When an employee resigns from an organization following a lengthy service period, Hong Kong law offers protection in forms like the Long Service Payment (LSP). Most employers usually ask “Is Long Service Payment Mandatory in Hong Kong.” It is essential to understand LSP, particularly in light of recent offset changes for MPF. Errors in compliance can result in financial risk and liability for employers.
It contains everything employers need—all about calculation, eligibility, and MPF interaction—with compliance examples.
What is Long Service Payment ?
Long Service Payment is a statutory benefit in Employment Ordinance (Cap. 57).
It offers protection for longtime workers by financial assistance if laid-off within specific circumstances.
Eligibility criteria
- Employee should complete 5 consecutive years of service in an establishment.
- Does apply when an employee is unfairly dismissed without serious misconduct.
- For when an employee leaves because of ill health or attains age for retirement (65+).
The worker is not permitted to pursue at one time both severance pay and long service pay.
Is Long Service Payment Mandatory in Hong Kong?
LSP is a statutory requirement for qualified workers. Employers are supposed to make payment within 7 days upon dismissal.
Non-compliance can result in fines and suits at Labour Tribunal.
Briefly
- Legally required.
- None if the worker is dismissed for a reason or resigns for no reason at all.
Calculation Rule for LSP Hong Kong
The rule is:
(Last month salary × 2/3) × Service in Years
(maximum HK$390,000 or 2/3 of HK$22,500 yearly)
Example:
An employee in last month receiving a salary in HK$18,000 and 10-year service:
(18,000 × 2/3) × 10 = HK$120,000
This is the long service payment the employer must provide.
Employers can make life simple for themselves with payroll software or a service like FastLane HR.
4-Year Severance Payment in Hong Kong?
It employs the same formula as for long service payment.
For 4 years at HK$15,000
(15,000 × 2/3) × 4 = HK$40K
The key divergence is:
- Severance Pay is applicable if a worker is fired for redundancy or company closure.
- Long Service Payment is applicable in other qualifying terminations.
Manual Calculation for Length of Service
Employers often err in calculating “continuous service.” Here’s the correct method:
- Establish the date for beginning employment (the first day on duty).
- Identify the termination date (last working day).
- Add full-service years.
- To the closest year unless specified otherwise in the contract for part-years.
Common errors:
- Probationary periods are served.
- Miscounts in service breaks or in renewals of contracts.
What is the Average Salary Increase in Hong Kong 2025?
Market research predicts Hong Kong’s 2025 average salary increase at around 3.5% to 4.5%, depending on sector and performance.
Significance of this:
- Salary step increments influence final wage for LSP calculations.
- Calculations for payments should look back at an employer’s last full month’s wage.
Is Long Service Payment Subject to MPF?
That is where it gets interesting for business.
The employers had previously offset their MPF contributions with long service or severance pay in what is referred to as the MPF Offset Mechanism.
As in 2025:
- The MPF offset is abolished.
- Employers are unable to offset LSP liability by means of MPF contribution.
- They need to specifically fund their entire long service remittance.
Most SMEs adopt MPF and HR outsourcing for their payroll planning in order to maintain compliance and prevent financial pressures.
Conclusion
As an employer you should:
- Accurately calculate long service pay.
- Know Long Service Payment and layoff pay.
- Be prepared for offset compliances in a post.
Working with professionals like FastLane HR keeps you up to date and cost-effective.
Contact FastLane HR today and learn how our MPF and payroll solutions can automate lengthy service remittance.