What Is Long Service Payment?
Long Service Payment is a statutory benefit under Part VA (Sections 31Y–31ZE) of Hong Kong's Employment Ordinance (Cap. 57), payable to employees who've worked for the same employer for 5 or more years and leave in specific, qualifying circumstances.
This is an employer obligation that can't be contracted around. Any attempt to waive or reduce it below the statutory minimum through an employment contract is legally void, regardless of what both parties agree to.
Employers should generally pay LSP within 7 days of the employment contract ending. Where the payment is due because the employee has died, it's paid to the employee's next of kin or estate rather than the employee directly.
Who Actually Qualifies for LSP?
An employee generally qualifies for LSP if they've been employed continuously by the same employer for at least 5 years, and their departure falls into one of the following categories.
- Dismissal not due to serious misconduct. If the employer terminates the employment for reasons other than the employee's own serious misconduct.
- Death while employed.
- Certified permanent unfitness for the role. Where a registered medical or Chinese medicine practitioner certifies the employee permanently unfit for their present job.
- Resignation at age 65 or above.
- Fixed-term contract expiry without renewal, in most cases.
Ordinary voluntary resignation before age 65 does not qualify. Neither does summary dismissal for genuine serious misconduct — both of these exclusions are precisely why LSP eligibility hinges so heavily on the specific reason for departure, not just the length of service.
Part-time employees can qualify too, provided they've worked continuously for 5 years or more at 18 hours or more per week, and weren't dismissed for serious misconduct.
LSP vs Severance Payment: Not the Same Thing
These 2 entitlements are frequently confused, but Hong Kong law treats them as mutually exclusive — an employee cannot receive both for the same period of employment.
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The calculation method and overall cap are exactly the same for both — what differs entirely is the reason for the employee's departure. Our guide on severance pay in Hong Kong covers the redundancy-specific side of this in full detail.
How Is Long Service Payment Calculated?
The core formula is 2/3 of a month's wages for each year of reckonable service, subject to a statutory wage cap.
Monthly wages used in the calculation are capped at HKD 22,500, meaning the maximum LSP accrual per year of service works out to HKD 15,000 — even if the employee's actual monthly salary is significantly higher. The total LSP an employee can receive is capped at HKD 390,000 overall.
For Daily-Rated or Piece-Rated Employees
The formula shifts from monthly wages to daily wages. LSP is calculated as any 18 days' wages, multiplied by the employee's reckonable years of service.
Critically, the employee chooses which 18 days to use, selected from their last 30 normal working days — which means employers should generally budget on the assumption the employee will select their highest-earning days available.
A Worked Example
Consider an employee earning HKD 30,000 a month who has worked for the same employer for 10 years and is dismissed for reasons unrelated to misconduct.
Even though their actual salary is HKD 30,000, the calculation uses the capped wage of HKD 22,500. LSP works out to 2/3 × HKD 22,500 × 10 years = HKD 150,000 — well under the overall HKD 390,000 cap, and unaffected by the fact their real salary exceeds the wage cap used in the formula.
The MPF Offsetting Abolition: What Actually Changed
This is the single biggest recent change to how LSP works in practice, and it took effect on 1 May 2025 — referred to as the "transition date."
Previously, employers could use their mandatory MPF contributions to directly offset LSP obligations, substantially reducing the actual out-of-pocket amount owed at termination. From the transition date onward, this is no longer allowed for service accrued after 1 May 2025.
How the Calculation Now Splits
- Pre-transition portion (service before 1 May 2025): calculated as before, and employers can still offset this portion using accrued benefits from mandatory MPF contributions.
- Post-transition portion (service from 1 May 2025 onward): calculated the same way, but mandatory MPF contributions can no longer be used to offset it at all.
- Voluntary MPF contributions remain usable to offset both portions, regardless of which period of service they relate to.
A Worked Example of the Split
Consider an employee with 10 years of service, entitled to a total LSP of HKD 50,000, terminated for redundancy after the transition date.
Before the abolition, an employer might have offset roughly HKD 30,000 in accrued mandatory MPF contributions, paying only around HKD 20,000 out of pocket.
Under the current rules, for the post-transition portion of that service, no mandatory MPF offset applies. This means employers now typically pay a meaningfully larger share of the total LSP directly, while the employee separately keeps their MPF accrued benefits intact rather than having them absorbed into the LSP payment.
The Subsidy Scheme for Abolition of MPF Offsetting (SSA)
To ease the transition, the government introduced a subsidy scheme specifically to help employers absorb part of this new cost.
The SSA runs from 1 May 2025 to 30 April 2050, reimbursing part of eligible post-transition LSP and SP payments.
