Two payments, often confused, and an employee never receives both for the same period of service. The difference is why the job ended — and getting it wrong is an expensive mistake to discover after the fact.
⚖️ Severance or long service — which one
| Severance payment (SP) | Long service payment (LSP) | |
|---|---|---|
| Why the job ended | Redundancy or lay-off | Other qualifying endings — including dismissal for a reason other than redundancy or misconduct, resignation at age 65 or above, death, or certified permanent unfitness |
| Minimum service | 24 months under a continuous contract | 5 years under a continuous contract |
| Both at once? | No — never for the same service | No — never for the same service |
⚠️ Summary dismissal for serious misconduct is the clear exception — neither payment is due. Genuine redundancy, however, is not a performance question: if the role disappears, severance is on the table.
🧮 The formula — identical for both
For a monthly-rated employee:
Last full month's wages × 2/3 × years of reckonable service
- Wage ceiling — HK$22,500/month. Wages above this are treated as HK$22,500, so a single year of service is worth at most HK$15,000.
- Overall maximum — HK$390,000, however high the salary or long the service.
- Part years count pro rata — six months of service is half a year's entitlement, not nothing.
- The employee may instead elect their average wages over the 12 months before termination, if that produces a better figure.
| Last full month's wages | Years of service | Payment |
|---|---|---|
| HK$15,000 | 4 | HK$15,000 × 2/3 × 4 = HK$40,000 |
| HK$18,000 | 7 | HK$18,000 × 2/3 × 7 = HK$84,000 |
| HK$30,000 (above the ceiling) | 6 | HK$22,500 × 2/3 × 6 = HK$90,000 |
🔀 What changed on 1 May 2025 — the end of MPF offsetting
This is the part that catches employers out, because the rule they remember no longer applies to new service.
Before, an employer could offset severance or long service payment against the accrued benefits from their own MPF contributions. Since 1 May 2025 — the transition date — that is only half true:
- Post-transition portion (service from 1 May 2025 onward): employer mandatory MPF contributions can no longer be used to offset it. This portion is real cash out of the business.
- Pre-transition portion (service before that date): still offsettable, and it is calculated on the employee's wages as at 30 April 2025 — frozen, not their final salary.
- The two portions added together are still capped at HK$390,000.
⚠️ The practical consequence: for anyone hired on or after 1 May 2025, there is no offset at all. If you have been budgeting termination costs on the old assumption, the number is now higher than you think.
📁 The records this actually depends on
Every figure above rests on two things you must be able to produce: the employee's wages month by month, and their exact start date. If answering "what were their average wages over the last 12 months?" means opening a year of spreadsheets, that is the real problem — not the arithmetic.
The Labour Department publishes a Statutory Employment Entitlements Reference Calculator that will do the sums once you have those numbers to hand.
If reconstructing a year of payroll takes you a day
That is a filing problem wearing a legal problem's clothes. The businesses that answer this in seconds are the ones whose payroll documents are generated the same way every month and kept in one place. See which admin tasks are worth automating first.