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When terminating employment contract, is the employee entitled to payment in lieu of untaken annual leave? How to calculate the amount?

Labour Department

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.

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. Please click this link to information on “ A Concise Guide to the Employment Ordinance - Appendix 1” (PDF).

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 –

  • 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. 
  • Calculation of annual leave pay on termination of employment contract is as follows:
Period of employmentAnnual Leave entitlements
Less than 12 monthsLess than 3 monthsNil
3 to 12 monthsSummary dismissalNil
ResignationAnnual leave entitled in the current leave year X [period of employment (days) ÷ 365]
Dismissed other than summary dismissal
12 or more than 12 monthsLess than 3 months in the current leave yearAnnual leave not yet taken #
3 to 12 months in the current leave yearSummary dismissalAnnual leave not yet taken #
ResignationAnnual 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.

Note: Under the Employment Ordinance, an employee's entitlement to paid annual leave increases progressively from 7 days to a maximum of 14 days according to his/her length of service. 7 days are granted for each of the first 2 years, and an extra day is added for each of the following years up to the ceiling of 14 days. The following table shows the annual leave entitlements -

Annual Leave Entitlement
(click the above for the enlarged chart)

 

 

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

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Last update: 15 Oct 2019
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