What is long service payment?
Long service payments are payments that employees can claim from their employers when they terminate their employment contracts. An employee may claim long service payment after being employed under a continuous contract for 5 years without being redeemed or permanently unfit for the job, etc.
Long service payment calculation
The calculation method of long service payment for different types of employees is:
|monthly Paid Employee||(Last full month’s salary X 2/3)* X Retroactive years of service**|
|Daily or Hourly Paid Employees||Any 18 days’ wages of the employee’s last 30 regular workdays worked (at employee’s choice)* X Retroactive years of service**|
*The amount is capped at two-thirds of HK$22,500 (ie HK$15,000). An employee may also choose to use his average monthly wages for the last 12 months;
** Years of service of less than 1 year are pro-rated;
***If the relevant date of termination of the employment contract is on or after 1 October 2003, the maximum amount of long service payment is HK$390,000.
Note: Accrued benefits of an MPF scheme, a one-off gratuity based on years of service, or a one-off occupational pension can be used to offset the long service payment, but only the part attributable to the employer’s contribution. For details, please click here.
To be eligible for long service payment, an employee must meet one of the following conditions:
- Dismissed by the employer (but not summarily dismissed for layoff or gross negligence);
- Non-renewal upon expiry of a fixed-term contract;
- Death in service;
- A designated certificate issued by a registered medical practitioner or a registered Chinese medicine practitioner certifying that he is permanently unsuitable for his current job and resigns;
- 65 or older resigned due to old age.
Long service payment case
he date of Ms. Huang’s dismissal or resignation was October 1, 2002, and her monthly salary before or after dismissal was HK$15,000. Even though she had 43 years of service, her “fully retroactive service” was 41 years. Moreover, the long service payment is also subject to the “maximum amount”.
Ms. Wong’s long service payment will be calculated according to the following formula:
HK$15,000 X ⅔ X [41+(43-41)/2]=HK$420,000
However, the actual amount obtained was HK$370,000 for the following reasons:
For an employee who was dismissed or resigned on October 1, 2002, his fully retroactive service years are 41 years, and the remaining service years (43 years minus 41 years, ie 2 years) are counted in half.
Since employees who were dismissed or resigned on October 1, 2002 are entitled to a maximum severance payment/long service payment of HK$370,000, the above-mentioned employee is entitled to HK$370,000.
Why is long service payment important?
Employers: can legally and compliantly terminate the employment contract to avoid labor disputes;
Employees: When terminating the employment contract, protect their legal rights and obtain due compensation.
Benefits of long service payment
Long service payment mainly provides employees with the following protections:
- Long-term service payment is to provide retirement security for employees and a subsidy for the survivors of deceased employees during their employment;
- Long-term service payment is a subsidy for employees who are unable to continue working at that time due to disability during their employment;
- Long service payment is a subsidy for employees who have a fixed-term employment contract but are not renewed after the contract expires (not due to layoffs) (essentially, this is also a kind of unemployment insurance).
Best-recommended! Workstem here to help you calculate the amount of long service payment that needs to be paid when leaving the company based on the employee’s contract and seniority.