not the delay. A Labour Tribunal under the Industrial Disputes Act decides it, not the Commissioner’s certificate process.
Can an employer negotiate a lower surcharge directly with the worker?
No. The Act does not let either side negotiate the surcharge away privately. A collective agreement or Industrial Court award can replace the statutory gratuity formula, but only if it favours the worker (s.10). It cannot cut a surcharge already built up for late payment.
Is the 30-day deadline different for a smaller employer?
The 30-day deadline in section 5 applies only when both of these are true. You employed 15 or more workmen on any day in the 12 months before the worker left. And that worker has 5 or more years of service. Below that threshold, the Payment of Gratuity Act’s payment rule does not cover you. Gratuity questions for your staff go to a Labour Tribunal instead.
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