Hong Kong Long Service Payment: Your Essential Guide 2025
Navigating the intricacies of employment laws in Hong Kong can feel like a maze, especially when it comes to employee entitlements like Long Service Payment (LSP).
With that in mind, this comprehensive guide breaks down everything you need to know about Long Service Payment in Hong Kong.
We’ll cover Long Service Payment’s eligibility, detailed calculation methods with practical examples, how it differs from Severance Payment and answer common FAQs.
What is Long Service Payment (LSP)?
Long Service Payment (LSP) is a statutory entitlement for eligible employees in Hong Kong, governed by the Employment Ordinance (Cap. 57).
It’s a payment made by employers to employees who have served for a significant period and whose employment is terminated under specific circumstances.
Who is Eligible for Long Service Payment in Hong Kong?
Eligibility for LSP depends on two main factors:
- Your length of service
- Reason for your employment termination.
Minimum Service Requirement
To be eligible, an employee must have been employed continuously for a minimum period of not less than 5 years with the same employer.
Conditions for employment termination
However, even with 5+ years of service, LSP is only payable if the employment is terminated under one of the following conditions:
- Dismissal by Employer: The employee is dismissed by the employer (other than for summary dismissal due to serious misconduct or redundancy triggering severance payment).
- Fixed-Term Contract Expiry: A fixed-term contract expires and is not renewed due to the employer’s initiative.
- Retirement: The employee retires at or after the age of 65 (or an earlier agreed retirement age).
- Death of Employee: The employee dies while in service, and the payment is made to their estate.
- Certified Medical Condition: The employee resigns due to ill health, certified by a registered medical practitioner.
How to Calculate Long Service Payment (LSP)
The calculation of Long Service Payment can seem complex, but it follows a standard formula based on your length of service and average wages.
For Monthly-Paid Employees:
= (Last Monthly Wages x 2/3) x Years of Service
Monthly wages refers to the employee’s average monthly wages earned in the 12 months immediately preceding the termination date. It generally includes:
- Basic salary
- Overtime pay
- Commissions
- Shift allowances
- Productivity bonuses
- Regular payments for work performed
For Daily-Paid / Piece-rate / Commission-based Employees:
= (Average Pay for 18 days out of your Last 30 Working Days) x Years of Service
The Maximum Limit of Long Service Payment :
There’s a statutory cap on the amount of Long Service Payment an employee can receive:
- The maximum amount of LSP payable for each year of service is HK$15,000. This means if (Last Monthly Wages x 2/3) is greater than HK$15,000, then HK$15,000 will be used for each year of service.
- The total LSP payable is capped at HK$390,000, regardless of the length of service or average wages.
Calculation Example
Let’s walk through a real-world example:
Example 1: Monthly Paid Employee
- Service Period: 10 years
- Average Monthly Wages (last 12 months): HK$25,000
Calculation Steps:
- Calculate 2/3 of Average Monthly Wages
= HK$25,000 x 2/3
= HK$16,666.67 - Check against Statutory Cap per year:
HK$16,666.67 is greater than the HK$15,000 per year cap.
Therefore, we use HK$15,000 per year for calculation. - Calculate Total LSP:
= HK$15,000 (per year cap) x 10
= HK$150,000
Long Service Payment v.s. Severance Payment
While both LSP and Severance Payment (SP) are statutory entitlements under the Employment Ordinance, they are mutually exclusive and are triggered by different circumstances. An employee is only entitled to either LSP or SP, never both.
| Feature | Long Service Payment (LSP) | Severance Payment (SP) |
| Minimum Service | 5 years | 2 years |
| Triggering Events | Dismissal (not for misconduct/redundancy), retirement, death, certified ill-health. | Redundancy (dismissal due to business needs or closure), lay-off. |
| Purpose | Recognition for long-term service. | Compensation for job loss due to employer’s business decisions. |
| Calculation Formula | (Last Monthly Wages x 2/3) x Years of Service (capped) | (Last Monthly Wages x 2/3) x Years of Service (capped) |
| MPF Offset | Yes, can be offset by MPF employer’s contributions. | Yes, can be offset by MPF employer’s contributions. |
When is Long Service Payment NOT Payable?
Even if you meet the service requirement, LSP may not be payable under certain conditions:
- Immediate Dismissal: If an employee is summarily dismissed due to serious misconduct (e.g., gross negligence, dishonesty), they forfeit their right to LSP.
- Resignation: As mentioned, voluntary resignation without the specific conditions (ill-health, Old Age Allowance eligibility) typically means no LSP entitlement.
- Redundancy (Severance Payment instead): If the termination is due to redundancy, the employee would be entitled to Severance Payment, not Long Service Payment.
Is Long Service Payment Taxable in Hong Kong?
Generally, Long Service Payment paid according to the Employment Ordinance is exempt from Salaries Tax in Hong Kong.
However, there’s a crucial exception: If the LSP amount, when combined with other lump sum payments (like gratuities or additional severance payments beyond the statutory minimum) received at the time of termination, exceeds a certain threshold, then the excess amount might be subject to tax.
It’s always advisable to consult with a tax professional like HKWJ Taw Law for specific situations involving larger or complex termination packages.
Common FAQs About Long Service Payment (LSP)
Q1: Can I get Long Service Payment if I resign?
A1: Generally no, unless your resignation is due to certified ill-health or if you are certified permanently unfit for your work.
Q2: Does the 5-Year Service Period for Long Service Payment Have to Be Continuous?
A2: Yes, the Employment Ordinance specifies “continuous employment.” This generally means working for the same employer for at least 18 hours per week for 4 weeks or more. Breaks in service may affect continuity.
Q3: If I’m on a fixed-term contract, am I eligible for Long Service Payment?
A3: Yes, if your fixed-term contract expires and is not renewed by the employer, and you have completed 5 years of continuous service, you are eligible for LSP.
Q4: Can an employer refuse to pay Long Service Payment if I owe them money?
A4: No, an employer cannot unilaterally deduct other debts from your LSP entitlement. LSP is a statutory entitlement. Any deductions must be legally permissible and agreed upon.
Q5: How quickly should Long Service Payment be paid after termination?
A5: By law, Long Service Payment (like all wages and statutory entitlements) must be paid as soon as practicable, and in any case not later than 7 days after the date of termination of the contract.
How HKWJ Tax Law can help
Understanding and complying with Hong Kong’s employment laws, including Long Service Payment, can be challenging. At HKWJ Tax Law, we offer comprehensive HR and payroll solutions designed to help businesses navigate these complexities with ease.
Whether you’re an employer seeking compliance assurance or an employee needing clarity on your entitlements, our experts are here to help.
