Severance & LSP Hong Kong: Cap. 57 Part VA and VB

Hong Kong has no general redundancy compensation scheme. The Employment Ordinance instead creates two mutually exclusive statutory debts, and this pack covers both because the correct one is not always obvious on the day of dismissal. Severance payment is owed to an employee on a continuous contract for not less than 24 months who is dismissed by reason of redundancy, whose fixed term contract expires without renewal because of redundancy, or who is laid off. Long service payment is owed after not less than 5 years of continuous service where employment ends for almost any other reason: dismissal short of summary dismissal for serious misconduct, expiry of a fixed term contract, death in service, resignation on a certificate of permanent unfitness for the job, or resignation at 65 or above.

An employee never receives both. Where the ground is redundancy, severance payment displaces long service payment entirely, even for someone with fifteen years behind them. That single rule decides the whole calculation, which is why the pack opens with a ground-of-termination questionnaire rather than a wage field. The ground you record in the letter is the ground you will have to defend, and the Ordinance presumes a dismissed employee was made redundant unless the employer proves otherwise. Neither sum is a negotiated settlement: both are fixed by statute and enforceable in the Labour Tribunal without proof of fault.

Part VA and Part VB of the Employment Ordinance (Cap. 57) govern severance payment and long service payment respectively, and both hang on the concept of the continuous contract. Since 18 January 2026 the Employment (Amendment) Ordinance 2025 has replaced the old 418 rule with a dual test: a week counts if the employee worked at least 17 hours, or, where that week falls short, if the employee worked 68 hours or more across it and the three preceding weeks. Part-time staff in retail and catering who never qualified before now accrue reckonable service.

The offsetting rules sit in the Mandatory Provident Fund Schemes Ordinance (Cap. 485), and they changed on 1 May 2025, the statutory transition date. From that day, accrued benefits derived from an employer's mandatory MPF contributions can no longer offset either entitlement so far as it is attributable to service on or after the transition date. Benefits from voluntary contributions, and gratuities calculated by length of service, still offset both portions. The reform has no retrospective effect, so for anyone hired before the transition date the entitlement splits in two: a pre-transition portion, still fully offsettable against mandatory contributions, and a post-transition portion, paid in cash. The Labour Department publishes the governing rules and worked examples in its questions and answers on severance payment and long service payment computation, the reference point in any argument about method.

Enforcement is criminal, not merely civil. Long service payment must reach the employee within 7 days of termination, and default without reasonable excuse is an offence carrying a fine of up to 350,000 Hong Kong dollars and three years imprisonment. Read these duties alongside the corporate filings that usually accompany a restructuring, indexed in our Hong Kong business and incorporation document library.

The commonest trigger is a genuine redundancy: the business closes, a site shuts, or the requirement for work of a particular kind ceases or diminishes. All three are statutory grounds, and all three produce a severance payment for anyone past 24 months. The second trigger is retirement, which in Hong Kong is not automatic. An employee aged 65 or above who resigns qualifies after 5 years, and employers who log the departure as an ordinary resignation regularly find themselves paying two years later.

Lay-off is the trigger most employers miss. Where wages depend on work being provided, an employee is laid off once the days without work exceed half the normal working days in any 4 consecutive weeks, or a third of them in any 26 consecutive weeks. Seasonal catering operations and construction subcontractors cross that line more often than they realise, and the employee can claim while still nominally on the books. Two edge cases deserve flagging. Where an employee dies in service after 5 years, long service payment passes to the surviving spouse, child or parent on application, which usually calls for evidence of relationship such as a statutory declaration with a Cap. 11 jurat. And where the employer offers in writing, at least 7 days before dismissal or expiry, to renew or re-engage on new terms, an unreasonable refusal extinguishes the claim.

