Chapter 11: Severance Payment and Long Service Payment
Eligibility for Severance Payment and Long Service Payment
An employee is eligible for severance payment or long service payment
subject to the following conditions:
Entitlement Severance Payment Long Service Payment
Qualifying period not less than 24 months not less than 5 years
of employment under a continuous under a continuous
contract contract
Conditions/ The employee is The employee is
Requirements dismissed by reason of dismissed but :
redundancy* he is not summarily
dismissed due to his
serious misconduct
his dismissal is not by
reason of redundancy
Employment contract of a Employment contract of a
fixed term expires without fixed term expires without
being renewed by reason being renewed*
of redundancy*
The employee is laid off The employee dies
The employee resigns on
ground of ill health
The employee, aged 65
or above, resigns on
ground of old age
* If not less than 7 days before the date of dismissal/ expiry of the fixed
term contract in case of severance payment, and not less than 7 days
before the expiry of the fixed term contract in case of long service payment,
the employer has offered in writing to renew the contract of employment or
re-engage him under a new contract but the employee has unreasonably
refused the offer, the employee is not eligible for the entitlements.
NOTE : An employee will not be simultaneously entitled to both long
service payment and severance payment.
Meaning of Redundancy
An employee is taken to be dismissed by reason of redundancy if the
dismissal is due to the fact that:
the employer closes or intends to close his business;
the employer has ceased, or intends to cease, the business in the
place where the employee was employed; or
the requirement of the business for employees to carry out work of a
particular kind, or for the employee to carry out work of a particular
kind in the place where the employee was employed, ceases or
diminishes or is expected to cease or diminish.
Meaning of Lay-off
If an employee is employed on such terms and conditions that his
remuneration depends on his being provided by the employer with work of
the kind he is employed to do, he shall be taken to be laid off if the total
number of days on which no work is provided and no wages is paid
exceeds:
half of the total number of normal working days in any four
consecutive weeks; or
one-third of the total number of normal working days in any 26
consecutive weeks.
The days of lock-out, rest days, annual leave and statutory holidays should
not be counted as normal working days during the above periods.
Amount of Severance Payment/ Long Service Payment
The following formula applies to the calculation of both severance payment
and long service payment:
Monthly-paid reckonable
#
employee (last month wages* X 2/3) X years of
service
Daily-rated/piece-rated (any 18 days' wages*
reckonable
employee chosen by the employee
X years of
out of his last 30 normal
service
working days)#
Service of an incomplete year should be calculated on a pro rata basis.
* An employee may also elect to use his average wages in the 12 months
immediately preceding the termination of employment contract for the
calculation. (Where the employee's employment contract is terminated by
payment in lieu of notice, the employee may elect to use his average
wages in the 12 months immediately preceding the date up to which the
payment in lieu of notice is calculated.)
#
The sum should not exceed 2/3 of $22,500 (i.e. $15,000).
Reckonable Years of Service
For all manual employees and non-manual employees whose average
monthly wages did not exceed $15,000 for the 12 months preceding 8
June 1990, if the relevant date of termination of employment occurs on or
after 1 October 2004, the years of service should be reckoned in full.
For non-manual employees whose average monthly wages exceeded
$15,000 for the 12 months preceding 8 June 1990, their years of service
can be reckoned up to 1980.
Maximum Amount
If the relevant date of termination of employment occurs on or after 1
October 2003, the maximum amount of severance payment or long service
payment is $390,000.
Payment of Severance Payment
An employee who wishes to claim for severance payment should serve a
written notice to his employer within three months after the dismissal/ lay
off takes effect. The deadline for serving such notice may be extended if
approved by the Commissioner for Labour.
The employer shall make the severance payment to the employee not later
than two months from the receipt of such a notice.
Offences and Penalties
An employer who without reasonable excuse fails to pay severance
payment to an employee is liable to prosecution and, upon conviction, to a
fine of $50,000.
Payment of Long Service Payment
Long service payment should be paid to an employee within seven days
after the date of termination of employment contract.
Offences and Penalties
An employer who wilfully and without reasonable excuse fails to pay long
service payment to an employee is liable to prosecution and, upon
conviction, to a fine of $350,000 and to imprisonment for three years.
Offsetting of Severance Payment/ Long Service Payment against
Mandatory Provident Fund Scheme benefit, Occupational Retirement
Scheme benefit or Gratuity based on length of service
If an employee becomes entitled to severance payment or long service
payment and:
gratuities based on length of service or occupational retirement
scheme benefits (excluding any part attributable to employee's
contributions) have been paid to the employee; or
accrued benefit (excluding any part attributable to employee's
contributions) is being held in a mandatory provident fund scheme
in respect of the employee, or has been paid to the employee,
the severance payment / long service payment is to be offset against the
aforementioned amount of gratuities and benefits to the extent that they
relate to the employee's years of service for which the severance payment/
long service payment is payable.
(For enquiries on application for payment of an amount from the
occupational retirement scheme benefits or accrued benefit in the
mandatory provident fund scheme due to severance payment / long
service payment paid / payable to an employee, please contact the
trustees concerned for details.)
Claiming Long Service Payment on the ground of Ill Health
An employee claiming for long service payment on ground of ill health
should forward to the employer a certificate in the form specified by the
Commissioner for Labour and issued by a registered medical practitioner
or a registered Chinese medicine practitioner, certifying that he is
permanently unfit for his present job.
Regardless of whether the certificate produced by the employee was
issued by a registered medical practitioner or registered Chinese medicine
practitioner, an employer may, within 14 days after receiving such
certificate, at the employer’s own expense, arrange for the employee to
attend another medical examination conducted by a registered medical
practitioner or registered Chinese medicine practitioner named by the
employer to obtain a second opinion as to the employee’s permanent
unfitness to undertake the work at issue. The employer should notify the
employee in writing details of the appointment not later than 48 hours
before the examination is to take place.
Claiming Long Service Payment in the event of the Death of an
Employee
Priority in claiming long service payment
1st the spouse of the deceased employee
2nd children of the deceased employee (if two or more persons apply, the
long service payment should be divided equally between them)
3rd parents of the deceased employee (if two or more persons apply, the
long service payment should be divided equally between them)
4th the personal representative of the deceased employee
Application Procedures
The person who wishes to claim for long service payment must serve an
application in a specified form to the employer within 30 days after the
death of the employee. Where necessary, the Commissioner for Labour
may extend the deadline. The form is available at any branch office of the
Labour Relations Division.
The employer shall make the payment of Long Service Payment to :
the spouse of the employee within 7 days after receiving the application
other applicants within 7 days after the application period
expires
Offences and Penalties
An employer who without reasonable excuse fails to pay long service
payment to the beneficiaries of a deceased employee is liable to
prosecution and, upon conviction, to a fine of $50,000.
