Back Home

Employer

Default Investment Strategy

Industry Schemes

For employer in the construction and catering industries

Go

Long Service Payment / Severance Payment Offsetting


Under the Employment Ordinance, your employees may be entitled to Long Service Payment (“LSP”) or Severance Payment (“SP”). 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 your employees and the formula for calculating LSP/SP.

How it Works

By law, as an employer, you can offset the LSP/SP paid to your employees with the accrued benefits derived from the employer’s contributions. The amount offset from your employee’s account in any case should not be more than the amount of LSP/SP paid to the employee. See the illustrations below.

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, you must pay the outstanding balance to your employee. 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 employee’s account and vested in them.

Offsetting Procedures

There are two ways for the offsetting to take place, depending on whether you are planning to pay the LSP/SP to your employee first.

LSP/SP paid to your employee: If you have paid the LSP/SP to your employee in full, you may then arrange with your trustee to withdraw the accrued benefits derived from the employer’s contributions from the employee’s account. Remember to ask your employee to acknowledge receipt of such payment in writing to facilitate your application for offsetting with your trustee.

Though there is no time limit for employers to file an offsetting application to the trustee, you should do so as soon as possible upon paying the LSP/SP.

LSP/SP not paid to your employee: In the event that you are unable to settle the LSP/SP, your employee may make an application in writing to the trustee directly to withdraw the accrued benefits derived from the employer’s contributions from their account. Under such circumstances, the trustee will require your employee to provide proof that he/she is entitled to LSP/SP and that such payment has not been made by you. You may therefore help by providing a letter with authorized signature and company chop to your employee, stating your employee’s entitlement to an outstanding LSP/SP and the relevant amount.

Do remember that if the accrued benefits derived from the employer’s contributions cannot fully offset the LSP/SP, you must pay the outstanding balance to your employee.

Tip: Both the employer and employee should maintain all documents and records of the LSP or SP to facilitate making an offsetting application to the trustee in the future.
 

Back To Top