The subsidy year applicable to a claim is determined by the employee's termination date, not when the employer actually submits the claim. As of mid-2026, most claims fall under Subsidy Year 2, and the reimbursement ratio is scheduled to step down progressively from Subsidy Year 4 onward.
Employers should apply for the subsidy through the TransitionEase platform, generally within 3 months after paying the employee. Claims involving aggregate post-transition payments above HKD 500,000 for a single employer use a separate calculation for the portion exceeding that threshold.
A Related Protection for Employees
Employees who end up receiving less in total — LSP or SP plus mandatory MPF benefits combined — than they would have received under the old offsetting rules can claim a shortfall subsidy, also through TransitionEase.
This scenario can arise, for example, after a significant pay rise where an employee has long pre-transition service but comparatively short post-transition service.
Is Long Service Payment Taxable?
The statutory portion of LSP is not subject to salaries tax in Hong Kong. This is a genuine exemption, not just a low-priority reporting item — an employee receiving the statutory amount calculated under the formula above doesn't need to declare it as taxable income.
Any amount an employer pays beyond the statutory entitlement is treated differently. If a business chooses to pay more than the legal minimum — as an ex gratia gesture, for instance — that additional portion generally does need to be reported for tax purposes, since it falls outside the specific statutory exemption.
What Counts as "Reckonable Service"?
The years-of-service figure used in the LSP formula isn't always as simple as counting from the employee's start date to their last day.
- Continuous employment under the same contract, or successive contracts treated as continuous, generally counts in full.
- Periods of authorised leave — annual leave, sick leave, maternity leave — typically still count toward reckonable service, rather than pausing the clock.
- A partial year is usually pro-rated, calculated proportionally rather than rounded up or down to the nearest whole year.
- Breaks in employment can affect continuity, depending on their length and circumstances, which is worth checking carefully for any employee with a gap in their service history rather than assuming it doesn't matter.
Getting this calculation right matters directly for payroll accuracy. Our guide on managing payroll in Hong Kong covers the broader compliance picture LSP sits within.
Why This Changes Cash Flow Planning, Not Just Accounting
Beyond the accounting mechanics, the offsetting abolition has a genuine cash flow implication worth planning for separately.
Previously, a large share of an LSP obligation was effectively pre-funded through the employer's own MPF contributions, sitting in the employee's MPF account until termination. Now, the post-transition portion is a direct, un-cushioned cash outflow at the point an eligible employee actually leaves — with no MPF pool absorbing part of the cost automatically.
For a business with several long-tenured employees approaching potential departure — retirement age, contract non-renewal, or other qualifying circumstances — this is worth factoring into cash flow forecasting specifically, rather than treating LSP as a cost that only becomes real at the moment of termination. A business that hasn't budgeted for this shift can find a single senior employee's departure creating a genuinely unexpected cash strain.
Practical Steps for Employers
Beyond understanding the rules, a few practical habits keep LSP obligations manageable rather than a surprise at termination.
- Track service periods against the 1 May 2025 transition date explicitly, since every LSP calculation now genuinely depends on this split.
- Preserve wage records carefully, particularly for daily-rated or piece-rated employees, given they can select their most favourable 18 days from the last 30 worked.
- Budget LSP as a real, growing liability rather than a fully MPF-offset cost. The post-transition portion is now a direct cash obligation with no mandatory MPF cushion behind it.
- Claim the SSA subsidy promptly after each qualifying payment, since the reimbursement ratio is scheduled to decline over time.
- Provide employees a clear calculation breakdown at termination, distinguishing the pre- and post-transition portions, to avoid disputes over how the figure was reached.
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Frequently Asked Questions
Who qualifies for Long Service Payment in Hong Kong?
Employees with 5 or more years of continuous service who leave due to dismissal not involving serious misconduct, death, certified permanent unfitness, or resignation at age 65 or above generally qualify.
How is Long Service Payment calculated?
2/3 of a month's wages for each year of reckonable service, using a capped monthly wage of HKD 22,500, with the total capped at HKD 390,000 overall.
Can an employee receive both Long Service Payment and Severance Payment?
No. These 2 entitlements are mutually exclusive for the same period of employment — which one applies depends on the specific reason the employee is leaving.
Is Long Service Payment taxable?
No, not the statutory portion. Any amount an employer pays beyond the statutory entitlement, however, generally does need to be declared for tax purposes.
Are domestic helpers entitled to Long Service Payment?
Yes, under broadly the same rules as other employees — 5 or more years of continuous service with a qualifying reason for the contract ending, calculated using the same formula, alongside additional immigration-related obligations specific to helper employment.
Is there government support to help employers with the increased cost?
Yes. The Subsidy Scheme for Abolition of MPF Offsetting (SSA) reimburses part of eligible post-transition LSP and SP payments, running from 1 May 2025 to 30 April 2050, with claims submitted through TransitionEase.
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