How Severance and Long Service Payments Are Calculated: the Two Portions, the Cap, and What Can Still Be Offset

This article is written from the following statutory texts: the Employment Ordinance (Cap. 57), consolidated as at 14 May 2026; the Criminal Procedure Ordinance (Cap. 221), consolidated as at 14 May 2026; and the Mandatory Provident Fund Schemes Ordinance (Cap. 485), consolidated as at 24 August 2025; and the Mandatory Provident Fund Schemes (Exemption) Regulation (Cap. 485 sub. leg. B), consolidated as at 23 May 2025. Where a figure comes from a Labour Department or other government website rather than from an Ordinance, this article says so at the point it appears. The three consolidation dates are not the same. The two Cap. 485 texts are roughly nine and twelve months behind Cap. 57 and Cap. 221 respectively, and the machinery by which an offset is actually recovered from the trustee (Cap. 485 s.12A) sits in Cap. 485 — so any amendment made to either text after its own version-in-force date is outside this article's view.

1. First: severance payment or long service payment?

Severance payment (SP) is governed by Part VA of Cap. 57; long service payment (LSP) by Part VB. Each Part has its own threshold — and both are expressly subject to Part VC, which section 4 below sets out.

Severance payment, s.31B(1): "Where an employee who has been employed under a continuous contract for a period of not less than 24 months ending with the relevant date" is "dismissed by his employer by reason of redundancy" or "laid off within the meaning of section 31E", the employer is liable to pay "a severance payment calculated in accordance with section 31G".

Redundancy is not a colloquial word here. Section 31B(2) defines it: an employee is taken to be dismissed by reason of redundancy if the dismissal "is attributable wholly or mainly to the fact that" —

And the burden runs the other way. Section 31Q: "an employee who has been dismissed by his employer shall, unless the contrary is proved, be presumed to have been so dismissed by reason of redundancy". It is for the employer to show that a dismissal was not redundancy.

Lay-off, s.31E(1), applies where the employee's remuneration depends on being given work. The employee is taken to be laid off where the days on which no work is provided exceed "half of the total number of normal working days in any period of 4 consecutive weeks" or "one-third of the total number of normal working days in any period of 26 consecutive weeks", and the employee is not paid a sum equivalent to the wages that would have been earned. Section 31E(1A) excludes days lost to a lock-out, a rest day, a statutory holiday or annual leave: such a period "shall not be taken into account as normal working days in determining whether an employee has been laid off". For lay-off the relevant date has its own definition in s.31E(3), which "means any day on which the period of 4 consecutive weeks or 26 consecutive weeks, as the case may be, referred to in subsection (1) has expired" — any day, which reads as a choice of qualifying day rather than a single fixed one. The two authentic texts diverge here: the Chinese reads 「指第(1)款所指連續4個星期或連續26個星期(視屬何情況而定)的期間屆滿日期」, pointing at the day of expiry. Because the relevant date selects both the Table A row and the pre/post-transition boundary, the difference can move the amount. Each language block of this article quotes its own authentic text, and this site states no view on which governs.

Long service payment, s.31R(1), requires employment under a continuous contract "for not less than 5 years of service at the relevant date" plus one of the following:

• the employee "is dismissed and his employer is not liable to pay him a severance payment by reason thereof" — not simply a non-redundancy dismissal: a redundancy dismissal also falls within this limb if s.31C removes the employer's severance liability (for example, unreasonable refusal of a suitable renewal offer). Expiry of a fixed term without renewal under the same contract is itself a dismissal for this purpose: s.31T(1)(b);
• the employee terminates the contract in the circumstances specified in s.10(aa). This is much tighter than resignation on health grounds: s.10(aa) requires that the employee "has been employed under the contract for not less than 5 years", that "by a certificate in the form specified by the Commissioner under section 49 and issued by a registered medical practitioner or registered Chinese medicine practitioner, he is certified as being permanently unfit for a particular type of work specified in the certificate for a reason or reasons stated therein", and that "he is engaged in that type of work under the contract";
• the employee "terminates his contract and, at the relevant date, he is not less than 65 years of age and has been employed under that contract for not less than 5 years".

The s.10(aa) route carries machinery the employer can trigger, and refusing to co-operate forfeits the whole payment. Section 31R(1)(a)(ii) opens "subject to subsections (3) to (5)", and those subsections are easy to read past:

• Subsection (3): once the employee has terminated on a certificate of permanent unfitness, "the employer may require the employee to undergo a medical examination, at the employer’s expense, to obtain a second opinion as to whether or not the employee is permanently unfit for that type of work." Subsection (3A) requires that examination to be conducted by a registered medical practitioner or registered Chinese medicine practitioner named by the employer.
• Subsection (4) puts a clock on that option. The employer forfeits it unless "he makes arrangements for a medical examination to take place not more than 14 days after the employer receives a copy of a certificate issued under section 10(aa)" and "he notifies the employee in writing, not less than 48 hours before the examination is to take place, giving him details of the appointment."
• Subsection (5) is the one that bites: "An employee referred to in subsection (3) who, without reasonable excuse, refuses to undergo a medical examination forfeits his right to a long service payment under this Part." That is the whole entitlement, not a reduction of it.
• Subsection (6) covers a clash of opinions: the employer must put the certificate and the second opinion to the Commissioner, and "the Commissioner shall, after such consultation with such medical experts as he considers necessary, rule whether or not the employee is entitled to a long service payment under this Part."

So an employee taking the s.10(aa) route should treat a written notice of a medical appointment as something to answer. Refusing without reasonable excuse takes the whole of the arithmetic set out below to zero.

