Long service payment (LSP) is a statutory benefit under Hong Kong's Employment Ordinance (Cap. 57) payable to employees who have worked for the same employer for 5 or more years and leave employment in circumstances other than voluntary resignation or summary dismissal for misconduct.
This guide covers who qualifies for long service payment, how it is calculated, when it must be paid, the difference between long service payment and severance payment, and the impact of the MPF offsetting abolition effective 1 May 2025.
For broader employment compliance requirements for Hong Kong companies, see our guide to annual requirements for a Hong Kong company.
Last reviewed April 2026. Employment law changes frequently: confirm current rates and rules with a qualified employment lawyer or HR advisor.
Highlights of this article
- Long service payment requires 5 or more years of continuous service. It is payable on dismissal (other than for misconduct), employer insolvency, resignation due to ill health, death, or non-renewal of a fixed-term contract.
- Calculation: 2/3 of one month's wages per year of service, with wages capped at HKD 22,500 per month (giving a maximum of HKD 15,000 per year of service). Total cap: HKD 390,000.
- From 1 May 2025, employers can no longer use mandatory MPF contributions made after that date to offset long service payment or severance payment obligations. Pre-May 2025 accrued benefits can still be used under transitional provisions.
- LSP vs Severance Payment: both are calculated the same way, but the triggers differ. Severance payment applies to layoffs/redundancies. Long service payment applies to longer-tenure employees leaving for other qualifying reasons.
- An employee cannot receive both long service payment and severance payment for the same period of employment.
Legal basis
Long service payment is governed by Part VA (Sections 31Y–31ZE) of the Employment Ordinance (Cap. 57). The obligation to pay LSP is an employer obligation: it cannot be waived by contractual agreement, and any attempt to contract out of the statutory minimum is void. For an overview of setting up a compliant employer entity, see our guide to how to register a company in Hong Kong. For related employee leave entitlements, see our maternity leave in Hong Kong guide.
The MPF offsetting abolition is enacted under the Employment and Retirement Schemes Legislation (Offsetting Arrangement) (Amendment) Ordinance 2022, effective 1 May 2025.
Who qualifies for long service payment?
An employee qualifies for long service payment when all of the following apply:
1. Continuous service of 5 or more years with the same employer immediately before the termination.
2. The termination falls into a qualifying category:
| Qualifying trigger | Detail |
|---|---|
| Dismissal | Employer terminates the employment, other than summary dismissal for serious misconduct |
| Employer insolvency | Employer becomes bankrupt or a company goes into liquidation/winding up |
| Resignation due to ill health | Employee resigns because of permanent ill health, supported by a registered medical practitioner's certificate |
| Death | Employee dies while in continuous employment |
| Non-renewal of fixed-term contract | Employer declines to renew a fixed-term contract (and does not offer re-engagement on similar terms) |
| Mutual agreement on grounds not attributable to the employee | Agreed termination for reasons other than the employee's conduct or performance |
Not qualifying: An employee who resigns voluntarily (for any reason other than certified ill health) is not entitled to long service payment, regardless of years of service.
Not qualifying: An employee dismissed for serious misconduct (summary dismissal under Section 9 of the Employment Ordinance) is not entitled to long service payment.
Long service payment vs severance payment
Long service payment and severance payment are both calculated using the same formula, but they apply in different circumstances:
| Long Service Payment | Severance Payment | |
|---|---|---|
| Minimum service | 5 years | 24 months |
| Trigger | Dismissal (non-misconduct), ill health, insolvency, death, non-renewal | Redundancy / layoff |
| Formula | Same: 2/3 month's wages × years | Same: 2/3 month's wages × years |
| Both payable? | No: employee receives one or the other, not both |
The key distinction: if an employee is made redundant (laid off because the job is no longer needed), severance payment applies. If an employee with 5+ years service is dismissed for performance reasons (not misconduct) or resigns for ill health, long service payment applies.
An employee who qualifies for both (e.g. 5+ years of service dismissed in a redundancy) receives the higher of the two, not both.
