Statutory severance using the two-thirds formula.
Severance payment
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Capped wage used
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Overall maximum
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Your breakdown
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When a severance payment is owed, and when it is not
Statutory severance pay is governed by the Employment Ordinance and administered by the Labour Department, not the Inland Revenue Department, because it is an employment entitlement rather than a tax. You are entitled to it when you are made redundant or laid off after at least 24 months of continuous employment under a continuous contract. Resigning, retiring, or being summarily dismissed for cause does not trigger it. This tool works out the statutory minimum your employer owes in those redundancy situations, using the formula set in the Ordinance.
One detail that reassures people: a severance payment is not taxable. It is treated as compensation for loss of employment rather than income for services, so it does not go into your salaries tax computation. That is the rule this calculator assumes; for any non-standard package, confirm the treatment with the IRD, since contractual extras on top of the statutory amount can be looked at differently.
Five years of service on a $25,000 salary
The formula is two-thirds of your last full month's wages for each year of service, but the monthly wage is first capped. The figures here use the rates this calculator applies: a monthly wage cap of $22,500, the two-thirds factor, and an overall ceiling of $390,000. Confirm the current cap and maximum with the Labour Department, as they are reviewed over time.
Notice the cap already bites. Although the salary is $25,000, the formula uses $22,500, so the payment is two-thirds of $22,500, which is $15,000, times five years. The chart traces how the entitlement climbs with each year of service at this capped wage, and where the $390,000 overall ceiling would eventually flatten it.
Severance versus long service payment, the trap to avoid
This is where people get caught. Hong Kong has two separate end-of-employment payments that use the identical two-thirds formula and the same caps: severance pay and long service payment. They cover different situations and you cannot receive both for the same period of service. Severance is for redundancy or lay-off; long service payment is for things like leaving after at least five years on grounds other than redundancy, such as retirement, ill health, or death in service. If your departure is a redundancy, it is severance you are owed, and you would use this calculator. If it is a long-service exit, the figure is the same arithmetic but it is the other entitlement, and our long service payment tool frames it that way.
A practical point on incomplete years: they count pro rata, so three and a half years is treated as 3.5 in the formula, not rounded down. And remember the offset rule, under which accrued benefits from your employer's MPF contributions can reduce the statutory payment. The tool gives you the gross statutory entitlement before any such offset, so treat its figure as the ceiling of what is due, then check your MPF statement.
Is severance pay reduced by my MPF benefits?
It can be. Under the long-standing offset arrangement, the part of your MPF derived from your employer's mandatory contributions could be used to offset the statutory severance or long service payment. The rules here have been changing, so check your latest MPF position and the current Labour Department guidance before assuming the full figure lands in cash.
What if I had less than two years of service?
Statutory severance pay requires at least 24 months of continuous employment, so below that there is generally no entitlement to it on redundancy. You may still be owed notice pay and any accrued annual leave, which are separate from severance and calculated differently.