Handling Employee Dismissal and Severance Pay in Hong Kong
A practical guide for Hong Kong employers on lawful termination, statutory notice periods, severance payment thresholds under the Employment Ordinance (Cap. 57), and the distinction between severance payment and long service payment.
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Handling Employee Dismissal and Severance Pay in Hong Kong
Ongoing Compliance Execution
Ongoing statutory obligations are handled seamlessly through Captime's dedicated Hong Kong company secretary service, providing a licensed local representative and automated annual return management.
Hong Kong employers may dismiss an employee without cause, provided they give the statutory or contractual notice period and pay all statutory entitlements. However, dismissal is unlawful if it falls within a protected category under the Employment Ordinance (Cap. 57) — for example, dismissal during paid sick leave, during a statutory holiday, or on grounds of pregnancy, trade union membership, or giving evidence in proceedings. Severance payment is owed only when the employee has at least 24 months' continuous service and is dismissed by reason of redundancy, or is laid off.
This guide covers the legal framework, eligibility, timelines, cost metrics, and suitability considerations for employers handling dismissal and severance in Hong Kong.
What Is the Legal Basis for Dismissal in Hong Kong?
The Employment Ordinance (Cap. 57) governs termination. An employer may terminate by giving notice, by payment in lieu of notice, or by summary dismissal for serious misconduct. The Ordinance does not require "cause" for a lawful termination, but it prohibits termination for specified unlawful reasons.
Under section 9 of the Employment Ordinance (Cap. 57), an employer may "terminate the contract of employment without notice or payment in lieu" if an employee "wilfully disobeys a lawful and reasonable order," is "guilty of misconduct," commits fraud or dishonesty, or is "habitually neglectful in his duties."
Notice Periods
The statutory minimum notice period depends on the employee's length of service and the contract terms. Where the contract is silent, the following applies:
| Continuous Service | Statutory Notice Period |
|---|---|
| During first month | No notice required |
| 1 month to 3 months | 7 days |
| 3 months or more | 1 month |
Contractual notice periods may exceed the statutory minimum but cannot fall below it. Payment in lieu of notice must equal the wages the employee would have earned during the notice period.
Summary Dismissal
Summary dismissal (termination without notice) is permitted only for the grounds listed in section 9. If an employer summarily dismisses without valid grounds, the dismissal may be treated as a termination without notice, and the employer may owe wages in lieu.
Ongoing Compliance Execution
Ongoing statutory obligations are handled seamlessly through Captime's dedicated Hong Kong company secretary service, providing a licensed local representative and automated annual return management.
Who Qualifies for Severance Payment?
An employee qualifies for severance payment if they have been employed continuously for at least 24 months and are dismissed by reason of redundancy, or are laid off. Redundancy occurs when the employer ceases or intends to cease carrying on the business, or when the requirements of the business for employees to carry out work of a particular kind have ceased or diminished.
Continuous Service Requirement
Continuous service means employment under a contract of employment that has continued without interruption. The Employment Ordinance (Cap. 57) sets out rules for calculating continuity, including treatment of sick days, holidays, and certain absences.
Redundancy vs. Other Dismissals
Severance payment is not owed for:
- Dismissal for cause (summary dismissal under section 9)
- Resignation by the employee
- Termination by mutual agreement
- Dismissal on grounds other than redundancy or lay-off (unless the employee qualifies for long service payment instead)
Long Service Payment
An employee with at least 5 years' continuous service who is dismissed for reasons other than redundancy or lay-off, or who resigns on specified grounds (e.g., ill-health, age 65 or above), may qualify for long service payment. An employer is not required to pay both severance payment and long service payment for the same period of service.
How Is Severance Payment Calculated?
Severance payment is calculated as two-thirds of the employee's last full month's wages, or two-thirds of the average monthly wages for the last 12 months (whichever is higher), multiplied by the number of years of continuous service.
Formula
Severance Payment = (2/3 × relevant monthly wages) × years of service
The relevant monthly wages are capped at HKD 22,500 for the purpose of calculating the statutory severance payment. This means the maximum monthly wage base for calculation is HKD 22,500, giving a maximum of HKD 15,000 per year of service. The total severance payment is capped at HKD 390,000.
Example Calculation
| Item | Value |
|---|---|
| Last full month's wages | HKD 30,000 |
| Relevant monthly wages (capped) | HKD 22,500 |
| Years of service | 6 |
| Severance payment | 2/3 × 22,500 × 6 = HKD 90,000 |
Mandatory Provident Fund (MPF) Offset
The MPF offset arrangement — which allowed employers to offset severance payment and long service payment against MPF contributions — was abolished with effect from 1 May 2025. Employers should check the latest guidance from the Mandatory Provident Fund Schemes Authority (MPFA) on transitional arrangements for service accrued before that date.