Long service payment calculation
The formula
LSP = 2/3 × Monthly wages × Years of continuous service
Wage cap
The monthly wages used in the calculation are capped at HKD 22,500 per month. For employees earning above this cap, HKD 22,500 is used for calculation purposes.
The maximum LSP per year of service is therefore:
2/3 × HKD 22,500 = HKD 15,000 per year of service
Total cap
The total long service payment is capped at HKD 390,000 (equivalent to 26 years of service at the maximum rate).
Proportional calculation for partial years
If the continuous service period includes a portion of a year, that portion is counted proportionally:
- Less than 7 months in the final year: round down to the full year count
- 7 months or more in the final year: count as a full additional year
Worked examples
Example 1: Employee earning HKD 30,000/month, 8 years of service
- Wages capped at HKD 22,500
- LSP = 2/3 × HKD 22,500 × 8 = HKD 120,000
Example 2: Employee earning HKD 15,000/month, 12 years of service
- Wages below cap, so full amount used
- LSP = 2/3 × HKD 15,000 × 12 = HKD 120,000
Example 3: Employee earning HKD 25,000/month, 6 years and 9 months of service
- Wages capped at HKD 22,500
- Service rounded to 7 years (9 months > 6 months, so round up)
- LSP = 2/3 × HKD 22,500 × 7 = HKD 105,000
MPF offsetting abolition (from 1 May 2025)
What changed
From 1 May 2025, employers can no longer use mandatory MPF contributions made on or after that date to offset long service payment or severance payment obligations.
Before 1 May 2025, employers were permitted to deduct the MPF accrued benefits derived from mandatory employer contributions from the long service payment or severance payment they owed to the employee. This effectively reduced the employer's out-of-pocket cost.
How the transition works
The abolition applies prospectively. This means:
- MPF mandatory employer contributions made from 1 May 2025 onwards: cannot be used to offset LSP/SP
- MPF mandatory employer contributions made before 1 May 2025: can still be used to offset LSP/SP under transitional provisions (subject to limits)
In practice, a single pool of pre-2025 employer MPF contributions (the "offsettable portion") can still be used to partially reduce LSP obligations. The amount available for offsetting reduces over time as it gets used or withdrawn by employees.
Government subsidy for employers
The Hong Kong government provides a subsidy scheme to assist employers during the transition period. The subsidy partially offsets the additional costs employers face from the abolition of MPF offsetting. Eligible employers can apply through the Labour Department.
Impact for employers
Companies that employ long-tenured staff now face larger out-of-pocket LSP liabilities when employees leave in qualifying circumstances. Employers should:
- Review existing employment contracts to understand their LSP exposure
- Ensure sufficient reserves for potential LSP payments
- Understand which portion of their MPF contributions (pre-May 2025 accrued benefits) can still be applied as an offset
When long service payment must be paid
Long service payment becomes due on the termination of employment. The employer must pay it within 7 days of the date of termination (or within 7 days of the employee's death, if applicable).
Late payment is an offence under the Employment Ordinance. The employee may lodge a complaint with the Labour Department if the employer fails to pay on time.
Can an employer deduct LSP for other outstanding amounts?
The Employment Ordinance permits the employer to deduct from LSP amounts that the employee owes the employer (for example, overpaid wages or advances), but strict rules apply:
- The deduction must be lawful under the Ordinance
- Total deductions from terminal payments cannot exceed the amount the employee owes
An employer cannot unilaterally reduce or withhold LSP as a negotiating tactic.
Practical checklist for employers
When an eligible employee departs in a qualifying circumstance:
- Confirm continuous service dates (start date to termination date)
- Confirm the qualifying trigger (dismissal, ill health, etc.)
- Calculate average monthly wages over the preceding 12 months (or full employment period if shorter)
- Apply the HKD 22,500 wage cap if applicable
- Calculate LSP: 2/3 × capped monthly wages × years of service (proportional for part-years)
- Check whether pre-May 2025 MPF accrued benefits can partially offset (transitional provisions)
- Pay within 7 days of termination date
- Issue a written statement of the LSP calculation to the employee
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