Sri Lanka, like Hong Kong, Malaysia and Singapore (all former British Crown Colonies),
has traditionally relied on employer liability to provide for employee injury compensation,
complementing it through the Workmen’s Compensation Ordinance (WCO).
2. We find that the current WCO legislation suffers from several major deficiencies with
respect to ILO Convention C121. Most importantly, it fails to provide periodic payments
for permanent disability and death, sets too low a ceiling on compensation, and fails to
provide a mechanism to adjust benefits for inflation. Analysis of claims indicates that
these combine to reduce the average monetary value of benefits to less than 10% of the
level required by ILO standards. Sri Lanka provides the lowest level of benefits to
covered workers in the Asia-Pacific region.
3. The characteristics of the current WCO means that it fails to protect workers and their
families against the catastrophic financial costs of severe injury. At the same time, the
WCO performs very well in protecting employers from such financial risks, and so should
be properly described as an employer injury protection scheme.
4. Stakeholders agree about the desirability of addressing the current shortfalls in the WCO
with respect to the ILO standards. They disagree or lack consensus about how the
increase in formal costs should be distributed. However, regardless of any reforms, it is
important to note that the full costs are already borne by workers and their families who
suffer various hardships as a result of inadequate compensation.
5. We recognize that any decisions to reform the current system should be made by
stakeholders or government acting on behalf of all citizens. We recommend to the
stakeholders and government that Sri Lanka substantially reforms its employee injury
compensation legislation to bring it up to regional and ILO standards, as the current
situation should make no Sri Lankan happy or proud, fails to protect workers adequately,
and is not consistent with the country’s aspiration to reach upper-middle income status.
6. Compliance with ILO standards will require increases in the value of compensation,
introduction of periodic payments for permanent disability and death, and the introduction
of a mechanism to adjust benefits according to inflation. Improving current levels of
coverage are fully consistent with the national goals of expanding industrialization and
increasing exports.
7. We recommend that the increased level of benefits be funded through introduction of a
formal scheme to distribute costs widely between firms, and to protect individual firms
and workers from the financial risks of large compensation events.
8. We recommend on the basis of review of the relative merits and disadvantages, that Sri
Lanka adopts the Malaysian SOCSO model and expand ETF to provide the needed
coverage. The scheme would require employers to contribute ~1.5% more towards the
ETF. This solution has the merit of requiring the least changes in current institutional
structures, whilst being the simplest and least costly for employers and workers. It can
also be easily coupled with giving ETF a major responsibility for developing and funding
risk-reduction and return-to-work programmes.