How to Calculate Severance Pay in Hong Kong (Updated for 2025)
Severance pay is a crucial entitlement for employees in Hong Kong who are dismissed or laid off under certain conditions. Understanding how to calculate severance pay ensures both employers and employees are clear about their rights and obligations.
In this guide, we’ll break down the calculation process, provide examples, and answer common questions.
Who is Eligible for Severance Pay?
To qualify for severance pay in Hong Kong, an employee must:
- Have been employed under a continuous contract for at least 24 months; and
- Be dismissed due to redundancy, laid off, or not have their fixed-term contract renewed (not due to misconduct or resignation, except in special circumstances).
For a deeper look at who is eligible, see our full guide on Hong Kong severance pay.
How Severance Pay Is Calculated
The general formula for severance pay is:
Severance Pay = 2/3 × Relevant Wages × Years of Service
Maximum Severance Pay Limit:
The total severance pay is capped at HK$390,000.
Example 1: Monthly-Rated Employees
For employees paid on a monthly basis, the calculation is as follows:
Relevant Wages:
Use the employee’s last full month’s wages, or the average monthly wages over the last 12 months, whichever is higher.
Cap:
The maximum monthly wage for calculation is capped at HK$22,500 (so two-thirds is HK$15,000 per year of service).
Formula:
Severance Pay = 2/3 × Last Full Month’s Wages (or 12-month average, if higher) × Years of Service (Capped at HK$15,000 per year of service)
Employment Detail:
- 12-month average: HK$18,000
- Years of service: 4 years
Calculation:
- Use HK$18,000 (below the cap)
- 2/3 × HK$18,000 = HK$12,000 per year
- 4 years × HK$12,000 = HK$48,000
If the relevant wage was HK$24,000 (above the cap):
- 2/3 × HK$22,500 = HK$15,000 per year (cap applies)
- 4 years × HK$15,000 = HK$60,000
Example 2: Daily- or Piece-Rated Employees
For employees paid by the day or by piece, the calculation is:
Relevant Wages:
18 days’ wages based on the average daily wage earned in the last 30 normal working days, or two-thirds of HK$22,500 (i.e. HK$15,000), whichever is lower.
Formula:
Severance Pay = 18 × Average Daily Wage × Years of Service (Capped at HK$15,000 per year of service)
Employment Detail:
- Average daily wage (last 30 working days): HK$700
- Years of service: 3 years
Calculation:
- 18 days X $700 = HK$12,600 (below the cap)
- 3 years × HK$12,600 = HK$37,800
If the relevant wage was HK$24,000 (above the cap):
- 2/3 × HK$22,500 = HK$15,000 per year (cap applies)
- 3 years × HK$15,000 = HK$45,000
Abolition of MPF Offsetting Arrangement - How it Affects your Severance Pay (Updated for 2025)
Before the abolition of MPF Offsetting Arrangement (i.e. before May 1, 2025), employers could offset the severance pay by the amount of their own contributions to the employee’s MPF account.
In other words, if you started working before May 1, 2025 and are still employed after that date, your severance pay will be calculated in two parts:
1. Service Before May 1, 2025:
- The employer can still use MPF offsetting for this period.
2. Service On or After May 1, 2025:
- No offsetting allowed. The employer must pay the full amount for this period.
Quick Reference: How Much Severance Pay for 2 - 6 Years of Service?
A common question is how much severance pay an employee is entitled to after 2, 3, 4, 5, or 6 years of service in Hong Kong.
The answer depends on your wage rate and whether you are monthly-rated or daily-/piece-rated, but here’s a quick table using the statutory maximum (HK$15,000 per year of service):
- 2 years: 2 × HK$15,000 = HK$30,000
- 3 years: 3 × HK$15,000 = HK$45,000
- 4 years: 4 × HK$15,000 = HK$60,000
- 5 years: 5 × HK$15,000 = HK$75,000
- 6 years: 6 × HK$15,000 = HK$90,000
If your calculated amount (using the formulas above) is less than the cap, you will receive the lower amount.
For example, if your monthly wage is HK$12,000, then for 2 years: 2 × (2/3 × HK$12,000) = 2 × HK$8,000 = HK$16,000.
For incomplete years of service, calculate on a pro-rata basis. For example, 3 years and 6 months = 3.5 years.
Always use your actual wage figures and the correct formula for your pay type to get the exact amount. If you’re unsure, use our Severance Pay Calculator and find out your approximate entitlement instantly.
Calculating severance pay in Hong Kong depends on your wage structure and years of service, with statutory caps in place. Always keep accurate wage records and check your eligibility before making or processing a claim.
For more details on severance pay and related employment rights, refer to our Severance Pay Guide in Hong Kong.
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