What is severance payment (SP) in Hong Kong

Severance Payment Under Hong Kong Employment Law

A severance payment is a statutory payment an employer must make to an employee who is dismissed or laid off after at least 24 months of continuous service under a continuous contract as defined by the Employment Ordinance (Cap. 57). The severance payment hong kong regime is triggered when the employee is dismissed by reason of redundancy, or when the employee is laid off for a specified period. The Labour Department administers the rules and provides guidance on calculation.

SP Hong Kong

The abbreviation "SP" in Hong Kong employment context refers to severance payment. It is a distinct statutory entitlement under the Employment Ordinance, separate from wages or other termination payments.

Hong Kong Severance Payment Calculation

The calculation of severance payment is based on years of service and the employee's last month's wages. The formula is: (years of service) × (two-thirds of the employee's last month's wages). For employees paid on a monthly basis, the calculation uses the last month's wages. For piece-rate or daily-rated employees, the Labour Department provides alternative calculation methods using average wages.

Employment Ordinance Severance Payment

The Employment Ordinance (Cap. 57) sets out the statutory entitlement to severance payment in sections 31B to 31V. The employer must pay the severance payment within seven days of the termination date. Failure to pay without reasonable excuse is an offence.

Severance vs Long Service Payment

Severance payment and long service payment are both statutory payments under the Employment Ordinance, but they apply in different circumstances. Severance payment is paid on dismissal by reason of redundancy or lay-off after 24 months of continuous service. Long service payment is paid on termination of employment for reasons other than redundancy after five years of continuous service, or on resignation after five years for employees aged 65 or over. An employee cannot receive both payments for the same period of service.

The MPF offsetting arrangement was abolished on 1 May 2025. Employers may no longer use accrued benefits from mandatory MPF contributions to offset severance payment for service on or after that date. The Government operates a subsidy scheme to share employers' expenses on severance payment for service from 1 May 2025.