This guide runs through what you need to know about Hong Kong permanent residence
If you’ve been working in Hong Kong and your employment is coming to an end, you might be wondering if you’re entitled to a long service payment.
This guide runs through when long service termination payments may be used, who could be eligible and how much should be paid. We’ll also introduce Wise as a great way to cut the costs of sending money internationally - perfect if you’re getting a long service payment in HKD and need to send it to a bank account held overseas.
A long service termination payment may be paid if you’ve been working under a continuous contract for 5 years or more with the same employer, and your employment ends. ¹
If you’re eligible for a long service payment your employer should normally transfer the funds within 7 days after your employment ends. How much is paid will depend on your salary and the number of years you’ve been working for the employer, with a cap of a maximum payment of 390,000 HKD.²
It’s worth noting that long service payments aren’t made when an employee is made redundant. However, in this case you may be entitled to a severance payment instead.
Long service payments can be paid if an employee has worked under a continuous contract with one employer for at least 5 years. Once you’ve hit the qualifying period of employment, long service benefits may apply in any of the following situations:
- The employee is dismissed (not due to gross misconduct or redundancy)
- The employee’s fixed term contract expires and is not renewed
- The employee dies
- The employee resigns on the grounds of ill health
- The employee is aged 65 or older and retires
Where a long service payment is made due to an employer dying, the payment will be passed on to the next of kin.
Long service payments are calculated in the following way for monthly paid employees:
(Last full month’s wages x ⅔) x reckonable years of service
For employees who are paid on a piece basis or who have a daily rate, the calculation is slightly different:
(Any 18 days wages from the past 30 days, selected by the employee) x reckonable years of service
Whether you’re monthly paid or work on a day rate, the amount used for the calculation is capped at 15,000 HKD, with an overall cap for the payment of 390,000 HKD. Partial years of service can be calculated on a pro rata basis. Here’s a worked example for a monthly paid employee:
- Last month’s full wages - 19,000 HKD
- 19,000 x ⅔ = 12,654 HKD
- Reckonable years of service - 7
- 7 x 12,645 = 88,578 HKD long service payment
Foreign domestic helpers (FDH) have the same long service and severance employment protections in place as local employees. That means that domestic helpers should be paid a long service payment upon their employment ending, if they’ve been with the same employer for 5 years or more and fulfil the other eligibility criteria set out above. ³
If you’ve been employed for more than 2 continuous years you may be entitled to a severance payment if you’re made redundant as a FDH, but as with local employees, long service payments only apply after 5 years of employment.
Long service termination payments which are calculated according to the method set out in law aren’t usually subject to salaries tax.⁴ However, if you’re paid above the legally required amount, you may still need to report and pay tax on this additional income.
As with all things tax, the rules are complex, so do get professional advice if you’re not sure about how to pay taxes on your long service benefits.
An employer can offset some or all of the long service payment they’re required to pay against benefits accrued in the MPF from the employer’s contributions. This could be done in a couple of ways:⁵
- If an employer has already made a long service payment they may apply to the MPF trustees to withdraw the corresponding amount from the MPF funds
- If the long service payment has not yet been made the employee can apply to the MPF trustees to withdraw the corresponding amount from the MPF funds directly
If the amount in the MPF fund which has been derived from the employer’s contributions does not cover the full long service payment, the employer should make up the difference themselves.
So there you have it - your full guide to understanding, calculating and receiving long service payments in Hong Kong.
If you need to move money out of Hong Kong from your long service payment - or you’re sending money internationally for any other reason - you could be better off with Wise. Sending money with Wise is easy - you’ll always get the mid-market exchange rate, with low, transparent fees, and your payment can arrive faster than using a bank, too. See how much you can save with Wise today.
Sources used in this article:
1 Hong Kong Labour Department: The Employment Ordinance, Cap. 57
2 Hong Kong Labour Department: Severance Payment and Long Service Payment
3 Labour Department - Foreign Domestic Helpers: FAQs
4 Hong Kong Inland Revenue Department: Guide to Tax Return – Individuals
5 MPFA: Arrangements for Offsetting Long Service Payment and Severance Payment
Sources last checked on 6-Dec-2021
This publication is provided for general information purposes and does not constitute legal, tax or other professional advice from Wise Payments Limited or its subsidiaries and its affiliates, and it is not intended as a substitute for obtaining advice from a financial advisor or any other professional.
We make no representations, warranties or guarantees, whether expressed or implied, that the content in the publication is accurate, complete or up to date.
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