Death in service is dealt with separately by s.31RA: "Where an employee dies and he had been at the time of his death employed under a continuous contract for not less than 5 years of service on the date of his death", the employer must pay an LSP calculated under s.31V(1) to whichever of the following classes applies, in strict priority order: the spouse, if the employee leaves a spouse; failing that, the issue; failing spouse and issue, a parent; and only if none of spouse, issue or parent survives, the personal representative (s.31RA(1)(a)–(d)) — not four co-equal alternatives. Section 31RA(2) requires the claimant to satisfy both (a) and (b) to be entitled at all: (a) an application in the form specified by the Commissioner served within 30 days of the death, or within such extended period as the Commissioner may allow; and (b) documentary evidence supporting the claimed relationship to the deceased employee.

Two further rules close the section. Section 31RA(7): "Where 2 or more persons are entitled to a long service payment under this section, the long service payment shall be divided equally between such persons" — equal shares, not the employer's choice. And s.31RA(8): "A long service payment is payable in accordance with this Part by an employer on the death of an employee from whatever cause and is payable in addition to any compensation payable by the employer under the Employees’ Compensation Ordinance (Cap. 282)" — the LSP and employees' compensation are two separate sums that do not set off against each other, whatever the cause of death.

The offer to renew: not simply 7 days

Sections 31C(2) and 31C(3) are two different provisions, not one.

• Section 31C(2): the employer has, "not less than 7 days before the relevant date", "offered to renew his contract of employment, or to re-engage him under a new contract" on terms that "would not differ from the corresponding provisions of the contract as in force immediately before his dismissal", taking effect on or before the relevant date, and "the employee has unreasonably refused that offer". This subsection does not require the offer to be in writing.
• Section 31C(3) is the written one: the employer "has made to him an offer in writing to renew his contract of employment, or to re-engage him under a new contract" on terms that "would differ (wholly or in part) from the corresponding provisions of the contract as in force immediately before his dismissal" — and three conditions must all be met: "(a) the offer constitutes an offer of suitable employment in relation to the employee;" "(b) the offer constitutes an offer of employment no less favourable to the employee than hitherto; and" and the renewal takes effect on or before the relevant date.

So: an offer on unchanged terms can cost the employee the entitlement even if it was made orally; an offer on changed terms must be in writing and must pass both the suitable and the no less favourable tests. The Ordinance does not define what makes a refusal unreasonable — that is a question on the facts.

Section 31C(4) shifts the date where it falls awkwardly. Where the relevant date falls on a rest day or holiday, "the references in subsection (2)(b) and subsection (3)(c) to the relevant date shall be construed as references to the next day after that rest day or holiday" — the deadline for the renewal to take effect moves on by a day.

Section 31C also contains two exclusions that have nothing to do with offers at all — its heading is "General exclusions from right to severance payment by reason of dismissal":

• Section 31C(1): where the employer, "being so entitled by reason of the employee’s conduct, terminates his contract of employment without notice or payment in lieu in accordance with section 9", there is no severance payment.
• Section 31C(5): where the employer has given notice of termination under s.6 and the employee "leaves the service of his employer before the expiration of that notice", there is no severance payment — unless the employee leaves "(a) with the prior consent of the employer; or (b) after having made a payment in lieu to the employer in accordance with section 7". This one is practical: leaving early for a new job after receiving notice can forfeit the payment outright.

Sections 31S(3) and 31S(4) carry the structurally identical pair for LSP on the expiry of a fixed-term contract — but both open "Subject to subsection (6)", and subsection (6) runs the opposite way to anything on the severance side.

Section 31S(6) does not add a further exclusion; it gives the entitlement back. It provides that "Without affecting the application of section 31R(1)(a)(ii) and (b), where an employee employed under a contract for a fixed term, on or before the day on which the contract for a fixed term expires, refuses an offer of any of the descriptions mentioned in subsection (3) or (4)" — then "the employee is entitled to terminate that contract under section 31R(1)(a)(ii) and that expiration shall be regarded as termination of contract by the employee under section 31R(1)(a)(ii) for the purposes of the application of this Part; or" paragraph (b) does the same for s.31R(1)(b).

So a fixed-term employee who refuses a renewal offer is shut out of long service payment by dismissal under subsections (3) and (4) — but if the employee qualifies under s.31R(1)(a)(ii) (permanent unfitness certified under s.10(aa)) or s.31R(1)(b) (aged 65 or over at the relevant date with 5 years' service), the expiry is deemed a termination by the employee under that provision, and the entitlement comes back through it. The subsection restores; it does not remove.

2. The base formula: s.31G(1) and s.31V(1)

The severance and long service formulas are word-for-word identical apart from the name of the payment.

Daily-rated and piece-rated employees fall under paragraph (b):

Both are multiplied "for every year (and pro rata as respects an incomplete year) of employment under a continuous contract by his employer".

Three things follow:

• $15,000 is not the figure the formula uses; it falls out of it. The provision says "two-thirds of $22,500". $22,500 × 2/3 = $15,000, so a year of service is worth at most $15,000. ($15,000 does appear in Cap. 57, but somewhere else and doing something else entirely — the average-monthly-wages threshold in modified ss.31G(7) and 31V(7), set out in Schedule 11 ss.2 and 4, section 8 below. The two figures are unrelated.)
• $22,500 can be changed, and the Ordinance says how. Section 67A: "The Legislative Council may, by resolution published in the Gazette, amend the references to $22,500 in" — the provisions listed include "sections 31G and 31V (including those sections as modified by Schedule 11)". No amending Ordinance is needed; a Gazetted resolution suffices.
• *The words are pro rata as respects an incomplete year, and no unit of apportionment is stated.* Nothing in Part VA, Part VB or Schedule 11 supplies a rounding or rounding-up rule. (Cap. 57 does contain rounding-up rules, but all of them sit on the annual leave side and none touches Parts VA and VB: ss.41AB(3)(a) and 41AB(4)(a) for the common-leave-year option, and s.41F(4)(b) for the annual leave shutdown calculation.) This article makes no statement about the unit.

