When an employee’s employment is terminated, certain payments become due and failure to make such terminal payments can have serious consequences. It is therefore essential that employers are aware of their statutory obligations upon termination.
What are employees entitled to upon termination?
When calculating terminal payments, employers must consider the individual circumstances of each employee such as the length of the employment, the reasons for termination and the terms of the employment contract.
Generally, employees are entitled to the following:-
- any accrued and unpaid wages up to and including the last day of employment;
- any payment in lieu of notice;
- any accrued but untaken annual leave;
- any other payments stipulated under the employment contract such as end of year payments; and
- any Severance Payment or Long Service Payment.
Potential consequences for employers
There have been an increasingly number of employers prosecuted and convicted for their failure to pay employees their statutory wages within the prescribed time (i.e., 7 days after the day of termination). If the employer fails to make such payments, they will be guilty of a criminal offence and liable upon conviction to a fine of HK$350,000 and imprisonment for three years.
The Labour Department has said that it will not tolerate these offences and will safeguard employees’ statutory rights.
Most recently, on 21 November 2022, a company was convicted and was fined HK$90,000 for failure to pay wages as well as refusing to pay a sum awarded by the Labour Tribunal.
In certain situations, directors can also be prosecuted by the Labour Department. For example, on 28 October 2022, two directors were convicted for their consent, connivance or neglect in the company’s failure to pay wages within 7 days after the date of termination of employment. One director was fined HK$22,500 and one was sentenced to 160 hours of community service as well as ordered to pay the outstanding sum to the employees concerned.
Practical considerations for employers
Employers should take care in :
- calculating the employee’s entitlements;
- ensuring that the employee’s entitlements are paid within the prescribed time; and
- keeping proof of payments.
For further information, please contact:
Felda Yeung, Partner, Gall
feldayeung@gallhk.com
