A Concise Guide to the Employment Ordinance
Chapter 10: Severance Payment and Long Service Payment
 
Eligibility for Severance Payment and Long Service Payment
An employee is eligible to severance payment or long service payment subject to the following conditions :
Entitlement
Severance Payment
Long Service Payment
Qualifying period of employment not less than 24 months under a continuous contract not less than 5 years under a continuous contract
Conditions/ Requirements The employee is dismissed by reason of redundancy* The employee is dismissed but :
- he is not summarily dismissed due to his serious misconduct
- his dismissal is not by reason of redundancy
Employment contract of a fixed term expires without being renewed by reason of redundancy* Employment contract of a fixed term expires without being renewed *
The employee is laid off The employee dies
The employee resigns on ground of ill health
The employee, aged 65 or above, resigns on ground of old age

The employee, aged 65 or above, resigns on ground of old age
* If not less than 7 days before the date of dismissal/ expiry of the fixed term contract in case of severance payment, and 7 days before the expiry of the fixed term contract in case of long service payment, the employer has offered in writing to renew the contract of employment or re-engage him under a new contract but the employee has unreasonably refused the offer, the employee is not eligible for the entitlements.
NOTE : An employee will not be simultaneously entitled to both long service payment and severance payment.
 
Meaning of Redundancy
An employee is taken to be dismissed by reason of redundancy if the dismissal is due to the fact that:

An employee may be awarded compensation up to a maximum of $150,000 if he is unreasonably and unlawfully dismissed, and no order for reinstatement of re-engagement is made by the Labour Tribunal.

In determining the award of compensation, the Labour Tribunal will consider the circumstances of a claim including:
Monthly-paid employee: (last month wages x 2/3)* x reckonable years of service
Daily-rated/piece-rated employee any 18 days' wages* chosen by the employee out of his last 30 normal working days x reckonable years of service
Service of an incomplete year should be calculated on a pro rata basis.
* the sum should not exceed 2/3 of $22,500. An employee may also elect to use his average wages in the last 12 months for the calculation.
Reckonable Years of Service
For all manual employees and non-manual employees whose average monthly wages did not exceed $15,000 for the 12 months preceding 8 June 1990, the years of service should be reckoned in accordance with Table 1. For years of service exceeding the fully reckonable years of service, 50% of such years of service should be reckoned.

For non-manual employees whose average monthly wages exceeded $15,000 for the 12 months preceding 8 June 1990, their years of service can be reckoned up to 1980.

Maximum Amount
Please see Table 1 for the maximum amount of severance payment/ long service payment that an employee is entitled.
Table 1
Relevant Date of Termination of Employment
Fully Reckonable Years of Service
Maximum Amount
20.1.1995 to 30.9.1995
25
$210,000
1.10.1995 to 30.9.1996
27
$230,000
1.10.1996 to 30.9.1997
29
$250,000
1.10.1997 to 30.9.1998
31
$270,000
1.10.1998 to 30.9.1999
33
$290,000
1.10.1999 to 30.9.2000
35
$310,000
1.10.2000 to 30.9.2001
37
$330,000
1.10.2001 to 30.9.2002
39
$350,000
1.10.2002 to 30.9.2003
41
$370,000
1.10.2003 to 30.9.2004
43
$390,000
[Example] Date of dismissal: 1.10.2001
  Monthly wages before dismissal: $15,000
  Years of service: 41 years
 
Amount of Severance Payment/Long Service Payment : $15,000 x
2
-
3		 x (39 +
41-39
-------
2
 )* = $400,000
(=$350,000)**
Note: * The reckonable years of service for an employee dismissed on 1.10.2001 is 39 years plus 50% of the years of service exceeding 39 years.
  ** As the maximum amount of severance payment/ long service payment for an employee dismissed on 1.10.2001 is $350,000, the above employee is entitled to $350,000.
Relationship of Severance Payment/ Long Service Payment with Retirement Scheme Payment, Provident Fund and Gratuity
Where an employee is simultaneously entitled to severance payment/ long service payment and to a retirement scheme payment, provident fund or a gratuity based on length of service, the amount of severance payment/ long service payment can be offset by the gratuity or the employer's contribution and its interests to the retirement scheme or provident fund scheme.
Accrued benefits derived from the contributions made by an employer for an employee under a Mandatory Provident Fund Scheme can be used to offset the amount of severance payment / long service payment.
Fayment of Severance Payment
An employee who wishes to claim for severance payment should serve a written notice to his employer within three months after the dismissal/ lay off takes effect. The deadline for serving such notice may be extended if approved by the Commissioner for Labour.
The employer shall make the severance payment to the employee not later than two months from the receipt of such a notice.
Offences and Penalties
An employer who fails to pay severance payment to an employee is liable to prosecution and, upon conviction, to a fine of $50,000.

Payment of Long Service Payment
Long service payment should be paid to an employee within seven days after the date of termination of employment contract.
Offences and Penalties
An employer who fails to pay long service payment to an employee is liable to prosecution and, upon conviction, to a fine of $200,000 and to imprisonment for one year.

Claiming Long Service Payment on the ground of Ill Health
An employee claiming for long service payment on ground of ill health should forward a certificate in the form specified by the Commissioner for Labour and issued by a registered medical practitioner, certifying that he is permanently unfit for his present job.
The employer may, at his own expense, require the employee to undergo another medical examination by a registered medical practitioner nominated by him. The employer should make such arrangement within 14 days after receiving the medical certificate and notify the employee in writing details of the appointment not less than 48 hours before the examination is to take place.

Claiming Long Service Payment in the event of the Death of an Employee
Priority in claiming long service payment
1st
 the spouse of the deceased employee
2nd
 children of the deceased employee (if two or more persons apply, the long service payment should be divided equally between them)
3rd
 parents of the deceased employee (if two or more persons apply, the long service payment should be divided equally between them)
4th
 the personal representative of the deceased employee
Payment of Long Service Payment
The person who wishes to claim for long service payment must serve an application in a specified form to the employer within 30 days after the death of the employee. Where necessary, the Commissioner for Labour may extend the deadline. The form is available at any branch office of the Labour Relations Service.

The employer shall make the payment of Long Service Payment to :
the spouse of the employee within 7 days after receiving the application
other applicants other applicants within 7 days after the application period expires
Offences and Penalties

Offences and Penalties
An employer who fails to pay long service payment to the beneficiaries of a deceased employee is liable to prosecution and, upon conviction, to a fine of $50,000.