• The statement of the ground of termination opens the notification letter and drives everything after it. Redundancy, expiry, lay-off, retirement at 65, certified unfitness and death in service each carry different consequences, so the template pins the ground to the statutory wording of Part VA or Part VB rather than to a commercial euphemism such as restructuring.
• The reckonable service record sets out the commencement date, the termination date and the split at 1 May 2025, with incomplete years expressed pro rata. Employment straddling the transition date produces two lines rather than one, because the portions use different wage bases and offsetting rules.
• The wage base election records which figure the employee has chosen: the last full month's wages, or average monthly wages over the 12 months immediately preceding termination. Daily-rated and piece-rated staff instead take any 18 days' wages out of the last 30 normal working days. The election belongs to the employee, and the template captures it in writing.
• The statutory ceiling block applies both limits automatically. The monthly wage entering the formula is capped at 22,500 Hong Kong dollars, so the two-thirds multiplicand never exceeds 15,000, and total entitlement is capped at 390,000. Where the aggregate crosses that cap, the excess comes off the post-transition portion, never the earlier one.
• The offsetting schedule lists accrued benefits from mandatory contributions, voluntary contributions and any length-of-service gratuity, and allocates each against the correct portion. Applying mandatory contributions against post-transition service is the single most common and most expensive error in Hong Kong termination practice.

Foreign domestic helpers sit outside the MPF System, so their employers make no mandatory contributions and the abolition does not touch them. A helper with 5 years of service is assessed across the whole employment period on the last month's wages, with no pre-transition and post-transition split at all. Household employers remain bound by the 7 day deadline and the same criminal penalties, a point that surprises most families ending a long placement.

Part-time and irregular-hours staff in retail, catering, cleaning and security are the group most affected by the revised continuous contract test. Someone whose roster swings between twelve and twenty-two hours a week may now satisfy the 68 hour aggregate test even in the weeks that fall short, accruing service that would previously have been broken. Employers who built their staffing model around the old threshold should assume the arithmetic has moved against them.

Members of occupational retirement schemes under the Occupational Retirement Schemes Ordinance (Cap. 426) follow a parallel regime. Part of the employer-funded benefit is carved out and treated like mandatory MPF contributions, so it offsets the pre-transition portion only. The scheme administrator holds that figure, and requesting it early is what keeps you inside the 7 day window.

Fixed term and project-based hires, common in construction and engineering, need care at expiry. Expiry without renewal by reason of redundancy produces severance payment; expiry for any other reason produces long service payment after 5 years. Letting a fixed term contract lapse in silence is not a neutral act, and an employer who makes no written renewal offer at least 7 days before expiry loses the only defence available.

Employers in liquidation cannot simply stop paying. Employees rank as preferential creditors for wages, wages in lieu of notice and severance under the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32), and the Protection of Wages on Insolvency Fund offers an ex gratia route where assets fall short. Where the employer is a company limited by guarantee, the governance duties are set out across our Hong Kong non-profit and association templates.

You begin by identifying the ground of termination, because the pack routes you down one branch or the other from that answer alone. Next come the commencement and termination dates, from which the tool works out whether the employment straddles 1 May 2025 and needs a two-part calculation. If it does, you supply two wage figures rather than one: the last full month's wages immediately preceding the transition date for the earlier portion, and the last full month's wages before termination for the later one. Daily-rated staff enter the chosen 18 days of wages instead.

The sheet then applies the two-thirds formula, prorates the incomplete year, imposes both ceilings, and shows each step so the employee can follow the arithmetic. You then add the accrued benefits available for offsetting, split between mandatory and voluntary contributions. The notification letter populates from the same fields, so letter and sheet cannot contradict each other, and both export as Word and PDF. Everything else you may need in the same termination file is indexed in the complete Hong Kong template catalogue.

Most disputes start with the wrong wage base. Employers habitually take basic salary and ignore commission and allowances that count as wages under the Ordinance, which understates the figure and invites a Tribunal claim months later. The mirror error is forgetting the ceiling: running the two-thirds formula on a monthly salary of forty thousand rather than on the capped figure inflates the sum and produces a mismatch the Labour Department will query on any subsidy application. Employers also overlook the employee's right to elect the 12 month average, which matters where a bonus or a stretch of unpaid sick leave has distorted the final month.

The second cluster concerns timing and paperwork. Payment for long service falls due within 7 days of termination, not within the payroll cycle, and treating it as an ordinary final payment is what turns a civil debt into a prosecution. Wage records for the 12 months preceding 1 May 2025 must be kept for any employee hired before that date until six months after departure, and a firm that discards them cannot prove its pre-transition portion. Subsidy applications must be lodged within 3 months of payment, and missing that window forfeits the government contribution whatever the merits. Related precedents sit in our Employment Ordinance based HR paperwork for Hong Kong employers.