Wages is itself defined in s.2(1). The definition opens "subject to subsections (2) and (3)" and then carries a list of things it does not include, running from (a) to (f) with (ca)–(cd) and (da) in between — eleven limbs in all. Two of them matter here:

• "(b) any contribution paid by the employer on his own account to any retirement scheme" — the employer's own MPF contributions are not part of your monthly wages for this purpose;
• "any gratuity payable on completion or termination of a contract of employment" (limb (e)) — an end-of-contract gratuity is not wages. But this limb is broader than section 7's gratuity based on length of service (qualifying item (a)): only an end-of-contract gratuity that is also based on length of service reappears there, wearing a different hat, as something that can reduce the payment. Not every limb (e) gratuity qualifies.

Overtime pay is, as a rule, left out of the calculation for both payments. The subsection (2) that the definition's opening words point at is what does it: "No account of overtime pay shall be taken in calculating the wages of an employee for the purpose of—", and the purposes listed include "any severance payment under Part VA" and "any long service payment under Part VB". There are exactly two exceptions, in the closing words of the same subsection: "unless the overtime pay is of a constant character or the monthly average of the overtime pay over a period of 12 months (or if not applicable, such shorter period of employment) immediately preceding the respective dates specified in subsections (2A) and (2B) is equivalent to or exceeds 20% of his average monthly wages during the same period." Section 2(2A)(c) fixes the date the 12 months run back from: for severance and long service payments, "subject to subparagraph (ii), the relevant date", and where the contract is terminated by payment in lieu under s.7, "the date on which the termination takes effect" (s.2(2B) is to the same effect).

So overtime in your final month's pay comes out of the calculation unless it was constant, or averaged 20% or more of monthly wages over the period. Every example in this article assumes no overtime pay, so none of the arithmetic below is affected by this subsection.

Periods of leave, or periods when the employer gave you no work, do not drag down your "last full month's wages". Section 2(3) deals with this directly. Where an employee under a continuous contract is dismissed, is laid off, terminates under s.10(aa) or s.31R(1)(b), or dies within s.31RA(1), and for any period of that contract was not paid wages or full wages by reason of leave taken under this Ordinance or the Employees' Compensation Ordinance (Cap. 282) or with the employer's agreement, or by reason of not being provided with work on a normal working day, then the employee "shall be deemed, for the purposes of Parts VA and VB and notwithstanding any other provision of this Ordinance, to have been paid, for that period, his full wages under, and at the frequency required by, that contract as if he had continued in the normal course in the employment to which that contract relates, and any calculation under section 31G or 31V shall be made accordingly". It is a deeming provision that feeds straight into the "last full month's wages" and the 12-month average this whole article turns on.

The 12-month averaging election (s.31G(2); s.31V(1A)): "the employee may, for a calculation under that subsection, elect to have the employee’s wages averaged over the period of 12 months immediately preceding the relevant date". Where the election is taken by an employee in paragraph (b)'s class — "in any other case", so daily-rated and piece-rated — s.31G(2A) adds a ceiling on the input: "For calculating the average daily wages under subsection (2)(b), the total wages for the period of 12 months must not exceed 12 times $22,500."

One consequence of the election is easy to miss. Under s.31G(2)(a) the monthly-rated employee's averaged figure is still "two-thirds of the employee’s average monthly wages during such a period, or two-thirds of $22,500, whichever is less" — the $22,500 comparator survives. Under s.31G(2)(b) the figure becomes simply "18 times the employee’s average daily wages during such a period": the "or two-thirds of $22,500, whichever is less" comparator is gone, replaced by the s.31G(2A) cap on total wages. Electing therefore changes the shape of the formula for a paragraph (b) employee, not merely its inputs.

Example 1 (this site's own arithmetic). Monthly-rated, wages $20,000 a month throughout, employed 1 July 2025 to 30 June 2028, dismissed by reason of redundancy. The whole period falls after the transition date, so no split applies. $20,000 × 2/3 ≈ $13,333.33, which is less than $22,500 × 2/3 = $15,000, so the smaller figure is two-thirds of the last full month's wages. 3 years × $20,000 × 2/3 = $40,000 (equivalently $20,000 × 2/3 × 3 = $20,000 × 2 = $40,000 exactly, with no remainder — note that the per-year $13,333.33 is a rounded figure, so multiply before dividing, or keep the fraction, to avoid a stray cent).

Example 2 (this site's own arithmetic, daily-rated). Daily wage $700. The 18 days the employee chooses out of the last 30 normal working days total 18 × $700 = $12,600, which is less than $15,000, so a year of service is worth $12,600. 6 complete years × $12,600 = $75,600.

3. The ceiling: Seventh Schedule Table A, a dated table

Sections 31G(1) and 31V(1) both close with the same words:

Table A is not a single number. It is a table of periods running up to its final row: "On or after 1 October 2003" — "$390,000". So $390,000 applies only where the relevant date falls on or after 1 October 2003; an earlier termination takes the amount opposite its own period.

Note that the first row is not a figure at all. For a relevant date before the commencement of the Employment (Amendment) Ordinance 1995, column 2 reads "The total amount of wages earned by the employee during the period of 12 months immediately preceding the relevant date, or $180,000, whichever is less" — a whichever-is-less rule, not a flat $180,000. Every later row is a flat amount ($210,000, $230,000, and so on up to $390,000).

The Seventh Schedule also used to carry a Table B. It was repealed by 4 of 2022 s.20, and all that remains in the Schedule is the line "Table B (Repealed 4 of 2022 s. 20)". So however early the relevant date, Table A is now the only table there is to read.

