What is the difference between severance and long service payment

Difference Between Severance and Long Service Payment

Severance payment applies when an employee is dismissed due to redundancy or the employer discontinues the business. Long service payment applies when an employee with at least five years of service is dismissed for reasons other than redundancy or misconduct. Both are statutory entitlements under the Employment Ordinance (Cap. 57), but they apply in different dismissal scenarios and have distinct qualifying conditions. Knowing which payment applies is essential for employers calculating termination costs and for employees claiming their statutory rights.

Severance Payment Hong Kong

An employee dismissed by reason of redundancy is entitled to severance payment if they have been employed under a continuous contract for at least 24 months. Redundancy occurs where the employer ceases or intends to cease carrying on the business, where the business relocates, or where the requirement for the employee to carry out work of a particular kind has ceased or diminished. The employer must make the payment within two months of the dismissal. The Labour Department provides a severance payment calculator and guidance on the statutory formula, which is based on the employee's monthly salary and years of service.

Long Service Payment Hong Kong

Long service payment is due to an employee dismissed for reasons other than redundancy or summary dismissal after at least five years of continuous service. It is also payable where an employee resigns at age 65 or older, or where an employee dies in service. The payment uses the same formula as severance payment, but the qualifying period is longer. An employee who qualifies for both severance payment and long service payment for the same dismissal receives only the higher amount.

MPF Offsetting Abolition

The MPF offsetting arrangement was abolished with effect from 1 May 2025. Employers can no longer use accrued benefits from their mandatory MPF contributions to offset severance payment or long service payment. This change is not retrospective. For employees whose employment began before 1 May 2025, accrued benefits from mandatory contributions may still offset the portion of severance or long service payment calculated on years of service before that date. Offsetting with accrued benefits from voluntary contributions, and gratuities based on length of service, is still permitted. The Government runs a subsidy scheme sharing employers' expenses on severance and long service payment for service on or after 1 May 2025.

Employment Ordinance Entitlements

The Employment Ordinance (Cap. 57) governs both severance payment and long service payment. A continuous contract exists where an employee is employed continuously by the same employer for four weeks or more, working at least 18 hours in each week. This 4-18 rule unlocks most statutory entitlements, including rest days, paid annual leave, sickness allowance, severance payment and long service payment. Neither payment is payable where the employee is summarily dismissed for serious misconduct, or where the employee resigns voluntarily without the qualifying circumstances. Payment in lieu of notice and end-of-year payment are separate entitlements under the same Ordinance and are not affected by the severance or long service payment calculation.