Compliance
Severance Payment
A payment due to an employee dismissed by reason of redundancy or lay-off after a minimum service period.
Definition
Severance payment is a statutory entitlement for an employee who has been employed under a continuous contract for not less than 24 months and is dismissed by reason of redundancy or is laid off. The payment is calculated based on a formula involving two-thirds of the employee's last full month's wages (or a statutory cap, whichever is less) multiplied by the number of years of service. As of May 1, 2025, employers can no longer use their mandatory contributions to the Mandatory Provident Fund (MPPF) to offset severance payments.