Severance Pay and Long Service Payment in Hong Kong
Published: 2026-04-21
Introduction
On termination of employment in Hong Kong, an employee may be entitled to one of two statutory payments: severance payment or long service payment. Both are provided for under the Employment Ordinance. While the triggers for each differ, the calculation mechanics are similar — and importantly, no single termination gives rise to both payments. An eligible employee receives one or the other, never both.
In 2025, a significant structural change took effect: the abolition of the MPF offsetting arrangement. This reform materially affects how severance and long service payment liabilities are funded and calculated on the employer's side, and in some cases how much the employee actually receives. This article describes the two payments in general terms, the differences between them, and the principal effects of the 2025 reform.
This article does not provide individual calculations. Actual amounts depend on wage structure, length of service, the reason for termination, and how service periods fall on either side of the 2025 transition date — all of which should be assessed in specific cases by a qualified Hong Kong solicitor or through the Labour Department.
Severance Payment vs Long Service Payment
Severance payment is generally triggered by redundancy. Where an employer dismisses employees because of a business closure, workforce reduction, or because a fixed-term contract is not renewed in circumstances amounting to redundancy, qualifying employees may be entitled to severance payment — provided they have completed the Employment Ordinance's minimum period of continuous employment.
Long service payment is directed at employees who have given long service to the same employer and leave the job in circumstances that do not amount to redundancy. Where an employee has completed a longer period of continuous employment set by the Ordinance, and the employment ends for reasons other than summary dismissal for serious misconduct — for example dismissal without a valid reason, resignation on health grounds, death in service, or termination at the statutory retirement age — the employee may qualify for long service payment.
A key principle: a single termination cannot give rise to both severance payment and long service payment. The Ordinance treats severance as the primary entitlement. An employee eligible for severance payment does not also receive long service payment, and vice versa.
The Calculation Framework (Conceptual Level)
The Ordinance sets a similar calculation framework for both payments, based on the employee's last monthly wages and length of service. "Wages" are defined by the Ordinance and may include basic salary, commissions, attendance allowances, and other elements — subject to a statutory cap. Service is reckoned by completed months of employment.
Because the Ordinance prescribes several statutory caps and formula details, this article does not reproduce the full calculation formula. Employees seeking to estimate their entitlement in a specific case can refer to the Labour Department's published materials or consult a qualified Hong Kong solicitor.
On the total amount, the Employment Ordinance currently fixes a statutory ceiling of HK$390,000 on the maximum severance payment or long service payment. Regardless of an employee's monthly wage or length of service, the amount generated by the statutory formula cannot exceed this cap.
An important point: the caps are set in the statute at both the wage-input level and the total-payment level. For higher-earning employees, the statutory severance or long service payment may be significantly lower than the figure that would result if the employer simply applied the formula to actual earnings without the caps.
The 2025 Abolition of MPF Offsetting
Historically, Hong Kong's Mandatory Provident Fund system permitted an employer to use the accrued benefits derived from its mandatory MPF contributions to offset amounts it owed the employee as severance or long service payment. As a practical matter, this meant the employer's actual cash outlay on termination could be substantially reduced.
In 2025, this offsetting arrangement was legally abolished. For severance and long service payment referable to service on or after 1 May 2025 (the "transition date"), the employer's mandatory MPF contributions can no longer be used to offset the employee's statutory entitlement. From that service point onward, the employee's protection under the Ordinance is no longer reduced by the MPF mechanism.
Several important qualifications apply:
- The reform is not retrospective. Service completed before the 2025 transition date continues to be subject to the old offsetting rules. Only service accrued from the transition date onward falls under the new rules.
- Voluntary contributions and service gratuities are unaffected. Employers may continue to use accrued benefits from voluntary MPF contributions — contributions above the statutory minimum — and contractual gratuities based on length of service, to offset severance or long service payment.
- A government subsidy scheme applies. To share the financial impact on employers, the Hong Kong Government has introduced a subsidy scheme — the Subsidy Scheme for the Abolition of MPF Offsetting Arrangement — which provides a long-running cost-sharing arrangement for employers on the post-transition portion of severance and long service payments. Subsidy levels, caps, and the application process are set out on the scheme's dedicated website.
- Pre-existing employees fall under transitional rules. Employees employed before the 2025 transition date whose employment ends after it will see their statutory payment calculated in two segments — pre-transition and post-transition — with different offsetting rules applying to each.
Relevant Procedures
An employer should pay severance payment or long service payment as required by the Ordinance when the employment ends. Where an employer fails or refuses to pay, the employee has several avenues:
- Lodging a complaint with the Labour Department, which may conciliate between the parties through its Labour Relations Division
- Where conciliation fails, bringing a claim in the Labour Tribunal, which has jurisdiction over wage, severance, and long service payment claims
- Where the employer has gone into liquidation or is insolvent, applying to the Protection of Wages on Insolvency Fund Board for ex gratia payments
Because the calculation involves several ordinance-level details and depends on individual wage structure, employees often under- or over-estimate their entitlement. The Labour Tribunal will reach its own determination applying the Ordinance if the matter reaches it.