What Are the Timelines for Dismissal and Payment?
An employer must pay all wages and statutory entitlements within 7 days of the termination date. Severance payment must be paid within 7 days of the date the employee becomes entitled to it (i.e., the termination date, or the date of the lay-off).
Key Timelines
- Give notice or payment in lieu: Provide the contractual or statutory notice period, or pay wages in lieu.
- Terminate on the effective date: The employment ends on the date specified in the notice.
- Pay final wages: Pay all outstanding wages, accrued annual leave pay, and other entitlements within 7 days of termination.
- Pay severance payment: Pay severance payment within 7 days of the termination date if the employee qualifies.
- Issue IR56F/IR56G: Report the termination to the Inland Revenue Department (IRD) using Form IR56F (for employees continuing in Hong Kong) or IR56G (for employees leaving Hong Kong) within the specified timeframe.
IRD Reporting
Employers must notify the IRD of an employee's cessation of employment. Form IR56F must be filed by the end of the month following the termination. Form IR56G must be filed at least one month before the employee leaves Hong Kong, and the employer must withhold all payments due to the employee for one month after filing.
What Are the Costs and Penalties?
The direct cost of severance payment depends on the employee's wages and years of service, capped at HKD 390,000. Failure to pay statutory entitlements on time is a criminal offence.
Cost Metrics
| Item | Amount |
|---|---|
| Severance payment (max) | HKD 390,000 |
| Relevant monthly wages cap | HKD 22,500 |
| Maximum per year of service | HKD 15,000 |
| Payment in lieu of notice | Equal to wages for notice period |
| Late payment penalty | Fine and/or imprisonment (check latest guidance from the Labour Department) |
Penalties for Non-Compliance
Under the Employment Ordinance (Cap. 57), an employer who wilfully and without reasonable excuse fails to pay wages or severance payment when due commits an offence. Penalties include fines and imprisonment. Employers should consult the Labour Department's latest guidance for current penalty levels.
Who Should Use This Guide — and Who Should Not?
This guide is suitable for employers with employees under a Hong Kong employment contract, including SMEs with fewer than 50 staff, and HR managers handling routine terminations. It is not a substitute for legal advice in complex cases.
Suitable For
- SMEs with standard employment contracts
- Employers making redundancies of fewer than 10 employees
- HR professionals calculating statutory severance payment
- Employers needing to comply with IRD reporting
Not Suitable For
- Employers handling collective redundancies (which may trigger additional consultation requirements)
- Cases involving discrimination claims under the Sex Discrimination Ordinance (Cap. 480), Disability Discrimination Ordinance (Cap. 487), Family Status Discrimination Ordinance (Cap. 527), or Race Discrimination Ordinance (Cap. 602)
- Employers with cross-border employment arrangements
- Cases involving employees with less than 24 months' service (no severance payment owed unless long service payment applies)
HSIC Codes for Relevant Businesses
Employers in specific sectors may have additional obligations. Relevant HSIC Version 2.0 codes include:
| HSIC Code | Title |
|---|---|
| HSIC 561100 | Restaurants |
| HSIC 681100 | Real estate agencies |
| HSIC 692100 | Accounting and auditing activities |
| HSIC 702200 | Management consultancy activities |
| HSIC 782000 | Temporary employment agency activities |
-> Use the HSIC Code Finder at /hsic-finder to look up your specific code.
Frequently Asked Questions
Q: Can an employer dismiss an employee without giving a reason? A: Yes, provided the dismissal is not for an unlawful reason under the Employment Ordinance (Cap. 57) and the correct notice or payment in lieu is given. Q: Is severance payment the same as long service payment? A: No. Severance payment applies to redundancy or lay-off after 24 months' service. Long service payment applies to other dismissals after 5 years' service. An employer does not pay both for the same period. Q: What is the maximum severance payment in Hong Kong? A: HKD 390,000, based on a relevant monthly wages cap of HKD 22,500 and a maximum of HKD 15,000 per year of service. Q: When must severance payment be paid? A: Within 7 days of the termination date or the date the employee becomes entitled to it. Q: Does the MPF offset still apply? A: The MPF offset arrangement was abolished with effect from 1 May 2025. Check the latest guidance from the MPFA for transitional arrangements.
Summary
Handling dismissal and severance in Hong Kong requires strict adherence to the Employment Ordinance (Cap. 57). Employers must give the correct notice, avoid unlawful dismissal grounds, calculate severance payment using the statutory formula, and pay within 7 days. The MPF offset abolition from 1 May 2025 changes the cost calculation for long-serving employees. For complex cases, seek legal advice.
-> Use the HSIC Code Finder at /hsic-finder to look up your specific code.
This guide is part of HK Company Guide's free resource library for Hong Kong entrepreneurs. Use the HSIC Code Finder to look up your specific code.
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