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Cambodia: In-service seniority payments to replace layoff compensation (severance)

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October 31, 2018

Effective January 1, 2019, the severance entitlement in Cambodia will be replaced by a seniority payment to employees of 15 days’ wages and benefits each year.

EMPLOYER ACTION CODE: ACT

At present, individuals employed under an indefinite-term contract are entitled to a layoff compensation, commonly referred to as severance pay, when separated from employment for any reason (except dismissal for reasons of serious misconduct). Effective January 1, 2019, the severance entitlement will be replaced by a so-called seniority payment to employees of 15 days’ wages and benefits each year, split into two equal semiannual payments. The change will not apply to the severance regime for fixed-term contracts.

KEY DETAILS

Seniority payments for indefinite-term employees will be payable from 2019 in accordance with the following rules:

  • Seniority payments will be payable in June and December; each payment will be equal to 7.5 days’ wages and benefits (i.e., 15 days in total for the year).
  • New hires will be entitled to a seniority payment provided they worked at least one month in the reference period (January to June, or July to December).
  • On separation from employment for any reason (other than dismissal for serious misconduct), employees are eligible for a seniority payment if they have at least one month of service in the current reference period.
  • In recognition of the lost severance entitlement, employees with service prior to 2019 (with the same employer) will be entitled to back payment of seniority payments for prior service calculated on the same basis — that is, 15 days times years of service prior to 2019 (doubled for employees in the textile, garment and footwear industry) — subject to a maximum of six months’ pay (the maximum payable for severance). This back payment is to be spread and paid simultaneously with and on the same schedule as the seniority payment. For employees who resign before all back pay is cleared, the remaining balance is forfeited. Employees terminated before back payment is cleared will be entitled to the remaining unpaid portion

Another amendment of the Labor Law, which will also take effect in January 2019, stipulates that all salaries will have to be paid twice a month:

  • The first half of the salary will have to be paid in the second week of the month.
  • The second half of the salary, as well as any additional compensation due (such as overtime), will have to be paid in the fourth week of the month.

EMPLOYER IMPLICATIONS

Employers’ financial plans and payroll processes will have to be adapted to accommodate periodic seniority payments to current employees rather than future severance payments at termination. The current severance lump sum at termination is based on 15 days’ final pay but capped at six months’ pay (or, equivalently, at six years’ service).

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