Money Matter


Exclusively contributed by the Labour Department

Matilda worked as a sales person in a computer shop for 10 years. Her company did not have a retirement policy but, since she was approaching 55 years of age and her son had graduated from university half a year before, she saw this as an opportune time to retire. In May, she therefore served one month's resignation notice in writing, as required by her employment contract with the company. According to the contract, she was entitled to one month's salary as a year-end bonus at the end of the year.

Upon receipt of Matilda's resignation notice, Mr Wong, the shop manager, soon found a person to fill her post. Since this person was available immediately, he wished to release Matilda earlier. When he checked her annual leave record, he found that she still had a paid leave balance of 10 days. He therefore told her to offset the last 10 days of her notice period against the leave balance, so that she could leave her employment earlier. Matilda, however, believed that she had the right to work until the end of the notice period and that the company should make a payment to her in respect of the balance of leave which had not been taken.

Matilda therefore refused the request. She also demanded that her pro rata year-end bonus, long service payment, annual leave payment and all other payments due to her be paid within seven days of the expiry of the notice period. On the other hand, Mr Wong argued that, since she had resigned from service, she was not entitled to a pro rata bonus and long service payment and the company could also offset the notice period against her leave balance.

Can Mr Wong offset the notice period served by Matilda against her leave balance?
* No. According to the Employment Ordinance, the annual leave to which an employee is entitled under the ordinance should not be included in the notice period.
* On termination of employment, including resignation by the employee, pro rata leave pay should be paid to the employee within seven days of termination if the employee has been employed for not less than three months in the last leave year, together with a payment in lieu of the leave balance for the previous leave year.

Is Matilda entitled to a pro rata bonus?
* According to the Employment Ordinance, an employee who resigns before the payment period expires is not entitled to a pro rata end-of-year payment, unless the contract provides otherwise.
Therefore, unless specified otherwise in the employment contract, Matilda is not entitled to a pro rata bonus as the payment period ends in December and she is leaving service in June.

Is Matilda entitled to a long service payment?
* No. Under the Employment Ordinance, an employer should make a long service payment to an employee who has been employed under a continuous contract for no less than five years, if he:
* is dismissed for reasons other than serious misconduct or redundancy; * is certified by a registered medical practitioner as permanently unfit for the present job and resigns;
* is aged 65 or above and resigns; or
* dies in service.
Since Matilda is under 65 and not supported by the required medical certificate as being permanently medically unfit, she is not entitled to a long service payment under the ordinance.

Under what circumstances can an employee terminate a contract of employment without notice or payment in lieu? * Under the Employment Ordinance, an employee may terminate his employment contract without notice or payment of wages in lieu of notice if:
* he reasonably fears the physical danger of violence or disease;
* he is subjected to ill-treatment by the employer; or
* he has been employed for not less than five years and is certified as being permanently unfit for the type of work in which he is engaged.
* An employee may also deem his contract of employment to be terminated and leave service immediately if his employer fails to pay him his wages within one month after the wages become due. In such cases, the employee can claim a termination payment from the employer.

The above case only serves as an illustration of the provisions of the Employment Ordinance on employment protection. The Employment Ordinance, however, remains the sole authority for the provisions explained above and, in the event of a dispute, the final decision rests with the court.

Q1 Should the employer grant pro-rata annual leave pay to an employee who resigns before completing one year's service?
A1 An employee is entitled to pro-rata annual leave pay on completion of a minimum of three months' service if his employment contract is terminated, unless the employee is dismissed by summary dismissal.

Q2 Can a provident fund be used to offset a severance payment or a long service payment?
A2 Yes. Where an employee is simultaneously entitled to a severance payment or long service payment and to a provident fund, the amount of severance payment or long service payment can be offset by the employer's contribution to the provident fund and the interest accrued.

Taken from Career Times 01 August 2003

(Last review date: 23 August 2013)

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