Terminating an Employee and Severance pay procedures
While terminating an employee in Hong Kong is not as complex of an affair as it can be in other jurisdictions, employers are advised to pay close attention to all such requirements in place, as they are enforced by the Hong Kong Labor Department and companies in violation of rules will be subject to fines. The termination of an employment contract must fall into one of the broad categories specified in the Employment Ordinance as ground for termination, including qualifications or competence or employee conduct.
Termination of Contract during Probationary Period
- Within First Month – Under a continuous employment contract, it is lawful for an employer to terminate the contract without notice.
- After First Month – The employer must give at least 7 days notice prior to the termination of the employment contract after the first month of probation. Alternatively, an employer may give the employee a payment sum in lieu of notice, to be calculated as the average daily wages earned by an employee before the day on which the notice of termination of contract is given multiplied by number of days in the notice period for which wages would normally be payable to the employee. An employer may still terminate the employee without notice or payment if the employee has engaged in serious misconduct, executed a fraudulent act during work, or habitually neglects the duties of the position.
Termination of Contract after Probation (or with no probationary period)
The contract may specify the notice needed prior to contract termination, which may be no less than 7 days. In absence of the specification of notice in the contract, the employer must give notice no less than one month prior to termination.
Payment in Lieu of Notice
An employer may offer payment in lieu of notice. The payment is calculated as average daily wages earned by an employee before the day on which the notice of termination of contract is given, multiplied by number of days in the notice period for which wages would normally be payable to the employee.
Termination Without Notice or Payment In Lieu of Notice
Under very severe circumstances, an employer may terminate an employee without any notice or payment in lieu of notice. The following circumstances are considered lawful grounds:
- The employee willfully disobeys a lawful or reasonable order from the employer.
- Engages in misconduct.
- Engages in fraudulent or otherwise acts dishonestly.
- Recklessly neglects duties of the position.
The employer should pay the employee all outstanding wages within seven days following the employee dismissal.
Employees Participating in a Strike: Employees’ rights to unionize are protected in Hong Kong. As such, an employer may not terminate an employee for participating in a strike without offering notice or payment in lieu of notice.
An employee may terminate the contract without notice under the following circumstances:
- The employee reasonably believes there is risk of physical danger at the place of employment such as violence or disease.
- The employee has been exploited by the employer or at the place of employment.
- The employee, on the condition that he/she has been employed for no less than five years, is certified by a registered medical practitioners or registered Chinese medicine practitioner as being permanently unable to continue his/her work without serious health risk.
Other Restrictions on Termination
If an employer is convicted of unlawfully terminating an employee by violating the restrictions below, they will face a fine of HK$100,000.
- Maternity Protection: Once confirmed pregnant by a medical professional, an employer may not terminate the employee until her maternity leave, if applicable, has ended.
- Statutory Paid Sick Leave: An employer may not dismiss an employee while on paid sick leave.
- Employee Gives Information to Authorities: An employer may not terminate an employee for giving any information to the authorities.
- Trade Union Activities: An employer may not dismiss an employee for reasonable participation in a trade union, such as participating in a strike.
- Work-Related Injury: An employer is not at liberty to terminate an employee with a work-related injury until the parties have entered into an agreement regarding compensation or a certificate of assessment has been issued.
Timing of Payments Apart from severance payment, if applicable, all termination payments should be made as soon as is feasible and no later than seven days after the expiry of the contract. If the employer fails to pay outstanding wages within 7 days, it is required to pay interest on those wages. The payments to be made depend on the circumstances of the employee but may include:
- Payment in lieu of notice
- Outstanding wages
- Payment for untaken annual leave
- Pro rata end of year payment
- Other remuneration specified in the employment contract such as commissions or provident fund contributions
Severance payment, if applicable, must be paid within 2 months from a notice from the employee claiming entitlement to severance. An employee under continuous contract for at least 24 months is entitled to severance payment under following circumstances:
- Redundancy: The employee is terminated or contract is not renewed due to redundancy at the company of employment. This includes if the employer intends to close the business or ceases to need to the service of the employee (to no fault of the employee).
- Lay-off: The employee is discharged, temporarily or permanently.
Long Service Payment
A long service payment is given to employees under continuous contract for no less than 5 years under the following circumstances:
- Dismissal for reason other than redundancy or serious misconduct.
- A fixed term employment contract expires and is not renewed.
- Employee’s death.
- Employee is issued a medical certificate stating he/she is unfit for the job (may be issues by registered medical practitioner or registered Chinese medicine practitioner).
- Employee is 65 years of age or older and resigns.
The long service payment should be paid within seven days after the expiry of the contract.
Calculating Severance and Long Service Payments
- Monthly Paid Employees: (previous months wages * 2/3) * (years of service)
- Daily Paid Employees: (any 18 days of wages chosen by the employee) * (years of service)
INS Global: Your HR and PEO partner in Hong Kong
Making the decision to terminate an employee requires a significant amount of care and planning to ensure compliance with Hong Kong’s labor regulations. As Asia’s leading HR consultancy, INS Global is here to support you throughout the entire process, providing expert guidance and support tailored to your company’s circumstances. Contact us today to find out how we can support you with your HR needs.