LCQ1: Severance payment and long service payment

     Following is a question by Hon Wong Kwok-kin and a reply by the Secretary for Labour and Welfare, Mr Matthew Cheung Kin-chung, in the Legislative Council today (June 24):


     Under the Employment Ordinance (EO), the amount of severance payment (SP) and long service payment (LSP) of a monthly rated employee is calculated by multiplying his last month's wages or the average monthly wages in the last 12 months (which is capped at $22,500, "monthly wage cap") by reckonable years of service and then by two-thirds. The maximum amount of SP or LSP payable to an employee is $390,000 (the maximum amount). In this connection, will the Government inform this Council:

(1) among the employees in Hong Kong, of the respective numbers and percentages of those whose monthly employment earnings were equivalent to the monthly wage cap and above such amount, and the percentile of such amount in the monthly wages of Hong Kong employees, in the past five years, together with a breakdown by year;

(2) of the respective numbers of employees who were paid SPs and LSPs in the past five years; among these employees, the respective numbers and percentages of those whose last month's wages or average monthly wages in the last 12 months were equivalent to or above the monthly wage cap and of those who were paid the maximum amount, together with a breakdown by year; and

(3) of the respective numbers of adjustments made to the monthly wage cap and the maximum amount since the inclusion of the provisions related to SP and LSP in EO, the years in which such adjustments were made and the rates of such adjustments, as well as the criteria based on which the authorities determined the new levels of such amounts and decided whether a review was necessary; the reasons for the authorities not making any adjustment to such amounts since the last adjustment and whether they have any plan to make adjustments expeditiously to tie in with the current wage level of employees; if they do, of the details; if not, the reasons for that?



     My reply to the question of Hon Wong Kwok-kin is as follows:

(1) Based on the General Household Survey conducted by the Census and Statistics Department (C&SD), the information on the respective numbers and percentages of employees with monthly employment earnings of $22,500 or below, and above $22,500, as well as the percentile of monthly employment earnings of $22,500 in the past five years is set out at Annex.

(2) Under the Employment Ordinance (EO), employers are obliged to make severance payment (SP) to eligible employees upon retrenchment or long service payment (LSP) to eligible employees with not less than five years' service upon dismissal. However, the law does not require employers to report to the Government the amount of SP and LSP payable when they make such payments to their employees. The Government therefore does not have information on the number of employees paid SP and LSP, the number and percentage of such employees with their last month's wages or average monthly wages in the last 12 months equal to or above the monthly wage cap, and the number of employees paid the maximum payment amount and its percentage.

(3) When EO was first enacted in 1968, it applied only to all manual employees and non-manual employees with monthly wages not exceeding a specific level. With effect from June 1990, the coverage of EO was extended to all manual and non-manual employees irrespective of their wage levels and a monthly wage cap of $15,000 was set for the purpose of calculating SP and LSP. This monthly wage cap was raised to $22,500 in 1995.

     In respect of the maximum payment amount, at the time when SP and LSP were introduced, EO specified 12-months' wages as the maximum amount payable to an employee. With the extension of EO's coverage, this amount was subsequently amended in June 1990 to a maximum of 12 months' wages or $180,000, whichever was the lower. In 1995, EO was further amended to remove the cap on 12-months' wages, and to increase the ceiling from $180,000 to $210,000, and a further increase of $20,000 each year till it reached $390,000 on October 1, 2003.

     All along, the Government has reviewed labour legislation from time to time so as to improve employees' rights and benefits progressively, having regard to Hong Kong's social changes and pace of economic development, and taking into account the need to strike a reasonable balance between the interests of employees and employers. The purpose of SP and LSP is to provide compensation to employees who are retrenched, or are dismissed/leave employment after having served the same employer for a long period of time, so as to help alleviate an employee's financial hardship caused by loss of employment. As stated above, the Government has strengthened employees' protection in connection with SP and LSP progressively from 1995 to 2003, having regard to the prevailing social circumstances and the overall situation of employees' benefits. Separately, the Government introduced the Mandatory Provident Fund System since 2000 to provide statutory retirement protection to employees.

     According to the General Household Survey conducted by C&SD, the median monthly employment earnings of employees in Hong Kong in 2014 was $13,000. At present, the current monthly wage cap ($22,500) for calculating SP and LSP as laid down in EO is still far above the monthly wages of most employees and should be able to cover the majority of the cases, while the maximum payment amount of $390,000 for SP and LSP should also be able to provide a reasonable level of economic support to employees. If such monthly wage cap and maximum amount were to be raised further, employers would have to, on top of other compensation under EO, pay a higher amount of SP or LSP in retrenching employees or dismissing those with more than five years' service. Employers retrenching workers owing to cessation of business or downsizing of operations, especially small and medium-sized enterprises (SMEs), would have to shoulder additional financial burden. Currently, over 98 per cent of the enterprises in Hong Kong are SMEs and careful consideration should be given to their affordability. The Government has no plan at this stage to change the current statutory monthly wage cap and level of maximum payment amount applicable to SP and LSP.

Ends/Wednesday, June 24, 2015
Issued at HKT 14:46