Termination of employment in Hong Kong must comply with the rules under the Employment Ordinance (Cap. 57). Employers can terminate employment by giving notice, paying in lieu of notice, or summarily dismissing an employee for serious misconduct.
However, strict rules apply to notice periods, statutory payments, and final wage settlements, all of which must be settled within seven days.
Terminating employment is never simple, but sometimes necessary for the business. However, termination of employment in Hong Kong must comply with the Employment Ordinance’s provisions on employment contract termination.
With clients in the Hong Kong market, skipping the proper legal steps will expose your company to wrongful termination claims and a stressful labour tribunal procedure in Hong Kong. And from what we’ve seen on the ground, taking the time to understand the legal framework is the only way to protect your hard-earned professional reputation while staying fully compliant with local employment law.
What Are The Notice Period Requirements in the HK Labor Law?
From our experience assisting international founders in setting up companies in Hong Kong, we have found that notice periods often cause significant confusion. Many founders think contract terms are flexible. Still, Hong Kong law is very strict on statutory minimum notice periods and compliance with the Employment Ordinance.
As per the employment ordinance, you or your employee is eligible to terminate an employment contract. However, there are strict requirements for notice periods, which depend on:
- Employee’s probation status – Either party can terminate employment status without notice until the first month of probation. After the first month, notice terms in the contract apply.
- Contract terms: As per the statutory limit, the notice period must be 7 days or longer during probation. If the notice period isn’t specified, termination of employment by default requires at least 7 days of notice during probation. The notice rules after probation are often defined in the employment contract.
Sometimes, you, as an employer, wouldn’t want an employee to even remain during the notice period. This happens when:
- Immediate departure is necessary
- Sensitive information needs protection
- The working relationship between the employer and the employee has broken down
Understanding Wages in Lieu of Notice in Hong Kong
You can immediately terminate employment in Hong Kong by paying wages in lieu of notice. It means you will have to pay the employee the wages they would have earned during the notice period. These wages, instead of notice calculation, are done in the following way:
| Notice Period Type | Calculation Method |
|---|---|
| When the notice period is in days or weeks | Average daily wages (last 12 months) × number of notice days |
| When the notice period is in months | Average monthly wages (last 12 months) × number of notice months |
Note: These payments depend on accurate wage calculations. It’s important to run an efficient payroll system that accurately tracks salaries, bonuses, and leave balances.
What are Summary Dismissal Grounds in Hong Kong?
Another way you may terminate employment immediately is through summary dismissal. Employers do this only in cases of serious misconduct, and there’s no payment in lieu provided.
Some examples of serious misconduct that could justify summary dismissal in HK for an employee are:
- Disobey a lawful and reasonable order
- Illustration fraud or dishonest behavior
- Serious misconduct that prevents them from doing their duties
- Regular neglect responsibilities
Warning: Hong Kong has a high bar for this option as it is a sensitive termination action. Without solid proof, the dismissal may be challenged, and the termination may be deemed wrongful. It may cause legal disputes and financial liability.
When used correctly, summary dismissal protects the company from serious workplace misconduct. However, when used incorrectly, it becomes an easy trigger for employment litigation.
What Are The Rules Around Mandatory Final Payments?
Under the Employment Ordinance, employers must pay all termination entitlements as soon as possible, and no later than 7 days after the termination date. If you fail to comply, you might have to face:
- Additional interest on outstanding wages
- Criminal liability and financial penalties
- Potential Labour Tribunal disputes
As we support businesses with Hong Kong payroll compliance, we’ve found that founders who focus on calculating the 7-day payment deadline before the termination date often meet the statutory deadline successfully.
What Must Be Included in the Final Payment?
The calculations of the final payment depend on the employment contract and the reason for termination. However, final settlements typically include:
- Whatever wages are outstanding up to the last working day
- Wages in lieu of notice (if applicable)
- Compensation for unused annual leave and pro-rated leave entitlements
- Pro-rated bonuses or end-of-year payments (if contractually applicable)
- Severance payment or long service payment (where eligible)
Note: Make sure to properly report termination details to the Inland Revenue Department while filing the employer’s returns. It is necessary for payroll compliance and accurate tax records.
