Are employees entitled to payment in lieu of untaken annual leave upon termination of employment?
Labour DepartmentContents
You may refer to the "Statutory Employment Entitlements Reference Calculator" on Labour Department's website to compute the annual leave pay on termination of employment contract.
Paid Annual Leave
Under the Employment Ordinance, an employee is entitled to paid annual leave after having been employed under a continuous contract for every 12 months. When terminating employment contract, the employee is entitled to payment in lieu of untaken annual leave. An employee’s entitlement to paid annual leave increases progressively from seven days to a maximum of 14 days according to his length of service:
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Annual Leave Pay
- You may refer to the "12-Month Average Wages Calculator" on Labour Department's website to calculate the 12-month average daily wage, or “ A Concise Guide to the Employment Ordinance - Appendix 1” (PDF) for more information.
- The daily rate of annual leave pay is a sum equivalent to the average daily wages earned by an employee in the 12-month period preceding the "date of termination of contract".
- In calculating the average daily wages, an employer has to exclude (i) the periods for which an employee is not paid his/her wages or full wages, including rest day, statutory holiday, annual leave, sickness day, maternity leave, sick leave due to work injuries or leave taken with the agreement of the employer, and any normal working day on which the employee is not provided by the employer with work; together with (ii) the sum paid to the employee for such periods.
Annual Leave Entitlements
In accordance with the reason for termination of employment contract, the number of days that the employee is entitled to payment in lieu of untaken annual leave is as follows –
| Period of employment | Annual Leave entitlements | ||
|---|---|---|---|
| Less than 12 months | Less than 3 months | Nil | |
| 3 to 12 months | Summary dismissal | Nil | |
| Resignation | Annual leave entitled in the current leave year* X [period of employment (days) ÷ 365] | ||
| Dismissed other than summary dismissal | |||
| 12 or more than 12 months | Less than 3 months in the current leave year* | Annual leave not yet taken # | |
| 3 to 12 months in the current leave year* | Summary dismissal | Annual leave not yet taken # | |
| Resignation | Annual leave not yet taken #＋annual leave entitled in the current leave year* X [period of employment in the current leave year* (days) ÷ 365] | ||
| Dismissed other than summary dismissal | |||
# This refers to any untaken annual leave accrued in the previous leave year.
* A leave year means any period of 12 months commencing on the day on which his employment commenced and an anniversary of such day.
- If an employee has been employed for a leave year and his employment contract is terminated, irrespective of the reasons of termination, he should be entitled to payment in lieu of any annual leave not yet taken. In calculating the daily rate of the payment, the “date of termination of contract” should be adopted as the “specified date”.
- An employee with 3 months' but less than 12 months' employment in a leave year, and his employment contract is terminated other than for the reason of summary dismissal due to his serious misconduct, he would be entitled to pro rata annual leave pay.
This is not a legal document. The Ordinance remains the sole authority for the provisions of the law explained.
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