Long Service Payment (LSP) and Severance Pay (SP) are labor rights stipulated by the Hong Kong Employment Ordinance. Both are designed to ensure that employees receive financial compensation in specific situations, such as being dismissed, dismissed by reason of redundancy or laid off by the company.
Eligibility for Long Service Payment
An employee is eligible for long service payments if he has been continuously employed by the same company for no less than 5 years and meets at least one of the following conditions:
The employee is NOT dismissed due to his serious misconduct or by reason of redundancy
Employment contract of a fixed term expires without being renewed
The employee dies during employment period
The employee resigns on ground of ill health with medical certification
The employee, aged 65 or above, resigns
The maximum amount of severance payment or long service payment is $390,000. Long service payment should be paid to an employee within seven days after the date of termination of employment contract. An employer who wilfully and without reasonable excuse fails to pay LSP to an employee is liable to prosecution and, upon conviction, to a fine of $350,000 and to imprisonment for three years.
Eligibility for Severance Payment
If an employee has been continuously employed under a contract for no less than 24 months and is dismissed due to redundancy or laid off due to the company's closure or reduction of business, the employer must pay SP to the employee. The conditions for receiving SP include:
The employee is dismissed by reason of redundancy
Employment contract of a fixed term expires without being renewed by reason of redundancy
The employee is laid off
The employer shall make the SP to the employee not later than two months from the receipt of a written notice from an employee. An employer who without reasonable excuse fails to pay SP to an employee is liable to prosecution and, upon conviction, to a fine of $50,000.
The Differences between Long Service Payment and Severance Payment
The Formula of Long Service Payment and Severance Payment
For detailed definition, calculation methods and other information about LSP and SP, please visit the official website of the Labour Department or relevant documents.
How to Accurately Calculate Long Service Payment and Severance Payment?
When calculating LSP and SP, HR have to keep abreast of the latest labor laws and manage extensive data, including average wages, service years of employees and accrued benefits from Mandatory Provident Fund (MPF) . Inadequate records can lead to calculation errors and increase the risk of legal issues and labor disputes.
BridgeBuilder HRMS provides a comprehensive payroll management module and professional payroll outsourcing services, allowing you to efficiently handle all payroll-related tasks, including the calculation of LSP and SP. The system simplifies data extraction and automates compensation calculations, reducing manual operations and human errors. It also ensures timely updates to comply with labor laws to enhance HR efficiency significantly.
Additionally, BridgeBuilder HRMS provides a wide range of essential and advanced modules such as employee profile management, payroll management, time & attendance, roster planning, expense claims, overtime claims, recruitment, onboarding and performance appraisal. The platform also features an employee self-service (ESS) web portal and a ESS mobile app to help alleviate HR workload while enhancing employee experience, allowing businesses to refocus on their core business and growth. Notably, BridgeBuilder HRMS was awarded the “HR Vendors of the Year Award 2022: Best Payroll Software (Gold Award) 2022" presented by Human Resources Online in 2022, demonstrating its undeniable strength in the field.
Comments