Resignation “rehydration” must read! What are the five scenarios for calculating wages in lieu of notice?

Resignation

Hong Kong’s labor law requires employers or employees to give advance notice to each other when terminating employment. However, if either party chooses not to notify the other party in advance, then payment in lieu of notice is required. Payment in lieu of notice is a form of financial compensation to indemnify the other party against any loss he/she may suffer if he/she is not given sufficient notice period.

What is the concept of notice period? Who determines it?

According to the Employment Ordinance of Hong Kong, the length of the notice period is agreed between the employer and the employee in the contract of employment. If it is not expressly provided in the contract, it should be determined in accordance with the provisions of the Employment Ordinance.

If it is not explicitly stated in the contract, the default notice period is one month, or payment in lieu of notice equivalent to one month’s wages.

How is the payment in lieu of notice calculated?

In calculating the wages in lieu of notice, the basic principle is that the wages in lieu of notice should be equal to the wages payable to the employee during the notice period. In other words, if the notice period is one month, then the wages in lieu of notice are equal to one month’s wages; if the notice period is two weeks, then the wages in lieu of notice are equal to two weeks’ wages.

In practice, there are a number of other factors that need to be taken into account when calculating wages in lieu of notice. For example, if the employee has any wages earned but not yet paid during the notice period, such wages should also be included in the calculation of wages in lieu of notice. In addition, if the employee has any statutory holidays during the notice period, then the wages due to them during these holidays should also be taken into account.

According to the Hong Kong Employment Ordinance, the average daily wages of an employee in his or her last wage period should be used as the basis for calculating wages in lieu of notice. The average daily wage should be calculated on the basis of the employee’s total wages and number of working days in the latest wage period.

There are generally five scenarios:

Scenario 1: Resignation in the first month of the probationary period.

In this case, you do not need to give notice or pay wages in lieu of notice.

Scenario 2: Resignation after the first month of the probationary period and if the employment contract does not specify a notice period for resignation, then you are required to give at least seven days’ notice.

Scenario 3: Resignation after the first month of the probationary period and the company has specified a notice period for resignation, then you are required to give notice in accordance with the company’s rules.

Scenario 4: There is no probationary period or the probationary period has expired and the employment contract does not specify a notice period for resignation, then you are required to give at least one month’s notice.

Scenario 5: There is no probationary period or the probationary period has been exceeded and there is a notice of resignation period specified in the employment contract, then you are required to give at least one month’s notice in accordance with the company’s rules.

How is payment in lieu of notice made?

Payment in lieu of notice should be made to the employee on the last day of termination of employment. If the employer fails to pay the wages in lieu of notice within the specified period, a penalty may be payable.

In addition to the payment in lieu of notice, the employer may be required to make other termination payments such as long service payment or severance payment. The amount and terms of these payments are usually determined by the employee’s length of service and other factors. The above information is for reference only. If you have any questions or information regarding tax returns (personal tax return, corporate tax return, accountant tax return), you are welcome to contact our professional advisors and we will provide you with a free quote and consultation service in due course.

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