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When terminating employment contract, is the employee entitled to severance payment? How to calculate the amount?

Labour Department

When terminating an employment contract, if the employee can meet all of the following requirements, he/she is qualified for severance payment -

  1. The employee has been employed under a  continuous contract for not less than 24 months; and
  2. The employment contract is terminated due to one of the following reasons -
    • Employee is dismissed, or a fixed term contract was prematurely terminated by the employer by reason of redundancy;
    • Employment contract of a fixed term expires without being renewed by employer by reason of redundancy (Note); or
    • Employee is laid off.

Note: If not less than 7 days before the date of dismissal / expiry of the fixed term contract, the employer has offered in writing to renew the contract of employment or re-engage the employee under a new contract, but the employee has unreasonably refused the offer, the employee is not eligible for severance 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.)

If the employee has been employed under a continuous contract for not less than 5 years, and the employment contract is terminated not due to redundancy, the employee is eligible for long service payment. Please refer to “ When terminating employment contract, is the employee entitled to long service payment? How to calculate the amount?”. Note that an employee will NOT be simultaneously entitled to both severance payment and long service payment.

The formula for calculating the amount of severance payment is as follows - 

Monthly-paid employee(Last month wages X 2/3) * X Reckonable years of service **
Daily-rated or piece-rate employeeAny 18 days’ wages * chosen by the employee out of his/her last 30 normal working days X Reckonable years of service **

*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 severance payment. If the relevant date of termination of employment is on or after 1 st October 2003, the maximum amount of 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 (and hence reduce) severance payment, but is limited to the part attributable to employer’s contributions. Please click here for details.

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: 30 Sep 2019
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