The Bank of East Asia

Insurance, MPF & Trust

Long Service Payment and Severance Payment

Both employers and employees encounter issues related to labour legislation in the workplace from time to time. Below, we answer some of the more frequently-asked questions on this topic.

Long Service Payment and Severance Payment

According to the Employment Ordinance, Cap 57, employees may be entitled to long service payment or severance payment.

Q1: Under what circumstances should an employer pay severance payment to his employee?

A1: An employer should pay severance payment when an employee, who has been employed under a continuous contract for not less than 24 months, is dismissed by reason of redundancy or is laid off.

Q2: Under what circumstances should an employer pay long service payment to his employee?

A2: An employer should pay long service payment when an employee who has been employed under a continuous contract for no less than 5 years:

  1. is dismissed by reason other than serious misconduct or redundancy;
  2. is certified by a registered medical practitioner or registered Chinese medicine practitioner as permanently unfit for the present job and he resigns;
  3. is aged 65 or above and he resigns; or
  4. dies in service.
Q3: Is there any difference in the calculation of long service payment and severance payment?

A3: No difference. Long service payment and severance payment are calculated as follows:

Monthly-paid employee: (monthly wages X 2/3)* X reckonable years of service
Daily-rated/piece-rated employee: 18 days' wages* X reckonable years of service

* Note: The sum should not exceed 2/3 of HK$22,500 (i.e. HK$15,000). Service of an incomplete year should be calculated on a pro rata basis.

Q4: Can long service or severance payments be offset against MPF?

A4: Yes, according to the Employment Ordinance, employers can offset the long service or severance payment paid to the employee against the accrued benefits derived from the employer's contributions.

Q5: What is BEA MPF’s offsetting sequence for employer reimbursement?

A5: BEA MPF’s offsetting sequence for employer reimbursement is as below:

  1. Employee’s vested benefits derived from the employer’s voluntary contributions, if any;
  2. Accrued benefits derived from the employer’s mandatory contributions.
Q6: What should employer pay attention to before applying offsetting LSP/SP arrangement?

A6: The employer should first communicate their intention to the concerned employees with regard to LSP/SP claim to the trustees before making any decision on the offsetting arrangement.

Q7: Will employers and employees be informed after the completion of offsetting procedure?

A7: For BEA MPF scheme members, both of the employers and employees will receive a notification after the completion of offsetting procedure, which lists out the offsetting amount in the employee’s MPF account.

The above information is adapted from the information provided on the Labour Department website and is for reference only. For details, please visit the Labour Department website at www.labour.gov.hk