In Hong Kong, every workplace is strictly advised to practice obligations stated in the labor laws and regulation to fairly protect the rights of both employers and employees. If you are an employer operating in Hong Kong, it is important to know about the two important types of payment you have to provide to your employees. They are called Severance Payment and Long Service Payment. Even though they might seem similar, they present different purposes and have completely different eligibility criteria. But, don’t worry because this article will guide you about differences between Severance Payment and Long Service Payment Hong Kong.
What is Severance Payment?
When an employee is involuntarily dismissed from an employment without any conditions of disqualification, Severance Payment must be made. This kind of situation usually happens when there is layoff, downsizing or job elimination. The actual purpose of Severance Payment is to provide living expenses to dismissed employees while they are looking for new employment.
Eligibility for Severance Payment
An employee is eligible for Severance Payment under the following conditions.
- The period of employment of employee should not be less than 24 months under a continuous contract.
- The reason of dismissal is related to redundancy
- Employment contract of a fixed term expires without being renewed by reason of redundancy
- The employee is laid off
Payment for Severance Payment
Employee has to make a written notice to the employer within three months after the dismissal. You can get the standard form here. Employer needs to make the severance payment to the employee not later than two months from the receipt of such a notice.
What is Long Service Payment?
Long Service Payment is also a mandatory payment like Severance Payment. But, it is usually for the employees who have worked at company for a long period. Employer has to make Long Service Payment when an employee is no longer able to work due to disability or fixed-term contract is not renew. It is also an expression to appreciate the long-term commitment and service of the employees.
Eligibility for Long Service Payment
An employee can receive Long Service Payment under the following conditions.
- The period of employment should not be less than 5 years under a continuous contract.
- The reason of dismissal is not because of redundancy or summary dismissal for serious misconduct
- The employee retires at 65 or age above.
- The employee passed away or resigns on ground of ill health.
- Employment contract of a fixed term expires without being renewed.
Payment of Long Service Payment
Employer must pay Long Service payment to employee within seven days after the date of termination of the employment contract.
Calculation of Severance Payment and Long Service Payment
There is no difference between the two calculation. Here is the calculation formula.
|
Monthly paid employee |
(last full month’s wages* X 2/3) # X 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) # X reckonable years of service |
It is necessary to calculate the service of an incomplete year on a pro rata basis.
An employee may alternatively choose to base the computation on his average salary from the 12 months prior to the employment contract termination. (The employee may choose to use his average salary in the 12 months prior to the date up to which the payment in lieu of notice is computed, in the event that the employee’s employment contract is terminated by payment in lieu of notice.)
The total of the calculation should not exceed 2/3 of $22,500 (i.e. $15,000).If the relevant date of termination of employment occurs on or after 1 October 2003, the maximum amount of severance payment or long service payment is $390,000.
When to seek a Professional Consultant:
Understanding the difference between the payments helps you to navigate the employment termination of the different situations. However, there might be unexpected and complex scenarios that you have to go dive deeper and require to get legal advice. If you find yourself in that kind of situation, Fastlane HR can help you get through it with HR professionals and legal advisors. Consider reaching out to us to find a better solution.
Fastlane HR produced this articles by referencing the fact from the “Guidelines for Processing Severance Payment and Long Service Payment” of Labor Department.