Calculating Absence Entitlements on Termination
PeopleSoft delivers a set of predefined rules for processing absences due to termination. PeopleSoft designed these rules in accordance with Hong Kong statutory requirements.
This section discusses how to:
Calculate unused annual leave.
Calculate 13th month payment.
Calculate severance and long service leave payments.
Pay outstanding deduction recovery upon termination.
Note: The system element TERMINATION DT in the employment record is populated when you select an action reason of either Retirement or Termination on the Job page. They are both considered termination. Action Termination with a reason of Redundancy or Layoff is considered job redundancy. If the employee is terminated with one these reasons and has worked more than two years, then the employee is entitled to severance payment.
When general and statutory employees are terminated after three months of continuous service, they are entitled to a payment for their prorated unused annual leave. The earning element ANN LIEU is the payment in lieu of annual leave entitlement. The calculation of the unused annual leave amount is Unit × Rate:
Unit is set by the unused annual leave balance in days formula: TER FM ALV BAL.
Rate is set by the average daily rate formula: CM FM DAILY RATE.
(Average Daily Rate) = (Average Monthly Earning) / 30
Note: The constant 30 represents the number of days in a month and is also used in February (28 or 29 days) or March (31 days).
The TER FM ALV BAL and CM FM DAILY RATE formulas resolves as follows:
The system checks the service date system element TER DATE to determine whether the terminated payee is eligible to receive a payment instead of unused annual leave.
The date CM DT PROBATION is three months after the service date.
The actual annual leave balance for termination calculation is returned by formula TER FM ALV BAL, using ALV GENL ENT_BAL for general employees and ALV STAT ENT_BAL + current year (up to the termination date) balance.
The value is returned to the earning element ANN LIEU and is then multiplied by the average daily rate calculated by CM FM DAILY RATE.
Use ANN LIEU to pay employees when they accept payments from their employer to offset part of the annual leave. This is a positive input and the unit of ANN LIEU is overridden by the number of adjusted days from the annual leave balance. ANN LIEU is a taxable earning element. Therefore, it contributes to the annual taxable accumulator.
Note: An employee can have a negative annual leave balance when processing unused leave during the termination process. The outstanding balance should be converted to monetary value and paid back to the employer. The calculation of the outstanding annual leave is the same as the unused annual leave.
Regular 13th month payment is an additional payment of basic salary (normally 100 percent of regular) paid to employees a few days before the Chinese New Year. If the employee is eligible for 13th month pay and is terminated, then prorated payment is paid even if the employee was hired on or after the cut-off date (assuming that the employee has completed the probation period of three months of service). Some organisations set the cut-off period to stop current yearly 13th month pay if the employee was hired on or after the previous year's cut-off date.
To pay 13th month payments, use the TER 13TH PAY earning element attached to the TER SE MAIN section. The 13th month payment is calculated as Base × Percent:
Base is set by the formula TER FM 13TH PAY.
Percent is 100.
The TER FM 13TH PAY formula resolves as follows:
If the employee is hired and terminated in the same year (when variable CM VR SERV YR equals variable OE VR CAL YEAR) or if the employee is hired on or after the previous year's cut-off date and terminated in the current year (when the SERVICE DT is on or after the variable OE VR CUT OFF DT), then the following specific elements are included in the calculation:
A: Duration from hire date to termination date (using duration TER DR DY IN SERV).
B: Calendar days in termination year—either 365 or 366 (using duration OE DR DAYS IN YR).
C: Basic salary as of termination date (using MONTHLY RT).
The prorated 13th month pay is calculated as A / B × C.
If the employee is hired before the previous year's cut-off date and is terminated in the current year, the following additional element is incorporated into the preceding calculation:
D: Duration from January 1 of the termination year to the employee's termination date (using duration TER DR DY LAST YR).
The prorated 13th month pay is calculated as D / B × C.
The duration TER DR MTH IN SERV determines the total number of service months between the employee's hire date and termination date. If this is fewer than three months, no payment is made. The date OE DT CAL YEAR extracts the current calendar year.
The service date must be on or after the 13th month pay cut-off date OE VR CUT OFF DT.
An employer should pay severance payment when an employee who has been employed under a continuous contract for not less than 24 months is dismissed by reason of redundancy. Customary data with the following rules pays severance payments when:
The employee has worked for the company for more than 24 months.
The termination action is redundancy (terminated with benefit).
The calculation rule for both severance and long service payments is the same. Employees can receive only severance payment or long service payment, but not both. An employer should pay long service payment to an employee who is employed not less than five years under a continuous contract, and who:
Is not dismissed due to serious misconduct.
Dies.
Resigns due to ill health.
Retires early or at age 65 or above.
The formula TER FM LSP PAYMT (severance and LSP amount) returns the severance payment or long service payment, depending on the employee's year of service and the termination action reason.
The TER FM LSP PAYMT formula resolves as follows:
The years of service and maximum claim amount for the terminated employee are retrieved from bracket TER BR LSP ENT.
The formula TER FM LSP PERIOD is used as the search key for the bracket.
The variable TER VR MAX LSP stores the maximum claimable LSP amounts that are stored in the bracket TER BR LSP ENT.
The variable TER VR LSP CEILING stores the maximum ceiling of average wages (currently 15000 HKD).
The duration CM DR MTH OF SERV returns the number of months between the service date SERVICE DT and the pay period end date GP PRD END DT plus one.
The duration CM YR OF SERV NDEC returns the years of service with no decimals.
The variable OE VR ROLL UNIT is needed before it calls the formula OE FM ROLL AVG.
The formula OE FM ROLL AVG obtains the employee's average earning and calculates the employee's payment using the following formula:
LSP = (Average Earning × 2/3) × (Reckonable Years of Service)
The factor 2/3 is a constant factor defined by the Hong Kong Labor Department. The formula first checks the monthly average earning and multiplies it by 2/3 (0.67). The result cannot be greater than the maximum ceiling of 15000 HKD, which is also defined by the Labor Department. The total is then multiplied by the employee's reckonable years of service stored in the bracket TER BR LSP ENT. If it exceeds 15000 HKD, then 15000 HKD is returned and multiplied by the employee's reckonable years of service.
The earning element CASHADV is a cash advance that is paid in advance to an employee. The total amount of the advance must then be paid back to the organization in several installments. The outstanding cash advance balance is stored in the goal amount (balance) accumulator. When the termination occurs, the system checks the goal amount accumulator and resolves the whole goal amount during the last pay period.
The CASHADVR recovery deduction is always 20 percent of the CASHADV, and the recovery ceases to resolve when the cash advance goal balance accumulator CM AC GOAL BAL equals zero.
When the employee is terminated, the whole cash advance goal balance should be recovered in the last pay period, so the deduction amount of the CASHADVR is overridden by the cash advance goal balance accumulator. A negative net balance is allowed when the net amount is not enough to recover the whole goal balance.