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Three questions about payment in lieu of notice: Can annual leave be used to offset 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 handover properly, the other party needs to be informed of the “notice period”. Many people will wonder, can annual leave be taken during the notice period? Is it legal to offset the notice period? Is it necessary to make MPF contributions in lieu of notification funds? This article will summarize several common facets of payment in lieu of notice and answer them one by one.

Under what circumstances is the employer or employee not required to pay notice in lieu of notice?

  1. Employer dismisses employee summarily

    According to the Employment Ordinance, an employer may immediately dismiss an employee, suspend the employment contract without giving notice, and pay in lieu of notice if the employee commits the following acts under the following circumstances:

    • The employee willfully disobeys the lawful and reasonable order of the employer;
    • Employee misconduct;
    • Employee commits fraud or dishonesty;
    • Employee's habitual neglect of duties.

    However, employers need to pay attention that the disciplinary action of “summary dismissal” can only be used if the employee has committed “extremely serious” faults or has been repeatedly warned and persuaded but still does not improve.

  2. The employee's situation is unfit for work or mistreated

    Conversely, the employment contract may be terminated immediately without notice or payment in lieu of notice if the employee faces the following circumstances:

    • The employee has a reasonable fear of physical violence or the possibility of exposure to disease;
    • The employee is mistreated by the employer;
    • The employee has been employed for not less than five years and is certified by a registered medical practitioner that he or she is permanently unfit for the current job.

Can an employee take annual leave during the notice period?

In this regard, Hong Kong’s “Employment Ordinance” has relevant provisions. Although employees who have been employed under a continuous contract for 12 months are entitled to paid annual leave, statutory annual leave is not allowed to be calculated or to replace the notice period.

If the employee does not leave the company early and works until the last day of the notice period, the employer should convert all unentitled annual leave into wages of the same number of days and compensate the employee with annual leave pay. Of course, when the notice of resignation takes effect, the employer still has the right to deny the employee’s leave. In many cases, the employer allows the employee to “clear the leave” to save unnecessary calculation costs. Therefore, in principle if the employer approves, the employee can use the annual leave. period to offset the notice period.

However, there was an individual case where an employee took pre-arranged annual leave during the notice period. The Court of Final Appeal later ruled that the restriction did not apply to the employee’s resignation, that is, the employee was entitled to take statutory annual leave within the notice period. Therefore, once there is a serious dispute, it can only be handed over to the court for the final ruling.

Do I need to make MPF contributions in lieu of notice?

Neither the employer nor the employee is required to make MPF contributions for the notice-in-place payment. According to the MPF Ordinance, employees, or self-employed persons between the age of 18 and under 65 are required to join the MPF scheme, but the payment in lieu of notice is not included in the “relevant income”.

Payment in lieu of notice is the compensation paid by the employer or employee for early termination of the employment contract due to failure to meet the notice period. It does not belong to the “relevant income” of the MPF scheme, and is not a remuneration, fee or commission for work or services., bonuses, bonuses, contract gratuities, gratuities, or allowances, so MPF contributions are not calculated.

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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