- An employee gets severance payment or long service payment, never both.
- Severance payment applies after 24 months for redundancy or lay-off. Long service payment applies after 5 years for qualifying non-redundancy exits.
- Monthly-paid formula: last full month’s wages x 2/3 x reckonable years, with wages capped at HK$22,500 (so HK$15,000 per year of service).
- Deadlines differ. Long service payment is due within 7 days of termination. Severance payment is due within 2 months of the employee’s written claim.
- Total statutory SP or LSP for one employee is capped at HK$390,000.
- Service straddling 1 May 2025 splits into pre- and post-transition portions, each with its own wage reference date.
- What ended: mandatory employer MPF can't offset SP/LSP for service from 1 May 2025
- What still offsets: employer contributions can offset the pre-transition portion; voluntary contributions and service-based gratuities may offset both portions
- Maximum entitlement: total statutory SP or LSP remains capped at HK$390,000
- Subsidy: apply through TransitionEase within three months after paying the employee
Long service payment in Hong Kong usually arrives with a name attached. You’ve got an employee, a termination date, and someone in finance asking for the number before legal signs off.
Here’s the short version. The Employment Ordinance (Cap. 57) gives you two entitlements, and they’re mutually exclusive. Which one you owe depends on why the employee is leaving and how long they’ve been there.
Redundancy or lay-off after 24 months means severance payment. Five or more years with a qualifying non-redundancy exit means long service payment.
In this guide, you’ll learn:
- How to choose between severance payment and long service payment
- Eligibility for each entitlement under Cap. 57
- The formula, wage cap, and a worked example
- How the 1 May 2025 transition splits service
- Payment deadlines and common employer mistakes
Severance payment or long service payment: which one do you owe?
Start with the reason for the exit, then check length of service. Redundancy or lay-off after 24 months on a continuous contract points to severance payment. Five or more years with a qualifying non-redundancy exit points to long service payment.
| The exit | Service needed | The payment |
|---|---|---|
| Redundancy, lay-off, or fixed-term expiry due to redundancy | 24 months on a continuous contract | Severance payment |
| A qualifying exit that isn’t redundancy | 5 years on a continuous contract | Long service payment |
Redundancy is the deciding fact. An employee made redundant after ten years receives severance payment, not long service payment. The Labour Department is explicit: “An employee who is dismissed by reason of redundancy is eligible for severance payment but not long service payment.”
What counts as a “continuous contract” in 2026?
This test changed on 18 January 2026, and the old rule most payroll teams learned is now wrong.
Both entitlements require a continuous contract, so this is the gate everything else runs through. Under the revised requirement, an employee is on a continuous contract if:
- They’ve been employed continuously by the same employer for four weeks or more, and
- They’ve worked at least 17 hours in each week, or, where they worked fewer than 17 hours in any week, 68 hours or more across that week and the three preceding weeks
The old “418” formulation, four weeks at 18 hours per week, applies only to employment periods before 18 January 2026. For part-timers and variable-hours staff, that change can pull people into eligibility who previously fell outside it.
Who qualifies for severance payment in Hong Kong?
An employee on a continuous contract for at least 24 months qualifies for severance payment if they are dismissed by reason of redundancy, their fixed-term contract expires without renewal due to redundancy, or they are laid off as defined in the Employment Ordinance.
Redundancy covers three situations:
- The employer closes, or intends to close, the business.
- The employer ceases, or intends to cease, business at the place where the employee worked.
- The need for employees of a particular kind ceases or diminishes.
Lay-off works differently. It applies where pay depends on being given work, and the employee isn’t given work on:
- More than half of their normal working days in any four consecutive weeks, or
- More than one-third of normal working days in any 26 consecutive weeks.
Certain days are excluded from both counts.
One carve-out. If the employer offers in writing, at least seven days before the dismissal or expiry, to renew the contract or re-engage the employee, and the employee unreasonably refuses, the entitlement is lost.
Who qualifies for long service payment?
An employee on a continuous contract for at least 5 years qualifies for long service payment when employment ends in a qualifying way other than redundancy or summary dismissal for serious misconduct.
