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Long Service Payment

Under the Employment Ordinance, an employee employed under a continuous contract for not less than 5 years is eligible for a long service payment if any one of the following is true:

  • They are dismissed (except by reasons of redundancy or summary dismissal due to the employee’s serious misconduct).
  • Their fixed-term employment contract expires without being renewed.
  • They die during employment.
  • They have been issued a certificate in a specified form by a registered medical practitioner or a registered Chinese medicine practitioner, certifying that they are permanently unfit for their present job.
  • They are aged 65 or above and resign on the grounds of old age.

Calculating Long Service Payments

Under the Employment Ordinance, the amount of the long service payment is two-thirds of the employee’s last month’s wages or two-thirds of $ 22,500, whichever is lower, multiplied by the total number of years of service. The current maximum payable is $ 390,000. An employee may also elect to use their average wages over the last 12 months for the calculation.

Average Daily Wage is discussed in the following article:

Mandatory Provident Fund scheme benefits, retirement scheme benefits, and gratuities that are due to the employee, based on the employee’s length of service, can be used to offset the payment. The amount offset against your employee’s account in any case should not be more than the amount of the long service payment made to the employee.

Tax implications of long service payments

Long service payments that are paid in accordance with the provisions of the Employment Ordinance are not tax assessable, and neither the employer nor the employee is required to report these payments in their tax returns. However, it is mandatory for the employer and employee to report any payment that is in excess of the Employment Ordinance’s stipulated statutory entitlement.

Long service payments can be added to the payslip by using the Termination Lump Sums system item as follows:

  1. Go to the relevant employee's profile.
  2. Click on Add next to Payslip Inputs.
  3. Click on Termination Lump Sums.
  4. Enter the Long Service Payment amount.
  5. Click Save.