Severance Payment

Under the Employment Ordinance, an employee employed under a continuous contract for not less than 24 months is eligible for severance payment if he is dismissed by reason of redundancy; his fixed term employment contract expires without being renewed due to redundancy; or he is laid off.

Under the Employment Ordinance, the amount of Severance Payment is two-thirds of the employee’s last month’s wages or two-thirds of HK$22,500, whichever is lower, multiplied by the total number of years of service. The current maximum SP payable is HK$390,000.  An employee may also elect to use his average wages in the last 12 months for calculation.

Average Daily Wage is discussed in the following article:

• Payroll Concepts > Pay-Related Calculations > Average Daily Wage

Mandatory Provident Fund scheme benefits, retirement scheme benefits and gratuities that are due to the employee, based on the employee’s length of service, can be used to offset the Severance Payment.  The amount offset from your employee’s account in any case should not be more than the amount of Severance Payment paid to the employee.

Note:
Severance payments that are paid in accordance with the provisions of the Employment Ordinance are not tax assessable and neither the employer nor the employee is required to report this payment in their tax returns. However, it is mandatory for the employer and employee to report payment that is in excess of the Employment Ordinance’s stipulated statutory entitlement.

Severance Payments may be added to the payslip by selecting the system termination lump sums item as follows:

Add (next to Payslip Inputs) > Termination Lump Sums.