Frequently Asked Questions about
The Employment Ordinance, Cap. 57

Severance Payment and Long Service Payment
 
Q1. Under what circumstances should an employer pay his employee severance payment? Answer
Q2. What is dismissal by reason of redundancy? Answer
Q3. What is the meaning of lay-off? Answer
Q4. If an employer dismisses an employee due to redundancy, when should he pay severance payment? Answer
Q5. Under what circumstances should an employer pay his employee long service payment? Answer
Q6. When should an employer make long service payment to his employee? Answer
Q7. Is an employer required to pay both severance payment and long service payment to an employee who has over 5 years of service upon redundancy? Answer
Q8. How to compute severance payment and long service payment? Answer
Q9. Can mandatory provident fund scheme benefit, occupational retirement scheme benefit and gratuity based on length of service be used to offset severance payment or long service payment? Answer

 
Content


Q1. Under what circumstances should an employer pay his employee severance payment?
A1.

An employee employed under a continuous contract for not less than 24 months is eligible for severance payment if:

 ( 1 ) he is dismissed by reason of redundancy;
 ( 2 ) his fixed term employment contract expires without being renewed due to redundancy; or
 ( 3 ) is laid off.

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Q2. What is dismissal by reason of redundancy?
A2.

An employee is taken to be dismissed by reason of redundancy if the dismissal is due to the fact that :

 ( 1 ) the employer closes or intends to close his business;
 ( 2 ) the employer has ceased, or intends to cease, the business in the place where the employee was employed; or
 ( 3 ) the requirement of the business for employees to carry out work of a particular kind, or for the employee to carry out work of a particular kind in the place where the employee was employed, ceases or diminishes or is expected to cease or diminish.

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Q3. What is the meaning of lay-off?
A3.

If an employee is employed on such terms and conditions that his remuneration depends on his being provided by the employer with work of the kind he is employed to do, he shall be taken to be laid off if the total number of days on which no work is provided or no wages is paid exceeds:

 ( 1 ) half of the total number of normal working days in any 4 consecutive weeks; or
 ( 2 ) one-third of the total number of normal working days in any 26 consecutive weeks.

The days of lock-out, rest days, annual leave and statutory holidays should not be counted as normal working days during the above periods.

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Q4. If an employer dismisses an employee due to redundancy, when should he pay severance payment to his employee?
A4.

If an employer dismisses an employee due to redundancy, he should pay severance payment as soon as practicable.  The Employment Ordinance also requires an employer to make severance payment to his employee not later than 2 months from the receipt of a written notice for claiming such payment from the employee.

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Q5 Under what circumstances should an employer pay his employee long service payment?
A5.

An employee employed under a a continuous contract for not less than 5 years is eligible for long service payment if:

 ( 1 ) he is dismissed (except by reasons of redundancy or summary dismissal due to the employee’s serious misconduct);
 ( 2 ) his fixed term employment contract expires without being renewed;
 ( 3 ) he dies during employment;
 ( 4 ) he has been issued a certificate in a specified form by a registered medical practitioner or a registered Chinese medicine practitioner, certifying that he is permanently unfit for his present job and he resigns; or
 ( 5 ) he is aged 65 or above and resigns on ground of old age.

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Q6. When should an employer make long service payment to his employee?
A6.

Long service payment should be paid to an employee within 7 days after the date of termination of employment contract, except as otherwise specified in the case of payment to the beneficiaries of a deceased employee.

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Q7. Is an employer required to pay both severance payment and long service payment to an employee who has over 5 years of service upon redundancy?
A7.

An employee who is dismissed by reason of redundancy is eligible for severance payment but not long service payment.

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Q8. How to compute severance payment and long service payment?
A8.

The following formula applies to the calculation of both severance payment and long service payment:

Monthly-paid employee
(last month wages* X 2/3)# × reckonable years of service
Daily-rated/piece-rated employee
(any 18 days' wages* chosen by the employee out of his last 30 normal working days)# × reckonable years of service

Service of an incomplete year should be calculated on a pro rata basis.
Click here for information on the reckonable years of service (PDF).

* An employee may also elect to use his average wages in the last 12 months for the calculation.
# The sum should not exceed 2/3 of $22,500 (i.e. $15,000).

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Q9. Can mandatory provident fund scheme benefit, occupational retirement scheme benefit and gratuity based on length of service be used to offset severance payment or long service payment?
A9.

If an employee becomes entitled to severance payment or long service payment and:

 ( 1 ) gratuities based on length of service or occupational retirement scheme benefits (excluding any part attributable to employee's contributions) have been paid to the employee; or
 ( 2 ) accrued benefit (excluding any part attributable to employee's contributions) has been paid to the employee, or is being held in a mandatory provident fund scheme by the employee.

the severance payment / long service payment is to be offset against the aforementioned amount of gratuities and benefits to the extent that they relate to the employee's years of service for which the severance payment / long service payment is payable.

Note : When offsetting the above sum of money, an employer should observe the time limit and requirements on making severance payment or long service payment set out in the Employment Ordinance.

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