For the severance payment (Severance Payment) and the long service payment (Long Service Payment) in the Hong Kong labour law, even senior personnel department colleagues may confuse it, and it is also a topic that many employers are puzzled by.
How are severance payments and long service payments calculated? The Employment Ordinance also stipulates the time for the payment of the two payments. Employers should pay more attention. This article will explain how severance and long service payments are calculated and the arrangements for payment.
How are severance and long service payments calculated?
According to Chapter 57 of the Employment Ordinance, an employee cannot receive severance payment and long service payment at the same time, but the methods for calculating severance payment and long service payment are basically the same, and there are caps for both.
Those who need to calculate severance payment and long service payment can refer to the following methods to calculate the amount. For employees who have not completed 1 year of service, only pro-rated severance and long service payments are required:
Monthly Salary Employee:
“Full monthly salary of the last month” X 2/3 X years of service
Daily or piece-wage employees:
“Employee chooses any 18-day salary from the last 30 working days” X years of service
However, the employee can still choose to use the average salary for the 12 months before the termination of the contract, instead of the salary in the above ” “, the same applies to the termination of the contract in lieu of notice. The maximum salary in ” ” is HK$22,500.
In addition, the years of service also have a retrospective period. At present, as long as the employment contract is terminated on or after October 1, 2004, basically all the years of service can be retrospectively.
Severance and long service payment caps
According to the Employment Ordinance, as long as the relevant date of termination of employment contract is on or after 1 October 2003, the maximum amount of severance payment and long service payment for an employee after calculating the severance payment and long service payment by the above method is HK$390,000.
For example, suppose Employee A’s last month’s monthly salary is $30,000, and he has served the company for 40 years, his severance pay should be $800,000, but since the severance pay and long service payment are capped at $390,000, his severance pays Also only $390,000.
When will severance and long service payments be paid?
As far as severance payment is concerned, the Employment Ordinance stipulates that the employer must pay the severance payment within 2 months of receipt of the employee’s written notification of a severance payment claim. As employees, they are also obliged to issue a notice of severance pay claim to the Labour Department within 3 months of being dismissed or suspended from work.
As for long service payment, it is the employer’s responsibility to pay the calculated long service payment to the employee within 7 days after the termination of the employment contract.
Delay or non-payment of severance and long service payments
On the contrary, if employers unreasonably delay or fail to pay severance and long service payments to eligible employees, they will be prosecuted by the bureau.
The maximum fine for delay or non-payment of severance payment is HK$50,000; for delay or non-payment of long service payment, the maximum penalty is HK$350,000 and imprisonment for 3 years.
The above information is for reference only. We welcome your enquiries if you have any questions about accounting, the Employment Ordinance, and labour laws.