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When an employer terminates an employment contract, what payment is required?

According to the “Employment Ordinance” of Hong Kong, when the employer and the employee come to the expiration of the contract or terminate the employment contract, what kind of payment does the employer need to pay? This article will summarize the above, provide employers with a few key points, and explain the details of the labor law.

What should the employer pay when the contract is terminated?

  1. Salary and year-end payment

When both parties terminate the employment contract, the employer needs to pay the wages due to the employee according to the terms of the contract and the period of employment, or within the time limit— “the date of termination of the employment contract or within 7 days after the expiry date of the contract”. Interest must be paid on the amount.

Furthermore, employers should also pay any unpaid end-of-year payment to employees who are employed on a continuous contract, including verbal, written, express, or implied employees who are entitled to end-of-year payment. According to the Employment Ordinance, year-end remuneration refers to the annual remuneration stipulated in the employment contract, such as bonus, double pay, 13th-month salary, etc., except for the discretionary and gratuitous payment of the employer.

Employees who have been employed for not less than 3 months if they are summarily dismissed for gross negligence are entitled to pro-rata year-end pay after dismissal. As for whether the probationary period can obtain year-end remuneration, it is mostly agreed by contract.

  • Long Service Payment or Severance Payment

According to Chapter 57 of the Employment Ordinance, employees who have been employed for not less than 24 months can claim long service payments or severance payments as compensation when they are dismissed or when the company closes. When does an employer have to pay severance and long-service payments? Refer to this article.

It should be noted that the employer is only required to pay either severance payment or long service payment at the same time. How are severance and long-service payments calculated? The calculation method of the two is roughly the same, you can refer to this article.

In addition, when the employer receives the employee’s claim for severance payment within 2 months, it is obliged to pay the severance payment to the employee, otherwise, he may be prosecuted.

  • Mandatory Provident Fund and other amounts specified in the contract

When terminating the employment contract, it is the employer’s responsibility to calculate the final installment of the mandatory contributions of the employee to be resigned in accordance with the Mandatory Provident Fund Ordinance (MPF) and hand it over to the MPF trustee as the final installment Mandatory Provident Fund (MPF) contributions. There are also various methods for calculating the long service payment/severance payment. For details, please refer to this article.

In addition, any other payment stipulated in the employment contract, including the annual provident fund or provident fund, etc., requires the employer to pay the relevant payment.

  • Payment in lieu of notices

Between the employer and the employee, the party who proposes to terminate the contract is responsible for giving the other party payment in lieu of notice. Note that when calculating the average daily or monthly wages, all holidays (including rest days, statutory holidays, annual leave, sick leave, maternity leave, paternity leave, work-related sick leave) during the unpaid period must be excluded.

  • Unpaid annual leave pays, annual leave in lieu of pays

According to the Employment Ordinance, all contract employees who have been employed continuously for one year are entitled to paid annual leave. Therefore, when the employment contract is terminated, the employer must calculate the salary based on the unpaid annual leave, relative to the average daily wages for the year prior to the termination of the contract.

If an employee has been employed for the entire vacation year but has not taken paid annual leave, regardless of the reason for the termination of the contract, the employer is required to convert the untaken annual leave into salary and pay the employee.

The above information is for reference only. If you have any questions about labor law, “Employment Ordinance”, or accounting, we welcome your inquiries.

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