Navigating Termination and Notice Periods in Hong Kong

Hong Kong's Employment Ordinance (Cap. 57) provides a clear framework for employment termination. A key concept is the 'continuous contract'. Currently, an employee working 18 hours weekly for 4 consecutive weeks under the same employer qualifies. However, a significant change is coming: effective January 18, 2026, the '4-68' rule will replace the '4-18' rule. This new standard requires an employee to work at least 68 hours over a 4-week period, making it easier for part-time and casual workers to gain access to statutory benefits. Legitimate grounds for dismissal include poor performance, misconduct, redundancy, or operational restructuring. Crucially, termination must follow due process and cannot be based on discriminatory factors such as gender, race, or disability.

Understanding Notice Period Requirements

The notice period is a critical component of a lawful termination. The Employment Ordinance stipulates a statutory minimum of 7 days, provided the employment contract specifies a notice period. If the contract is silent, a minimum of 30 days' notice is required. The rules differ during probation:

No notice is required during the first month of probation.
After the first month, the notice period stipulated in the contract applies.
If the contract is silent after the first month, a minimum of 7 days' notice is mandatory.

For employees on a continuous contract (post-probation), the following applies:

If a notice period is contractually agreed, it must be honored, but cannot be less than 7 days.
If no period is specified, the default requirement is at least one month's notice.

A common alternative is payment in lieu of notice. Both employers and employees can opt to pay the equivalent wages for the notice period, eliminating the need for the employee to work during that time.

Severance Payment: A Guide for Employers

Severance payment is a statutory compensation for employees dismissed due to redundancy or layoffs. Eligibility hinges on two conditions: the employee must have been continuously employed for at least 24 months, and the dismissal must be due to genuine redundancy.

Calculation Basis: The payment is calculated based on the employee's length of service.
Amount: The formula is two-thirds of the employee's last monthly wages or two-thirds of HKD 22,500, whichever is lower, for each year of service.
Cap: The maximum severance payment payable is HKD 390,000.

Employers are obligated to pay severance promptly. If an employee submits a written claim, payment must be made within two months. A pivotal reform took effect on May 1, 2025: employers can no longer offset severance payments with the employee's mandatory contributions to the Mandatory Provident Fund (MPF) scheme. For employees hired before this date, the severance payment is split, with the pre-reform portion still subject to offsetting. To ease this transition, the government introduced a subsidy scheme. SailGlobal can assist businesses in navigating these complex calculations and compliance requirements.

Long Service Payment (LSP)

The Long Service Payment rewards employees with at least 5 years of service who are dismissed for reasons other than serious misconduct or redundancy. Qualifying scenarios include retirement at age 65, non-renewal of a fixed-term contract, or resignation due to ill health. The calculation formula and maximum cap of HKD 390,000 are identical to the severance payment. Similar to severance, the MPF offset rule was abolished for service periods after May 1, 2025.

Best Practices for Terminating an Employment Contract

A structured termination process minimizes legal risks and maintains professionalism. Consider this step-by-step approach:

Initial Discussion: Conduct a private meeting to discuss the situation and explore alternatives, if appropriate.
Formal Written Notice: Provide a clear, written notice stating the reason for termination and the effective date.
Adherence to Terms: Strictly follow the contractual and statutory notice period requirements.
Final Settlement: Calculate and pay all outstanding wages, accrued annual leave, and other benefits.
Return of Property: Ensure the employee returns all company assets, and the company returns any personal belongings.
Termination Agreement: Consider a signed agreement to confirm the terms of separation and waive future claims.

Support for the Unemployed

Hong Kong lacks a statutory unemployment benefit system. Support primarily comes from non-governmental organizations offering emergency aid. Two notable examples are:

The Community Chest - Rainy Day Fund

This fund provides swift, short-term assistance to individuals and families facing sudden financial hardship, such as job loss, while they await other forms of support. Grants typically range from HKD 3,000 to HKD 11,800.

Po Leung Kuk - Wong Ching Cheung Memorial Fund

This fund offers emergency financial aid to Hong Kong residents referred by social service units, helping those affected by sudden crises like unemployment. The maximum grant per application is HKD 6,000.

For multinational companies managing a Hong Kong workforce, partnering with an expert EOR provider like SailGlobal ensures full compliance with these evolving regulations, from contract termination to final settlement, mitigating potential disputes.

Hong Kong Employment Termination Guide: Notice, Severance & LSP