Payment in lieu of notice is usually done when either party wishes to terminate the contract without giving any notice. Either party can terminate the employment contract during the first month of probation at any time without giving wages in lieu of notice. After the first month of probation, the wages in lieu of notice must not be less than seven days wages. The wages in lieu of notice for permanent employees who have completed probation must be as per the previously agreed upon contractual terms, but not less than seven days wages. In the absence of previous agreement, the wages in lieu of notice must not be less than one month’s wages.
Payment in lieu of notice that is paid in accordance with employment contract terms or the provisions of the Employment Ordinance is not income relating to a service provided by an employee and is thus not taxable, but it is reported on the IR56B or IR56F/G submissions.