Unlike $22,500, the $390,000 rests on no power to change it. In the whole of Cap. 57 the Seventh Schedule is mentioned six times: four are operative references — ss.31G(1) and 31V(1), and those two sections as modified by Schedule 11 ss.2 and 4 — and the remaining two are the Schedule's own heading and the note recording when it was added. No provision empowers the Legislative Council, the Chief Executive or the Commissioner to amend it (contrast s.67A for $22,500, and s.68A for Schedule 12). Changing $390,000 takes an amending Ordinance.

Relevant date is also defined, in s.2(1), by reference to how the employment ended — and the definition has seven limbs, not the four that cover notice, payment in lieu, a fixed term and death:

Three are easy to miss. Limb (c) is the employee's own termination under s.10 without notice or payment in lieu; limb (e) is retirement at an age the continuous contract itself specifies; and limb (g) is the catch-all — any termination not in accordance with the Ordinance, which is where most non-redundancy dismissals land, takes the date of termination. Lay-off uses the separate definition in s.31E(3).

Why count the limbs? Because the relevant date fixes two things at once: which row of Table A in the Seventh Schedule supplies the ceiling, and whether the relevant date falls on or after the transition date for the purposes of s.31ZEA(2)(b), which is what decides whether the calculation splits at all. Pick the wrong limb and both go wrong.

4. Who has to split the calculation in two? Section 31ZEA

The split does not apply to everyone. Section 31ZEA(2) provides that Parts VA and VB have effect "with the modifications set out in Schedule 11" if three conditions are all met:

An employee who meets all three is a specified employee, defined in s.2(1) as "an employee in relation to whom the conditions under section 31ZEA(2)(a), (b) and (c) are met".

*The transition date is a commencement date, not a calendar date written into the Ordinance.* Section 2(1) defines it as "the date on which the Employment and Retirement Schemes Legislation (Offsetting Arrangement) (Amendment) Ordinance 2022 (4 of 2022) comes into operation". The provision prints no day, month or year; an editorial note in Cap. 57 records the operation date of that Ordinance as 1 May 2025. The distinction matters: the definition points at a commencement, and the commencement is what fixes the date.

Employees outside the three conditions. Where the relevant date precedes the transition date, s.31ZEA(3) preserves the old law: "Parts VA and VB as in force immediately before the transition date continue to have effect in relation to the employee" as if the 2022 amendments had not been made. Where the employment began on or after the transition date, the employee is not a specified employee at all: the whole period is calculated under the unmodified ss.31G/31V, and the employer's mandatory MPF benefits cannot reduce the payment at all (section 7 below).

Parts VA and VB operate under the words "subject to this Part and Part VC", and Part VC contains a provision that can restart the service clock at zero. Section 31B(1) reads "the employer shall, subject to this Part and Part VC, be liable to pay to the employee a severance payment calculated in accordance with section 31G."; s.31R(1) reads "the employer shall, subject to this Part and Part VC, pay to the employee a long service payment calculated in accordance with section 31V(1)."; s.31RA(1) uses the same formula for death in service. Part VC has two operative sections: s.31ZEA above, and s.31ZF.

Section 31ZF deals with re-employment immediately after retirement at a contractually specified age. Where a continuous contract specifies an age of retirement and the employee retires at that age, and "the employee has been employed under that contract for not less than 5 years of service ending at the relevant date", and "the long service payment to which the employee would have been entitled had the employee been dismissed at the relevant date were wholly available to be reduced under section 31Y", and "immediately after his retirement, the employee is re-employed by the person by whom he was employed immediately before his retirement", then for the purposes of Parts VA and VB "the employment after retirement shall be regarded as a fresh employment".

Where all four conditions are met the post-retirement period is a fresh employment, with two consequences: the years of service start again from the day after retirement rather than running on, and if that fresh employment began on or after the transition date it fails s.31ZEA(2)(a) — so there is no split calculation at all, and the employer's mandatory MPF benefits cannot reduce the payment (sections 6 and 7 below).

Schedule 11 s.1(1) defines the two periods. Pre-transition employment period means "the period of the employee’s employment under the continuous contract concerned that falls before the transition date"; post-transition employment period means the same period "that falls after the commencement of the transition date". The pre-transition portion and post-transition portion are the parts of the payment attributable to those periods.

5. The split formula: Schedule 11 s.2 (severance) and s.4 (long service)

Schedule 11 s.2 modifies the whole of s.31G. As modified, s.31G(1) reads: the amount "is the sum of the amounts under paragraphs (a) and (b)".

The pre-transition portion (s.2(1)(a)) — the number of years of the pre-transition employment period (pro rata for an incomplete year) multiplied by:

If the pre-transition employment period is shorter than a month, sub-subparagraph (B) switches to "two-thirds of the employee’s first full month’s wages for the whole employment period" — the first month, and of the whole employment period. Sub-subparagraphs (ii)(A) and (B) do the same for daily-rated employees: where the pre-transition period covers fewer than 30 normal working days, the 18 days are chosen from "the employee’s first 30 normal working days in the whole employment period".

The post-transition portion (s.2(1)(b)) — the years of the post-transition employment period multiplied by:

That contrast is the whole design: the pre-transition portion uses the last full month of the pre-transition employment period; the post-transition portion uses the last full month of the whole employment period. The first is fixed at the transition date and does not move with a later pay rise.

The averaging election is modified too. The modified s.31G(4) lets the employee elect the average over the specified period separately for each portion — but not for every limb. It is available only "for a calculation under paragraph (a)(i)(A) or (ii)(A) or (b) of that subsection", so the two (B) sub-subparagraphs above, which handle a pre-transition period shorter than a month or shorter than 30 normal working days, carry no election.

And the averaged daily figure has its own wage cap. Modified s.31G(5): "For calculating the average daily wages under subsection (4)(b), the total wages for the specified period must not exceed the number of months (and pro rata for an incomplete month) of the specified period times $22,500." That is the split-calculation analogue of the unmodified s.31G(2A) ceiling of 12 × $22,500, with the multiplier switched from 12 months to the months of the specified period.

