Severance Payment vs Long Service Payment in Hong Kong: What Employers Must Pay in 2026

Quick answer: In Hong Kong, severance payment applies when an employee with at least 24 months of service is made redundant or laid off. Long service payment applies when an employee with at least 5 years of service is dismissed for reasons other than redundancy or serious misconduct. Both use the same formula, and an employee can never receive both for the same period of service.

Severance payment vs long service payment is one of the most common points of confusion for Hong Kong employers — and since the abolition of the MPF offsetting arrangement on 1 May 2025, much of the older guidance online is now outdated. This guide explains who qualifies for each payment, how the calculation works after the offsetting change, and what deadlines employers must meet under the Employment Ordinance.

Severance payment and long service payment share one formula — eligibility is what separates them.

Severance payment vs long service payment: the comparison table

Criteria	Severance Payment (SP)	Long Service Payment (LSP)
Minimum length of service	24 months under a continuous contract	5 years under a continuous contract
What triggers it	Dismissal by reason of redundancy, or lay-off	Dismissal for any reason other than redundancy or summary dismissal for serious misconduct; also payable on death in service, certified permanent unfitness, or resignation at age 65 or above
Calculation formula	(Last full month's wages × 2/3) × reckonable years of service. Monthly-paid employees may elect the average of the last 12 months instead.
Wage cap in the formula	HK$22,500 per month — i.e. a maximum of HK$15,000 per year of service
Maximum total payment	HK$390,000
Can both be paid?	No. Only one payment can apply to the same period of service.
Payment deadline	Within 2 months of receiving the employee's written claim	Within 7 days after the date of termination
MPF offsetting (from 1 May 2025)	Employer's mandatory MPF contributions can no longer offset the portion of SP/LSP attributable to service from 1 May 2025 onwards. The pre-transition portion can still be offset.

How is long service payment calculated in Hong Kong?

Both payments use the same statutory formula: take two-thirds of the employee's last full month's wages (capped at two-thirds of HK$22,500, which is HK$15,000), and multiply it by the years of service. Incomplete years are counted pro rata, and the total is capped at HK$390,000.

Worked example:

Item	Figure
Monthly wages	HK$30,000 (capped at HK$22,500 for the formula)
Two-thirds of capped wage	HK$15,000
Years of service	8 years
Payment due	HK$15,000 × 8 = HK$120,000

What changed with the MPF offsetting abolition?

Before 1 May 2025, employers could use the accrued benefits from their mandatory MPF contributions to offset severance and long service payments. The Employment (Amendment) Ordinance 2022 abolished this arrangement from the transition date of 1 May 2025.

The abolition does not change how much an employee is entitled to — the formula and caps stay the same. What changes is how the employer funds it. For an employee whose service straddles the transition date, the payment is split into two portions:

• Pre-transition portion (service before 1 May 2025): calculated using the wages immediately before the transition date, and the employer's mandatory MPF contributions can still offset this portion.

• Post-transition portion (service from 1 May 2025): calculated using the wages at termination, and cannot be offset by mandatory contributions. A government subsidy scheme runs for 25 years to share employers' costs on the post-transition portion.
  

In practice this means every termination involving a pre-2025 hire now requires a two-part calculation — one of the most common payroll errors we see when reviewing offboarding files, and a key reason many SMEs move payroll and termination administration to an HR outsourcing partner.

Common employer mistakes to avoid

Three errors come up repeatedly in Labour Department disputes.

• First, paying long service payment late — the 7-day deadline after termination is short, and late payment can attract penalties.

• Second, misclassifying a redundancy as an ordinary dismissal (or the reverse), which changes which payment applies and can turn into an unreasonable-dismissal claim.

• Third, continuing to offset the post-May-2025 portion with MPF contributions, which is no longer lawful for that portion of service.
  

Looking for HR Outsourcing in Hong Kong?

Explore HR Outsourcing

Explore HR Plus's range of HR support services.

*This article is general information for employers, current as of July 2026, and is not legal advice. Statutory figures are set by the Employment Ordinance and may be revised — verify current caps with the Labour Department or seek professional advice for specific cases.