How to calculate Long Service Payment?

When a foreign domestic helper has worked for the same employer for five consecutive years, they become eligible for Long Service Payment (LSP) under Hong Kong labour law. The basic calculation for LSP can be expressed by the following formula:

Final month’s wage × 2/3 × Years of service = Long Service Payment(subject to a maximum limit of HKD 390,000)

It is important to note that not all terminations require the payment of Long Service Payment. Completing five years of service is only one of the conditions. The reason for termination is another critical factor. In most cases, LSP is payable when the employer chooses not to renew the contract upon expiry. Other qualifying scenarios include termination (not due to serious misconduct) during the contract period, termination due to the helper’s ill health, reaching retirement age, or the death of the helper.

The first step in calculating LSP is to determine the helper’s total years of service. A full year of employment is counted as one year, while any remaining days should be calculated on a pro-rata basis, usually by dividing the number of remaining days by 365 or 366.

Once the total service period has been determined, the employer should use the helper’s last full month’s wage before termination as the basis for calculation. According to the Employment Ordinance, the helper is also entitled to request using the average monthly wages earned over the past 12 months instead. In practice, it is advisable to calculate both methods and adopt the higher amount to avoid future disputes.

For the purpose of calculation, only the monthly basic wage should be included. Regular food allowances provided by the employer are not part of the wage amount used for computing Long Service Payment. Therefore, in most cases, the monthly salary alone is sufficient for this calculation.

When applying the formula, employers should note that if the helper’s wages exceed HKD 22,500 per month, the legal cap for wage calculation remains at HKD 22,500. This means only this maximum amount should be used in the formula even if the helper’s actual salary is higher.

After completing the calculation, it is strongly recommended that employers document the formula and calculation details in writing, have the helper sign to confirm receipt, and provide the helper with a copy for recordkeeping. The Long Service Payment should be paid within seven days of the termination date, the same as the final salary payment requirement.

If you have any questions regarding the Employment Ordinance or any issues related to foreign domestic helpers, please feel free to contact our company for professional advice.