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(405) EMPLOYMENT 5 - SEVERANCE PAYMENT

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Eligibility for Severance Payment

An employee who has been employed by his employer under a continuous contract for a period of not less than 24 months is eligible for severance payment subject to the following conditions:

1. The employee is dismissed by reason of redundancy:

   An employee is taken to be dismissed by reason of redundancy if the dismissal is due to the fact that:

   • the employer closes or intends to close his business;
   • the employer has ceased, or intends to cease, the business in the place where the employee was employed; or
   • the requirement of the business for employees to carry out work of a particular kind ceases or diminishes or is expected to cease or diminish.

2. The employee is laid 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 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
• 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.

3. Employment contract of a fixed term expires without being renewed by reason of redundancy. However, 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 him under a new contract but the employee has unreasonably refused the offer, the employee is not eligible for severance payment.

An employee will not be simultaneously entitled to both long service payment and severance payment.

Amount of Severance Payment:

Severance payment is calculated as follows:

• The rate of severance payment is 2/3 of the employee's last month wages or 2/3 of $22,500, whichever is less, for every year of service if he is monthly-rated.
• For daily-rated or piece-rated employee, the entitlement is 18 days' wages, or 2/3 of $22,500, whichever is less, for every year of service. The employee may choose any 18 days' wages out of his last 30 normal working days.

Service of an incomplete year should be calculated on a pro rata basis.

An employee may also elect to use his average wages in the last 12 months for the calculation.

By 1.10.2004, the maximum amount of severance payment is $390,000 and all years of service will 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.

Set off of Severance Payment

If an employee becomes entitled to severance payment and:

• gratuities based on length of service or occupational retirement scheme benefits (excluding any part attributable to employee's contributions) have been paid to the employee; or
• accrued benefit (excluding any part attributable to employee's contributions) is being held in a mandatory provident fund scheme in respect of the employee, or has been paid to the employee,

The severance payment is to be offset against the aforementioned amount of gratuities and benefits to the extent that they relate to the employees' years of service for which the severance payment is payable.

If you have any further queries on the relevant provisions of the Employment Ordinance, please contact the telephone hotline 2717 1771 (handled by the 1823 Call Centre) or Offices of the Labour Relations Division of the Labour Department.

Date of amendment: 22nd February 2013