How to Calculate Annual Leave Payment on Termination of Employment Contract?

Mr. Cheung worked in a logistics company for several years and recently wanted to change jobs. He told his employer about his resignation in the length of the notice period, and the employer wanted him to stay. But he has decided to leave the company, the employer then asked him to take annual leaves before leaving. Is it legal for the employer to do so? What would happen if he did not take his annual leave?

Under the Employment Ordinance(EO), these statutory annual leave shall not be included in the length of notice required to terminate a contract of employment. The employer cannot force the employee to apply for the untaken annual leave before leaving the company. For those untaken annual leave, it should be included in the termination payment.

So now, we know the employer has no right to force an employee to take the untaken annual leave within the notice period, let’s see how to calculate the termination payments of annual leave.

Under the EO, an employee is entitled to at least 7 days of annual leave with pay after having been employed under a continuous contract for 12 months. Employees can enjoy 7 days of annual leave in the first two years, and his entitlement to paid annual leave increases progressively from seven days to a maximum of 14 days according to his length of service. The following is the calculation of annual leave pay on termination of employment contract:

Tip: for example, an employee’s leave year starts from his joined date, and he has been employed for one year. However, he resigned in the second year but it was less than 3 months in this leave cycle, then his annual leave would not be entitled in the second leave years.

For example: Max joined the company on April 5, 2019, the leave year is calculated based on the employee’s joined date. Therefore, Max could only take two days of paid annual leave in May 2020, and 1)  if Max resigns on June 5, 2020, how many untaken annual leaves he would have? 2) if Max resigns on August 5, 2020, how many days of annual leave will not be granted?

How to calculate termination payment in lieu of any 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 following specified dates. If an employee is employed for less than 12 months, the calculation shall be based on a shorter period.

An employer is required to pay interest on the outstanding wages due to the employee if he fails to make termination payment in lieu of any untaken annual leave to the employee within seven days after the termination or expiry of the contract.

As a one-stop human resource system, Workstem can calculate the days of annual leave that employees can enjoy based on their joined date, and record the employee’s leave application history. It saves time and effort to calculate the termination payment in lieu of any untaken annual leave.

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