As an employer in Hong Kong, you must have heard about severance payment many times. But, just having heard about it is not enough, awareness of severance payment in Hong Kong is important for employers to avoid non-compliance. Moreover, it will help you maintain harmonious labor employer relationship and good reputation in the industry. In this guide, you will be informed about its procedures such as the eligibility for payment, its calculation, legal consideration.
What is Severance Payment?
This payment is for employees who have been laid off not because of disqualification but because of company downsizing/job elimination. Employer have to make the severance to the dismissed-employees and failure can lead to legal disputes. The actual purpose of this payment is to assist the employees when they are looking for another job. Regardless of legal disputes, providing this payment can make you a better employer with an empathy and sincerity.
Eligibility for Severance Payment
In Hong Kong, employees are eligible for severance payment if they meet the following criteria:
Employment Duration: The employee must has served 24 months of continuous contract of employment before the date of dismissal.
Dismissal or Redundancy: The employee is to be dismissed mainly because of redundancy or the employer has closed business operations.
End of Fixed-Term Contract: If a company has dismissed an employee, who has a fixed term contract that was not renewed, he or she might be assigned severance pay.
When is an employer required to pay severance payment?
Employer must pay it to the employee as soon as possible and within two months after receiving a notice of claim.
Severance Payment Calculator
Here is the short-cut to severance payment calculation.
|
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 |
Severance Payment to Domestic Helper
Domestic helpers also have the right to receive this payment. Therefore, employer should pay severance payment to his helper if the helper has been employed continuously for not less than 24 months and is dismissed by reason of redundancy.
You should calculate the severance payment as follows:
(monthly wages x 2/3) x reckonable years of services*
* It is important to not that you should calculate the service of an incomplete year on a pro rata basis.
Severance Payment Tax
Severance pay is taxed at the same rate as employee’s salary if it matches his previous earnings. If the severance amount is less than the salary, it will be taxed at the lower, appropriate tax rate.
Exceptions and Special Cases
There are certain exceptions and special cases to be aware of:
Misconduct: On this regard, if an employer dismiss an employee for serious misconduct, this payment is not required to make.
Voluntary Resignation: when employees resign from their jobs voluntarily, they are not usually given severance pay, unless of cause, redundancy is involved.
Suggestion by Fastlane HR
Severance payment in Hong Kong has some complex legal guidelines that are also prone to misinterpretation and observation. Implementing the above guidelines from this employer guide will help you ensure compliance. Moreover, you can successfully manage the relations with your employees even if they have to face redundancy or if the business ceases to exist.
For more information, you can check the government guidelines or contact Fastlane HR to help to break down step by steps. Our HR experts are always ready to give you the guidance you need for your business.