Severance Payment vs Long Service Payment
Hong Kong employment law provides two statutory compensation schemes for terminated employees — severance pay and long service pay. Both compensate employees based on their length of service, but the eligibility criteria differ.
Understanding the difference between the two helps employers calculate final termination payments correctly and avoid compliance disputes. Here’s a quick overview of the differences between the two statutory compensation schemes:
| Payment Type | Eligibility Requirements | Typical Termination Scenario |
|---|---|---|
| Severance Payment | At least 24 months of continuous service | Employee is dismissed due to redundancy or layoff |
| Long Service Payment (LSP) | At least 5 years of continuous service | Employee is dismissed for reasons other than misconduct, retires, or becomes unable to continue work |
Note: An employee cannot receive both payments for the same termination.
Under the Hong Kong employment law, both statutory payments are capped at HK$390,000. Contractual gratuities or retirement scheme benefits may reduce the payable amounts under these statutory schemes.
A quick reminder: Since May 2025, the MPF offsetting mechanism has been abolished. This means you can no longer use your employees’ Mandatory Provident Fund contributions to offset severance or long service payments for service accrued after the reform.
As a result, companies must now fund these statutory payments directly in cash, which can significantly increase termination liabilities and cash flow requirements for employers managing layoffs or restructures.
How to Protect Your Business from Labor Tribunal Disputes in Hong Kong?
A termination is a stressful event for both parties. In addition to following the legal framework set out in the Employment Ordinance to avoid disputes and compliance risks, it is at these moments that it pays to rely on humanity. An honest conversation and a fair explanation of the reasons can sometimes do more to ensure a smooth departure than a team of lawyers in the background. As uncomfortable as it may be, termination of employment sometimes becomes unavoidable in business.
As an employer, make sure to consistently document decisions and employee records. Proper records often become the strongest wrongful termination HK remedies and defense against Labor Tribunal disputes.
Navigating employment compliance is challenging for foreign founders and companies expanding into Hong Kong. Startupregistry can help. We help with business incorporation, accounting and bookkeeping, payroll, filing employers’ returns, and regulatory compliance.
Read our Guide to Statutory Employee Entitlements in HK to ensure your staff receive their full benefits throughout their tenure.
FAQs
Navigating the complexities of the Employment Ordinance is essential for any business operating in Hong Kong. This guide answers the most critical questions regarding contract termination, notice periods, and statutory requirements to ensure your company remains compliant while maintaining professional standards.
What is the law for termination of employment in Hong Kong?
The Employment Ordinance (Cap. 57) allows termination of employment in Hong Kong by notice, payment in lieu of notice, or summary dismissal for serious misconduct. Either party can terminate contracts with agreed notice (minimum 7 days after probation) or be paid out.
What are valid reasons for termination in Hong Kong?
An employer can terminate an employment contract with notice without providing a specific reason. However, if the dismissal is challenged, the employer needs to show that the termination was based on a legitimate business or employment-related reason, such as:
- Employee conduct or misconduct, such as poor behavior or rule violations
- Capability or performance issues, including failure to meet job requirements
- Redundancy or business restructuring
- Legal or regulatory reasons are preventing continued employment
- Other substantial business reasons that justify ending the employment relationship
What are the valid reasons for breaking the contract in Hong Kong?
An employment contract can be terminated by either the employer or the employee due to various reasons, such as:
- Resignation by the employee with proper notice
- Termination by the employer with notice (no specific reason required)
- Redundancy or genuine business restructuring
- Serious misconduct by the employee, such as fraud or wilful disobedience
- Mutual agreement between the employer and employee to end the contract
What is the notice period for termination in Hong Kong?
During the first month of probation, no notice is required. After the first month of probation, at least 7 days’ notice must be given, unless a longer period is specified in the contract.
After the probation, the notice period depends on the employment contract, which, as per the Employment Ordinance, must be at least 7 days. If the contract does not specify a notice period, a minimum of 1 month’s notice applies.
What is the difference between dismissal and termination?
Think of dismissal as a disciplinary action taken when something goes wrong, like misconduct or poor performance. On the other hand, termination is a broader term that simply means ending an employment contract, often for neutral reasons like a layoff or a contract naturally expiring.
