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Offsetting of Long Service Payment and Severance Payment


Under the Employment Ordinance, you may be entitled to a Long Service Payment (“LSP”) or Severance Payment (“SP”) from your employer. You may refer to the Labour Department’s website (www.labour.gov.hk) for more information on the conditions under which LSP/SP should be paid to you and the formula for calculating LSP/SP.

How it works

By law, your employer can offset the LSP/SP paid to you with the accrued benefits derived from the employer’s contributions. The amount offset from your account should not be more than the amount of LSP/SP paid to you. See the illustrations below for more details.

Senario 1: Accrued Benefits (employer’s portion) more than LSP/SP

Amount of LSP/SP the employee is entitled to : $30,000
Amount of accrued benefits (employer’s portion) in account: $50,000

After offsetting

Amount offset from account (employer’s portion): $30,000
Balance of accrued benefits (employer’s portion) in account: $20,000
Extra amount paid by employer to employee in respect of LSP/SP: $0

Senario 2: Accrued Benefits (employer’s portion) less than LSP/SP

Amount of LSP/SP the employee is entitled to : $30,000
Amount of accrued benefits (employer’s portion) in account: $20,000

After Offsetting

Amount offset from account (employer’s portion): $20,000
Balance of accrued benefits (employer’s portion) in account: $0
Extra amount paid by employer to employee in respect of LSP/SP: $10,000

As shown in the above illustrations, if the accrued benefits derived from the employer’s contributions cannot fully offset the LSP/SP, the outstanding balance must be paid to you by the employer. On the other hand, if the accrued benefits derived from the employer’s contributions exceed the amount of LSP/SP, the remaining balance after offsetting has to be retained in your account and is vested in you.

Offsetting Procedures

There are two ways that the offsetting may take place, depending on whether your employer has paid the LSP/SP to you first.

LSP/SP paid to you: If your employer has already paid the LSP/SP to you in full, he/she may arrange with the trustee to withdraw the accrued benefits derived from the employer’s contributions from your account. Your employer may ask you to acknowledge receipt of such payment in writing to facilitate his/her application for offsetting with the trustee.

LSP/SP not paid to you: If your employer has not yet paid any part of the LSP/SP to you, you may make an application in writing to the trustee directly to withdraw the accrued benefits derived from the employer’s contributions from your account. The trustee will require you to provide proof that you are entitled to LSP/SP and that such payment has not been paid to you by your employer.

Tips: If your employer is unable to settle the LSP/SP, you should consider obtaining a letter from your employer, preferably with authorized signature and company chop, stating your entitlement to an outstanding LSP/SP. This letter will be useful as documentation to the trustee in withdrawing your accrued benefits as LSP/SP.