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How does payment in lieu of notice calculated on salary? How long is the notice period?

According to Chapter 57 of the Employment Ordinance in Hong Kong, when either the employer or the employee chooses to terminate the employment contract, to say goodbye and hand it over properly, the other party needs to be informed of the “notice period”. However, if you want to leave/dismiss before the notice period, you may need to pay “in lieu of notice”. Then, to avoid disputes, both employers and employees are responsible for understanding the relevant regulations of payment in lieu of notice. This article will introduce how to calculate the notice period and payment in lieu of notice.

  1. What is “payment in lieu of notice”?

    First, the labor law of Hong Kong stipulates that the day when the employee gives an oral or written notice of resignation will be called the “notice date”; and the period from that day to the official termination of the employment contract is called the “notice period”., the work handover will generally be completed within the notice period.

    However, if both parties want to suspend the employment contract before the notice period, they need to pay the other party an appropriate “payment in lieu of notice” as compensation for all losses caused by their failure to complete the handover.

  2. How are the notice period and notice fee calculated?

    According to Chapter 57 of the Employment Ordinance, if the employment contract is a continuous contract, payment in lieu of notice is one of the defined statutory rights and interests. The time when the employment contract is terminated, it can be divided into the following three situations according to the situation, each with its own the trial period and payment in lieu of notice:

  1. The first month of the trial period

If the contract is terminated within the first month of the trial period, no notice period is required, and no notice fee is required.

  • After the first month of the trial period

If the employment contract clearly stipulates, the notice period shall be stipulated in the contract, but shall not be less than 7 days. The calculation of payment in lieu of notice is described in the following paragraph.

If the employment contract does not clearly stipulate, the notice period shall not be less than 7 days, and the calculation of payment in lieu of notice is described in the following paragraph.

  • Continuous contracts without trial period/complete trial period

If the employment contract clearly stipulates, the notice period shall be stipulated in the contract, but shall not be less than 7 days. The calculation of payment in lieu of notice is described in the following paragraph.

If the employment contract does not clearly stipulate, the notice period shall not be less than 1 months’ notice. The calculation of payment in lieu of notice is described in the following paragraph.

How does the payment in lieu of notice calculate?

Under the Employment (Amendment) Ordinance 2007, payment in lieu of notice can be calculated as follows:

“Average Daily Salary for the Previous 12 Months” x “Period of Payable Salary within the Notice Period”

In addition, if “day”, “week” or “month” is used as the unit of the notice period, the calculation of payment in lieu of notice will be calculated as the daily average salary for the 12 months before the “notice date” period multiplied by the salary payable “days”, “weeks” or “months”.

For example, Employee A’s average monthly salary before the “Notice Date” is $20,000, and his notice period is 1 month. Therefore, calculate his payment in lieu of notice: $20,000 x 1 month = $20,000.

When calculating the average salary, once the salary is not fully received by the employee, the employer should exclude the relevant salary that has not been paid during the period, or exclude it from the number of relevant working days, including rest days, statutory holidays, annual leave, sick leave, Maternity leave, paternity leave, work-related sick leave or leave taken with their consent, and any normal working day for which work is not provided to the employee.

The above information is for reference only. If you have any questions about payment in lieu of notice, labor law, the Employment Ordinance, or accounting, we welcome your inquiries.

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