The specified period is defined by modified s.31G(6), in Schedule 11 s.2 — not by s.2(6), which defines final average monthly relevant income and is dealt with in section 7 below. For the pre-transition portion it is "(i) if the employee’s pre-transition employment period is not less than 12 months—the period of 12 months immediately preceding the transition date; or (ii) if the employee’s pre-transition employment period is less than 12 months—that employment period"; for the post-transition portion, "the period of 12 months immediately preceding the relevant date". So where the pre-transition period is under 12 months, the averaging period is that period itself, not 12 months.

Schedule 11 s.4 modifies s.31V for long service payments in identical terms.

Example 3 (this site's own arithmetic, split calculation). Monthly-rated employee, joined 1 May 2017, employer liable throughout to make MPF contributions, employment terminated on 30 April 2027 by a dismissal that is not redundancy, so LSP. Last full month's wages before the transition date: $18,000. Last full month's wages before termination: $24,000.

• Pre-transition employment period: 1 May 2017 to 30 April 2025 = 8 years. $18,000 × 2/3 = $12,000, which is less than $15,000, so $12,000. 8 × $12,000 = $96,000.
• Post-transition employment period: 1 May 2025 to 30 April 2027 = 2 years. $24,000 × 2/3 = $16,000, which is more than $15,000, so $15,000. 2 × $15,000 = $30,000.
• Sum = $126,000, below the $390,000 ceiling.

Note the post-transition slice: at $24,000 a month the employee is already above the $22,500 wage cap, so the top $1,500 of monthly pay does nothing for the calculation.

6. How the ceiling bites on the two portions: modified s.31G(2) and (3) — two cases, not one

The modified s.31G(2) states the ceiling itself: "the amount of the severance payment must not exceed, where the relevant date occurs in a period specified in column 1 of Table A in the Seventh Schedule, the amount specified in column 2 of that table opposite to the period (applicable ceiling)".

Subsection (3) then removes the excess in two distinct cases:

Unpacked:

• Case (a) — the pre-transition portion by itself exceeds the ceiling: the pre-transition portion "is to be reduced to an amount equivalent to the applicable ceiling" and the post-transition portion "is to be reduced to zero".
• Case (b) — in any other case: the pre-transition portion "need not be reduced", and the post-transition portion is reduced to the difference between the ceiling and the pre-transition portion.

Why the distinction matters: the employer's mandatory MPF benefits can reduce only the pre-transition portion (section 7). In case (a) the capped $390,000 is entirely pre-transition and therefore entirely exposed to mandatory-contribution offsetting. In case (b) whatever survives as post-transition portion is cash the employer must find.

Example 4 (this site's own arithmetic, case (b)). Pre-transition employment period 22 years; last full month's wages before the transition date $30,000 (× 2/3 = $20,000, above $15,000, so $15,000 applies) → pre-transition portion 22 × $15,000 = $330,000. Post-transition employment period 6 years; last full month's wages before termination $36,000 (again $15,000 applies) → post-transition portion 6 × $15,000 = $90,000. Sum $420,000, against a ceiling of $390,000. The pre-transition portion of $330,000 does not itself exceed the ceiling, so case (b) applies: the pre-transition portion stays at $330,000 and the post-transition portion is reduced to $390,000 − $330,000 = $60,000. Total $390,000; the post-transition portion has lost $30,000.

Example 5 (this site's own arithmetic, case (a)). Pre-transition employment period 28 years, wages above $22,500 throughout → pre-transition portion 28 × $15,000 = $420,000. Post-transition employment period 2 years → post-transition portion 2 × $15,000 = $30,000. Sum $450,000. Here the pre-transition portion alone ($420,000) exceeds the ceiling, so case (a) applies: the pre-transition portion is reduced to $390,000 and the post-transition portion to $0. The total is again $390,000 — but all of it is pre-transition portion.

Both examples end at $390,000. The amount that mandatory MPF benefits may reduce is $330,000 in the first and $390,000 in the second.

7. Offsetting: which funds reduce which portion

The Ordinance's word for offsetting is reduction. There are two sets of provisions.

Unmodified s.31I (severance) and s.31Y (long service) apply to employees who are not specified employees. Only three kinds of item can reduce the payment: gratuities based on length of service, employer-funded (specified) ORS benefits, and "employer-funded (voluntary) MPFS benefits". Benefits from the employer's mandatory MPF contributions are not among them. So for an employee whose employment began on or after the transition date, the employer's mandatory contributions cannot reduce the SP or LSP at all.

Modified s.31I (Schedule 11 s.3) and modified s.31Y (Schedule 11 s.5) apply to specified employees. They list five qualifying items in subsection (4) and then apply them to the two portions differently —

(Both modifying provisions are wider than their headline suggests: Schedule 11 s.3 modifies ss.31I and 31IA, and s.5 modifies ss.31Y, 31YAA, 31YA, 31YB and 31YC. Where the employee died in service, the reduction is governed by modified s.31YA, not s.31Y. The (a)–(e) / (a)–(c) split in subsections (2), (3) and (4) is identical in both, so the outcome is the same — but the provision to cite is not.)

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The difference is items (d) and (e). Item (e) is "every one of the employer-funded MPFS benefits referred to in subsection (1)(b)(iii) that are employer-funded (mandatory) MPFS benefits"; item (d) is the employer-funded (basic portion) exempt ORS benefits. Both appear only in subsection (2) — that is, they can reduce only the pre-transition portion.