Qualifying grounds are:
- Dismissal, except by reason of redundancy or summary dismissal for serious misconduct
- Expiry of a fixed-term contract without renewal
- Death during employment
- Resignation on certified permanent unfitness for the present job, certified by a registered medical practitioner or registered Chinese medicine practitioner
- Resignation on the ground of old age, at age 65 or above
The same seven-day written renewal offer carve-out applies, though for long service payment it runs to the expiry of a fixed-term contract.
Why does an employee never receive both payments?
The Employment Ordinance assigns redundancy to severance payment only. The long service payment grounds expressly exclude redundancy, so the same termination cannot trigger both.
An employee with five or more years who is made redundant gets severance payment. Not long service payment, and not a blend of the two.
You can’t pay both to be generous, or split the difference. The wrong label creates recovery and dispute risk even when the cash amount looks similar.
How much severance or long service payment do you owe?
Both payments use identical calculation mechanics. Only eligibility differs. For a monthly-paid employee: last full month’s wages x 2/3 x reckonable years, with the wages figure capped at HK$22,500, giving a maximum of HK$15,000 per year of service.
| Severance payment (SP) | Long service payment (LSP) | |
|---|---|---|
| Service threshold | Continuous contract of 24 months or more | Continuous contract of 5 years or more |
| Typical trigger | Redundancy, qualifying fixed-term expiry, lay-off | Qualifying exit other than redundancy |
| Formula (monthly-paid) | (last full month’s wages x 2/3) x reckonable years | Same |
| Formula (daily or piece-rated) | (any 18 days’ wages, chosen by the employee from the last 30 normal working days) x reckonable years | Same |
| Wage cap in formula | Wages capped at HK$22,500, giving HK$15,000 per year of service | Same |
| Incomplete years | Pro rata | Pro rata |
| Payment deadline | As soon as practicable, and within 2 months of the employee’s written claim | Within 7 days of termination |
The employee may elect to use average wages over the 12 months before termination instead of the last full month’s wages, where the Ordinance allows. For pre-transition portions, the 12 months run to the transition date.
Reckonable years follow Labour Department rules. Don’t guess excluded periods; check the Cap. 57 guidance instead.
The HK$390,000 overall cap
Total statutory severance or long service payment to one employee is capped at HK$390,000. That cap covers the sum of pre- and post-transition portions.
If the calculated total exceeds it, the excess comes off the post-transition portion, not the pre-transition one.
How do you calculate long service payment?
Take two-thirds of the employee’s last full month’s wages, then multiply by their reckonable years of service. The wages figure is capped at HK$22,500, so a single year of service can never produce more than HK$15,000.
Here’s a worked example where that cap bites.
A monthly-paid employee qualifies for long service payment. They have 10 reckonable years, and their last full month’s wages were HK$28,000.
- Two-thirds of wages: HK$28,000 × 2/3 = HK$18,667
- Apply the cap: use HK$15,000 (two-thirds of HK$22,500), not HK$18,667
- Multiply by reckonable years: HK$15,000 × 10 = HK$150,000
That’s the figure before any MPF offsetting, and before the HK$390,000 overall ceiling is tested.
Run your own numbers in the Labour Department’s Statutory Employment Entitlements Reference Calculator. It applies reckonable years and transition splits for you.
How does the 1 May 2025 MPF offsetting change affect the calculation?
From 1 May 2025, mandatory employer MPF contributions can no longer offset the post-transition portion of SP or LSP. Service splits into two portions when employment started before 1 May 2025 and ends on or after it.
Portion | Service period | Monthly-paid formula |
|---|---|---|
Pre-transition | Before 1 May 2025 | (last full month’s wages immediately before the transition date x 2/3) x reckonable years before the transition date |
Post-transition | From 1 May 2025 | (last full month’s wages immediately before termination x 2/3) x years of service from the transition date |
Daily-rated and piece-rated employees use the 18-days-of-30 method, with wage dates tied to the transition date and the termination date respectively. The same HK$15,000 equivalent cap applies.
