A New Wave of Unemployment – Severance Pay and Long Service Payment Calculations
The Census and Statistics Department recently announced the latest adjusted unemployment rate of 6.4% in Hong Kong from July to September, reaching a 16-year high, while the underemployment rate remained at 3.8%, a new high after SARS. During this period, the total number of people in employment decreased by approximately 15,600, bringing the total down to an approximate 3.6 million. The most affected areas are consumer and tourism-related industries, namely retail, accommodation, and F&B service industries; unemployment in the arts, entertainment and recreational activities industries have also deteriorated.
The second phase of the government’s Employment Support Scheme will end at the end of November, and the wave of layoffs is not likely to end soon. Facing the threat of being asked to take unpaid leave or being laid off, employees must be able to remain calm and plan their next step. In addition, it is also important to clearly calculate the severance pay or long service payment they can receive. There are specified calculation methods for company layoffs, severance pay and compensation.
Eligibility for Receiving Severance Pay
- Qualifying period of employment not less than 24 months under a continuous contract, and;
- Dismissed by reason of redundancy, or;
- Employment contract of a fixed term expires without being renewed by reason of redundancy, or;
- The employee is laid off.
Eligibility for Receiving Long Service Payment
- Qualifying period of employment not less than 5 years under a continuous contract, and;
- Employee dismissal not due to reason of redundancy or serious misconduct, or;
- Employment contract of a fixed term expires without being renewed, or;
- The employee dies, or;
- The employee resigns on ground of ill health, or;
- The employee, aged 65 or above, resigns on ground of old age.
Amount for monthly-paid employee: (Last month’s wages* x 2/3) x reckonable years of service
Amount for daily-rated/piece-rated employee: (any 18 days’ wages chosen by the employee out of their last 30 normal working days*) x reckonable years of service
*Wage should not exceed $22,500
The maximum amount of severance payment or long service payment is $390,000.
Some employers will use MPF to "offset" the employee's severance payment or long service payment and withdraw the employee's severance payment or long service payment from the employer's contribution in the employee's MPF account. However, if the employer’s contributions are not enough to cover the severance payment or long service payment, the employer must pay the difference.
If unfortunately, office workers lose their jobs, many will take the opportunity to change their field of work or find new ways out. The younger generation may consider working holidays to gain work experience while travelling the world. However, under the influence of the epidemic, it may not be the most suitable choice at the moment. The job market is weak, and finding another stable job is not easy. If you have funds and ideas, you can consider starting a business in the weak market. The advantages of starting a business in these times are cost reduction and low rent; if the particular industry allows, you can even move your business online without renting a physical office, which will further reduce costs.
Even if the cost of starting a business is reduced under the epidemic, you must still measure how much you can afford, conduct detailed market research, and draw up long-term business plans. In addition, you can try to operate the business as a side job first, to lower the risk of the company failing when there is an operational crisis. If you lack funds and decide to take out a loan, you must first assess the risks and be able to repay the loan on time.
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