Under the Employment Ordinance, an employee employed under a continuous contract for not less than 5 years is eligible for long service payment if he is dismissed (except by reasons of redundancy or summary dismissal due to the employee’s serious misconduct); his fixed term employment contract expires without being renewed; he dies during employment; he has been issued a certificate in a specified form by a registered medical practitioner or a registered Chinese medicine practitioner, certifying that he is permanently unfit for his present job; or he is aged 65 or above and resigns on grounds of old age.
Calculating Long Service Payment:
Under the Employment Ordinance, the amount of Long Service 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 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:
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 payment. The amount offset from your employee’s account in any case should not be more than the amount of Long Service Payment paid to the employee.
Note:
Long Service 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.
Long Service 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.