The line between item (b) and item (d) is not drawn inside Cap. 57 alone. Whether a given exempt ORS benefit is item (b) (reduces both portions) or item (d) (pre-transition only) takes three steps:

• *Which benefits are exempt?* Section 2(4): "an employer-funded ORS benefit of an employee payable under an occupational retirement scheme is an employer-funded exempt ORS benefit of the employee if the employee—(a)is exempt under section 4(3)(b) of the Mandatory Provident Fund Schemes Ordinance (Cap. 485); or(b)is, as a member of the scheme, a person in relation to whom an exemption from the operation of Part 3 of that Ordinance, given under section 5(1) of that Ordinance, has effect."
• *Where does the prescribed portion start?* Section 2(5) supplies a formula: "an employer-funded exempt ORS benefit of an employee is, to the extent that its amount exceeds the reference amount calculated in accordance with the following formula, an employer-funded (prescribed portion) exempt ORS benefit of the employee", the formula being A = B × C × 5% × 12 — A the reference amount, B the employee's final average monthly relevant income, C the years of service (pro rata for an incomplete year) the benefit is attributable to.
• *The basic portion is whatever is left.* Schedule 11 s.1(1) defines an employer-funded (basic portion) exempt ORS benefit as one that "means an employer-funded exempt ORS benefit of the employee that is not an employer-funded (prescribed portion) exempt ORS benefit".

The B in step 2 points at yet another chapter: s.2(6) provides that where the scheme is "a relevant scheme (as defined by section 1(1) of Schedule 2 to the Mandatory Provident Fund Schemes (Exemption) Regulation (Cap. 485 sub. leg. B))", final average monthly relevant income has the meaning given by that section. So answering which portion can my ORS benefit reduce? means opening Cap. 57 ss.2(4)–(6), Cap. 485 ss.4(3) and 5(1), and Cap. 485 sub. leg. B Schedule 2 s.1(1) together. This article sets out the route only, and states nothing about whether any particular scheme's benefit is prescribed portion or basic portion.

Two details that are easy to miss:

• The same money cannot be used twice. Subsection (2)(b) requires, for items (a), (b) and (c), that the gratuity or benefit "has not been used for a reduction under subsection (3)"; subsection (3)(b) requires the mirror image, that it "has not been used for a reduction under subsection (2)".
• The benefits available against the pre-transition portion are measured over the service the whole payment is based on, not only the pre-transition slice. Paragraph (a) of subsection (2), quoted above, ties the reduction to the years of service for which the severance payment is payable, and the provision expressly brackets both portions into that measure.

How it actually happens: Cap. 485 s.12A

A reduction is not something the employer simply nets off. Under MPFSO s.12A(1), after the employer "has paid to or in respect of an employee a severance payment or long service payment in accordance with the Employment Ordinance (Cap. 57), or a part of such a payment", and where "a part of those benefits is available to be reduced by an amount of the severance payment or long service payment, or the part of such a payment, that has been so paid (removable benefits) under the benefits reduction provision", "the employer may make an application in writing to the approved trustee of the scheme for payment of an amount under subsection (2)". Section 12A(2) then requires the trustee, once satisfied, to "pay to the employer from the accrued benefits concerned an amount equal to the amount of the removable benefits".

Two defined terms point at different Cap. 57 provisions, and they must not be swapped. Section 12A(1AA) defines each —

So ss.31I and 31Y — the provisions section 7 above is built on — are the Cap. 57 payment reduction provision: they fix how much your payment itself is reduced, and they are what s.12A(3) and (4) run on. The employer's route to recover money from the trustee, s.12A(1) and (2), runs instead on the benefits reduction provision, which is s.31IA for severance and s.31YAA or s.31YB for long service — and, for a specified employee, those sections as modified by Schedule 11 s.3 and s.5 respectively.

Those modified sections run the reduction the other way, and there are two subsections, not one. Taking long service payment:

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*So the removable benefits are not bounded by the pre-transition portion. Subsection (1A) reduces all five items (a)–(e) by the pre-transition portion; subsection (1B) then reduces items (a)–(c) by the post-transition* portion, each subject to the condition that the same money was not used under the other. Only where there are no items (a), (b) or (c) at all — as in Example 6 below, with no length-of-service gratuity, no ORS benefit and no voluntary contributions — does subsection (1B) have nothing to bite on, so that the total reduction equals the pre-transition portion and matches the figure section 7 reaches under modified s.31Y(2). As soon as item (c) exists, what the employer can recover from the trustee includes the subsection (1B) tranche measured on the post-transition portion, and exceeds the pre-transition portion; item (a) or (b) alone does not increase recovery, because a gratuity or an ORS benefit is not an accrued benefit held in the registered scheme that s.12A's removable-benefits test reaches.

A part payment has its own cap: s.12A(2A) and (2B). If the employer "has only paid a part of the severance payment or long service payment (paid Cap. 57 payment)", the amount under subsection (2) is not the whole of the removable benefits but the amount calculated under s.12A(2A) — and specified employees have their own limb. Paragraph (a) covers an employee who is not a specified employee; paragraph (b) covers one who is, and expressly splits the calculation, taking "the sum of the amounts under subparagraphs (i) and (ii)": (b)(i) matches employer-funded MPFS benefits against the pre-transition portion, and (b)(ii) matches employer-funded (voluntary) MPFS benefits against the post-transition portion, each capped at the lesser of two amounts. Section 12A(2B) then provides that in working out what "would remain", the benefits reduction provision is applied "on the basis that the unpaid Cap. 57 payment had also been paid".

That matters here, because part payment is exactly the situation s.12A(3) below addresses. An employer who pays part and then applies to the trustee is limited by subsection (2A).

