What employees are entitled to long service payment or severance payment?

Contents

• Eligibility
• Definition of Redundancy
• Definition of Lay-off
• Calculation of Severance Payment/ Long Service Payment

An employee will only be entitled to EITHER severance payment OR long service payment for the same employment period. You may refer to the "Statutory Employment Entitlements Reference Calculator" on Labour Departmet's website to compute the statutory employment entitlements under the Employment Ordinance for reference

Eligibility

An employee is eligible for severance payment or long service payment subject to the following conditions:

​​​Note: If not less than 7 days before the date of dismissal or expiry of the fixed term contract, the employer has offered in writing to renew the contract of employment or to re-engage the employee under a new contract, but the employee has unreasonably refused the offer, the employee will not be eligible for the long service payment. (That the employer who offered to renew the employment contract with not less favourable terms has been rejected by the employee is an example of unreasonable refusal.)

Definition of Redundancy

An employee is considered 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/her 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.

Definition of Lay-off

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 -

1. the total number of days on which no work is provided or no wages is paid, exceeds half of the total number of normal working days in any four consecutive weeks; or
2. the total number of days on which no work is provided or no wages is paid, exceeds 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.

Employees who are in situation of being laid off, or insufficient work is given, are advised to seek help from the Labour Relations Division as soon as possible.

Calculation of Severance Payment/ Long Service Payment

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

* The sum should not exceed 2/3 of $22,500 (i.e. $15,000). The employee may also choose to use his/her average wages in the last 12 months for the calculation.
**Service of an incomplete year should be calculated on a pro rata basis.

There is a maximum limit for the amount of long service payment or severance payment. If the relevant date of termination of employment is on or after 1 ^st October 2003, the maximum amount of long service payment or severance payment is $390,000. 

Please note that the accrued benefit held in the Mandatory Provident Fund (MPF) Scheme, gratuities based on length of service, and occupational retirement scheme benefits, can be used to offset long service payment or severance payment; but is limited to the part attributable to employer's contributions only. Please click here for details.
 

This is not a legal document. The Ordinance remains the sole authority for the provisions of the law explained.