Cash payable can differ from the formula output, because the offsetting rules changed. The abolition has no retrospective effect: pre-transition portions may still be offset in defined cases.
Straddling cases need the official calculator, not a back-of-envelope estimate. Pre- and post-transition portions use different wage reference dates, and the HK$390,000 cap can reshape the post-transition amount. Model the exit in the Labour Department calculator before you agree a termination package.
When must you pay, and what happens if you don’t?
Long service payment has the shorter fuse and the harsher penalty.
| Long service payment | Severance payment | |
|---|---|---|
| Employer must pay | Within 7 days of termination | As soon as practicable, and no later than 2 months from the employee’s written claim |
| Employee must claim | No claim needed | Written notice within 3 months of the dismissal or lay-off, extendable by the Commissioner for Labour |
| Penalty for failure | Fine of HK$350,000 and 3 years’ imprisonment | Fine of HK$50,000 |
| Legal test | “Wilfully and without reasonable excuse” | “Without reasonable excuse” |
Look at the penalty row again. Long service payment carries a fine seven times larger, plus a custodial sentence. Severance carries neither.
Most employers plan severance carefully, because redundancies are visible and contentious. Long service payment gets treated as an administrative afterthought.
The Ordinance takes the opposite view.
If an employee dies in service
Three different clocks apply:
- Beneficiaries apply within 30 days.
- A spouse is paid within 7 days of the employer receiving the application.
- Other applicants are paid within 7 days of the application period expiring.
Failure here carries the HK$50,000 penalty rather than the HK$350,000 one.
Missing the long service payment deadline is a compliance failure even when your severance timeline is still open. The two entitlements run on different clocks. Track them separately in payroll.
Is severance or long service payment taxable in Hong Kong?
Statutory severance and long service payment calculated under the Employment Ordinance is not chargeable to salaries tax. Any amount paid above the statutory entitlement is taxable and must be reported.
So if the statutory calculation gives HK$150,000 and you pay exactly that, none of it is taxable to the employee.
Pay HK$180,000 as a goodwill gesture and the extra HK$30,000 becomes taxable income. Report it through the employer’s leaver filing, and the employee declares it on their own return.
What do employers get wrong about termination payments?
Five recurring errors, in rough order of how often they cost money:
Treating long service payment as redundancy pay
Redundancy after five years still triggers severance payment. Paying long service payment to avoid the word redundancy misstates the entitlement.
Using uncapped wages in the formula
Wages above HK$22,500 still run through the cap, giving HK$15,000 per year of service. Using raw last-month pay misstates the payment.
Forgetting the seven-day long service payment deadline
Teams plan severance on a two-month horizon and miss seven days for long service payment. Calendar the termination date in payroll immediately.
Ignoring the 1 May 2025 service split
Long-tenured staff often straddle the transition date. A single-formula calculation ignores the two wage bases and the different offsetting rules.
Offsetting mandatory MPF against the post-transition portion
After abolition, mandatory employer MPF can’t offset post-transition SP or LSP. The MPF offsetting guide covers the workflow.
How Sleek handles termination payments inside payroll
A termination payment is a payroll calculation with a statutory deadline attached. That combination goes wrong when payroll sits in a spreadsheet and the deadline sits in someone’s head.
With Sleek, you can:
- Keep the source data clean: monthly payroll and MPF e-submission mean last-month wages and contribution history are already in the format your SP/LSP calculation needs.
- Match filings to the termination: employer returns and leaver filings run on the same timeline, rather than being reconstructed at audit.
- Work alongside your finance stack: if you already use Sleek for accounting or company secretarial support, payroll sits with the same team.
- Escalate the hard exits: service straddling 1 May 2025, the HK$390,000 cap, or offsetting changes that alter cash payable.
Once you have the statutory number, Sleek payroll services in Hong Kong handle running the payout on time.
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Sleek can handle the payroll records around the process. Standard plans include monthly payroll, MPF e-submission and employer return filing from HK$5,880/fy. Sleek doesn’t replace an employment lawyer or promise SSA claim preparation, so use specialist advice for disputed or unusual terminations.