If the employer does not pay, s.12A(3) lets the employee apply. Where an employer "has not paid the whole of a severance payment or long service payment to or in respect of an employee as required by the Employment Ordinance (Cap. 57)" and a part of the accrued benefits is available "under the Cap. 57 payment reduction provision" — that is, under s.31I, s.31Y or s.31YA — "an application may be made in writing by or in respect of the employee to the approved trustee of the scheme for payment of an amount under subsection (4)", and the trustee must "pay to or in respect of the employee from the accrued benefits concerned an amount equal to the amount of the deductible benefits". That is a practical route when an employer will not pay.

Section 12A(8) handles non-retrospectivity: for an employee falling within s.31ZEA(3) — that is, whose relevant date precedes the transition date — the old s.12A "continues to have effect in relation to the employee as if the amendments to this section made by the Amendment Ordinance had not been made".

Example 6 (this site's own arithmetic, continuing Example 3). The employee's employer-funded (mandatory) MPFS benefits stand at $150,000. There are no voluntary contributions, no ORS and no length-of-service gratuity.

• Modified s.31Y(2) (Schedule 11 s.5; the severance counterpart is modified s.31I(2), Schedule 11 s.3): the pre-transition portion of $96,000 may be reduced by items (a) to (e), and item (e) supplies $150,000, which is more than $96,000 → the pre-transition portion is reduced to $0.
• Modified s.31Y(3): the post-transition portion of $30,000 may be reduced only by items (a), (b) and (c), and there are none → it stays at $30,000 and the employer pays it.
• What the employer can recover is not fixed by those two steps directly. It is fixed by the benefits reduction provision named in Cap. 485 s.12A(1AA) — here, this being a long service payment, modified s.31YAA (Schedule 11 s.5). Modified s.31YAA(1A) reduces the aggregate of qualifying items (a) to (e) — in this example only item (e), $150,000 — by the whole amount of the pre-transition portion of the LSP, which is $96,000. There are no items (a), (b) or (c) here, so subsection (1B) has nothing to bite on (if there were, the post-transition tranche would be added on top, as set out above). The removable benefits are therefore $96,000.
• Cap. 485 s.12A(1)–(2): having paid the whole LSP, the employer applies in writing to the approved trustee, which must pay the employer an amount equal to the removable benefits — $96,000. (Had the employer paid only part, the specified-employee cap in s.12A(2A)(b) would apply and the recovery would be less.)
• The employer-mandatory slice of the MPF account is left with $150,000 − $96,000 = $54,000.

In short: $30,000 in cash, $96,000 taken out of the MPF account, $54,000 of the employer-mandatory slice remaining.

8. How far back service counts: Schedule 11 ss.2 and 4, modified ss.31G(7) and 31V(7)

This rule exists only inside Schedule 11 — so it applies only to specified employees, and it constrains only the pre-transition employment period.

Taking it apart:

• It bites only on employees "employed under a continuous contract otherwise than by way of manual labour". Manual employees are outside it entirely.
• The reference period is the 12 months "immediately preceding the commencement date of the Employment (Amendment) Ordinance 1990 (41 of 1990)" — the provision points at that Ordinance's commencement date rather than printing a date. No day, month or year appears in the provision itself.
• The threshold is average monthly wages exceeding $15,000. (This $15,000 is the modified sections' own figure, in modified ss.31G(7) and 31V(7); it is a different thing from the $15,000 that falls out of "two-thirds of $22,500" in subsection (1).)
• The effect is that the pre-transition employment period "does not include any period of the employment falling before 1 January 1980". 1 January 1980 is stated expressly.
• The unmodified ss.31G and 31V contain no 1980 cut-off of any kind. Across the whole of Cap. 57, "1 January 1980" appears in exactly two places: modified ss.31G(7) and 31V(7), set out in Schedule 11 ss.2 and 4.

Illustration: a non-manual employee who joined on 1 March 1975 and whose average monthly wages in the 12 months before the commencement of 41 of 1990 were $18,000 (above $15,000). Her pre-transition employment period is counted from 1 January 1980, not from 1975. Her post-transition employment period is unaffected.

9. When you get paid, and what happens if the employer does not pay

First, something you can ask for: the employer must put the calculation in writing

Everything this article has been unpacking, the Ordinance requires the employer to write down for you. Section 31P does it for severance payment, s.31ZE for long service payment, and the two are built the same way.

• Section 31P(1): "On making any severance payment, otherwise than in pursuance of a decision of the Minor Employment Claims Adjudication Board or Labour Tribunal which specifies the amount of the payment to be made, the employer shall give to the employee a written statement indicating how the amount of the payment has been calculated." Section 31ZE(1) does the same for LSP: "On making any long service payment, the employer shall give to the person entitled to the payment a written statement indicating how the amount of the payment has been calculated."
• Not giving it is an offence. Subsection (2)(a) of each makes failure without reasonable excuse an offence carrying a fine at level 3; subsection (2)(b) deals with a false one: "An employer who in a statement under subsection (1) includes anything which to his knowledge is false in a material particular, or recklessly includes anything which is false in a material particular shall be guilty of an offence and shall be liable on conviction to a fine at level 5."
• If it does not arrive, you can demand it in writing. Section 31P(3): where the employer has not complied, "the employee may by notice in writing to the employer require the employer to give to the employee a written statement complying with those requirements" within a period specified in the notice, which cannot be less than one week beginning with the day the notice was given. Section 31ZE(3) gives the person entitled to an LSP the same right. Ignoring that notice is itself an offence: subsection (4) of each sets a fine at level 3 on a first conviction and level 5 on a second or subsequent one.

This is the practical counterpart to everything above: with the written calculation in hand you can check the steps in sections 2 to 8 — which day was the relevant date, which month's wages were used, whether the calculation was split, and what was deducted.

Severance payment — two deadlines, in two different provisions.

