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If the employee has been employed by 24 months or more, employer may have to pay Severance Payment or Long Service Payment when employment of employee terminated.
Severance Payment or Long Service Payment?
An employee is eligible for severance payment or long service payment, when dismissed, subject to the following conditions:
A) Severance Payment:
- The employee is employed for not less than 24 months under a continuous contract.
- Typically, the employee is dismissed due to redundancy or lay-off.
B) Long Service Payment:
- The employee is employed for not less than 5 years under a continuous contract.
- Typically, the employment is terminated when the employee reaches age 65, or due to death or health condition.
The amounts to be paid for both severance payment and long service payment are as follow:
For Monthly-paid employee:
[Last Month Wages] x 2/3 x [Reckonable Years of Service]
Last Month Wages
Capped by $22,500. Employee may also choose to use average wage of past 12 months for calculation.
Reckonable Years of Service
If the employee left after 1st Oct 2004, all years of service can be recognized in full.
If the employee left after 1st Oct 2003, the maximum amount of severance payment or long service payment is $390,000.
You can choose HR Systemto help you calculate severance payment and long service payment according to employee's year of service and payroll record.
Is Severance Payment or Long Service Payment Taxable?
Severance payment or long service payment, calculated according to Employment Ordinance, is not subject to tax.
Please refer to here regarding annual tax filing.
FAQ of Labour Department on Severance Payment and Long Service Payment
Concise Guide on Severance Payment and Long Service Payment by Labour Department
Explanation on Termination Payments
MPFA's Explanation on Offsetting of Severance Payments and Long Service Payments