Section 31N: an employee is not entitled to a severance payment unless, "before the end of the period of 3 months beginning with the relevant date, or within such extended period as the Commissioner may agree", one of three things has happened: the payment "has been agreed and paid"; "the employee has made a claim for payment by notice in writing given to the employer"; or a claim has been filed with the Registrar of the Minor Employment Claims Adjudication Board or of the Labour Tribunal.

Note the verb. The provision says "or within such extended period as the Commissioner may agree" — an agreed extension, not an extension the Commissioner grants unilaterally. (Contrast s.31RA(2)(a) for a death-in-service application, where the words are "such extended period as the Commissioner may allow", and s.31RA(3) expressly permits the application for extension to be made after the 30 days have run out.)

Section 31O(1): "his employer shall make the severance payment to him not later than 2 months from the receipt of a notice in accordance with paragraph (b) of section 31N", unless the employer or the employee has filed a claim before that period expires. The two months run from receipt of the written notice, not from the dismissal.

The offence, s.31O(3)(a): "An employer who without reasonable excuse fails to comply with subsection (1) shall be guilty of an offence and shall be liable on conviction to a fine at level 5."

Section 31O carries a second offence that is easy to miss. Subsection (2) requires that "A severance payment shall be made in legal tender except that, where the employee so consents, payment may be made" by cheque, money order or postal order, "into an account in his name with any bank within the meaning of section 2 of the Banking Ordinance (Cap. 155)" — the provision restricts which institutions count, not merely that the account be the employee's — or "to his duly appointed agent". Breach of that subsection is a separate offence under s.31O(3)(b): "An employer who without reasonable excuse fails to comply with subsection (2) shall be guilty of an offence and shall be liable on conviction to a fine at level 3." — level 3, not level 5.

Long service payments have the identical rule, in s.31ZD. Section 31ZD(1): "A long service payment shall be made in legal tender except that, where the person entitled to the payment so consents, payment may be made" by cheque, money order or postal order, "into an account in his name with any bank within the meaning of section 2 of the Banking Ordinance (Cap. 155)", or to his duly appointed agent. Note that the person entitled is not always the employee — on death in service it is one of the persons listed in s.31RA(1). The penalty matches too, in s.31ZD(2): "Any employer who without reasonable excuse fails to comply with subsection (1) commits an offence and is liable to a fine at level 3."

How much is a level 5 fine? Cap. 57 does not say: it states only "a fine at level 5". Criminal Procedure Ordinance (Cap. 221) s.113B(1): "Where an Ordinance provides for a fine for an offence by reference to a level, the fine applicable for the offence is the amount shown for that level in Schedule 8". Schedule 8 to Cap. 221 sets out "Level 5 $50,000". And that amount is itself movable: s.113B(3) — "The Chief Executive in Council may by regulation amend the amounts set out in Schedule 8 to reflect his opinion of the effect of inflation on the value of the amounts set out in the Schedule since the date when the Schedule came into operation or since the date that the amounts in the Schedule were last amended." Note the words his opinion: what the regulation rests on is the Chief Executive in Council's view of the effect of inflation. The offence is therefore level 5; $50,000 is what level 5 currently stands at.

Long service payment — on an ordinary termination Part VB sets no payment deadline of its own; the deadline is in s.25. (Death in service is the exception: s.31RA(5), below, is a Part VB deadline.) Section 25(1): "Subject to section 31O , where a contract of employment is terminated any sum due to the employee shall be paid to him as soon as is practicable and in any case not later than 7 days after the day of termination", and s.25(2)(ba) expressly brings in "(ba) any long service payment due to the employee". (The opening words "Subject to section 31O" are exactly why severance payment runs on a different clock.)

The offence, s.63C: "Any employer who wilfully and without reasonable excuse contravenes section 23, 24 or 25 commits an offence and is liable to a fine of $350,000 and to imprisonment for 3 years." This offence is not specific to long service payments: a wilful, unexcused contravention of s.23 (time of payment of wages), s.24 (payment on completion) or s.25 (payment on termination) all fall inside it. The $350,000 is stated in Cap. 57 itself as an amount, not as a level, and Cap. 57 gives no one power to amend it.

Death in service has its own timetable, and it differs according to who is entitled. Section 31RA(5)(a): where the person entitled is a spouse, payment is due "not later than 7 days after the receipt of the application". Section 31RA(5)(b): "where the person so entitled is not a spouse, not earlier than the day (hereinafter in this paragraph called the said day) next following the date of expiration of the period which, as regards the particular case, was the period during which an application under subsection (2)(a) could be served but not later than 7 days after the said day." So for a non-spouse claimant the payment window opens only once the application period (30 days from death, or as extended by the Commissioner) has run out — it does not start on receipt. Section 31RA(6) makes failure without reasonable excuse an offence: the employer "shall be guilty of an offence and shall be liable on conviction to a fine at level 5".

10. The employer's record-keeping duty: s.49A(1A) and (8)

Because the pre-transition portion is frozen at wages as at the transition date, what you were paid then becomes a documentary question. Section 49A(1A): "an employer who engages a specified employee must at all times keep and maintain a record covering the specified period of" the wages paid in respect of each wage period and the employee's wage period.

Section 49A(8) defines that specified period: "(a) if the employee’s pre-transition employment period is not less than 12 months—the period of 12 months immediately preceding the transition date", with four further cases where the pre-transition period is under 12 months. Section 49A(2)(b) requires the records to be kept for 6 months after the employee ceases to be employed.

11. The employer subsidy scheme (not a statutory matter)

The Government operates a Subsidy Scheme for Abolition of the MPF Offsetting Arrangement, subsidising employers' post-transition SP/LSP outlays. The scheme is not created by Cap. 57 or Cap. 485 — neither of the two Ordinances used in this article mentions it. Its duration, the per-employer subsidy ratios for each subsidy year, the $500,000 threshold and the application procedure are published by the Government at offsettingsubsidy.gov.hk, and that website governs.

Quick reference table