2026 Hong Kong Labour Law Guide: Essential Rights for Employees – Annual Leave, Severance Pay, and Payment in Lieu of Notice

Master the Latest Labour Laws to Protect Employee and Employer Rights

Hong Kong's labour laws are constantly evolving, aiming to balance the rights of employers and employees. With several significant amendments coming into effect in 2025 and 2026, both employees and employers must grasp the latest legal information to effectively protect their interests and avoid unnecessary legal disputes. From the expanded scope of protection under the "468 Continuous Contract" new definition to the far-reaching impact of the "Abolition of MPF Offsetting," these changes will reshape Hong Kong's workplace landscape.

This article will serve as a comprehensive "2026 Hong Kong Labour Law Guide," providing an in-depth yet easy-to-understand analysis of the latest regulations and calculation methods for core employment rights under the Employment Ordinance, including annual leave, severance pay, and payment in lieu of notice. We will pay special attention to the latest legal amendments and offer practical strategies to help you navigate the complex labour regulations. Whether you are an employee seeking protection or an employer striving for compliance, this guide will be an indispensable reference.

1. The Cornerstone of Employment: The New Definition of "Continuous Contract"

Answer Capsule: Effective from January 18, 2026, the definition of "continuous contract" in Hong Kong will be updated from the original "418 Rule" to the "468 Rule." This means an employee who has been employed by the same employer for 4 consecutive weeks, with total working hours not less than 68 hours, will be entitled to various statutory rights under the Employment Ordinance.

From "418" to "468": Expanding the Scope of Protection

Previously, many part-time or flexible-hour employees were unable to enjoy basic benefits under the Employment Ordinance because they did not meet the threshold of "working not less than 18 hours per week." The revised "468 Rule" changes the total working hours calculation to "total working hours not less than 68 hours." This means that even if weekly working hours are irregular, as long as they accumulate to 68 hours within 4 weeks, the employee will be considered employed under a continuous contract and thus entitled to the following rights:

Rest days

•Paid annual leave

•Sickness allowance

•Maternity leave and paternity leave

•Severance payment and long service payment

This amendment aims to provide more comprehensive protection for a wider range of non-full-time employees and reminds employers to re-examine their contracts and benefit arrangements for part-time or flexible-hour employees to ensure compliance with the latest legal requirements.

2. Employee Benefits: Calculation and Rights of Paid Annual Leave

Answer Capsule: Employees are entitled to paid annual leave after being employed under a continuous contract for 12 months. The number of annual leave days increases with years of service, from an initial 7 days per year to a maximum of 14 days.

Annual Leave Entitlement Table

Calculation of Annual Leave Pay

Annual leave pay is calculated based on the employee's average daily wages (ADW) in the 12 months immediately preceding the annual leave. If the employee has been employed for less than 12 months, the shorter period of employment is used. When calculating the average daily wages, wages and days for the following periods are excluded:

•Periods during which the employee took maternity leave, paternity leave, sick leave, work injury leave, annual leave, etc.

•Periods during which the employer did not provide work to the employee.

Accumulation and Granting of Annual Leave

Employees can carry over accumulated annual leave to the next 12-month cycle. However, if an employee has accumulated more than 10 days of annual leave, they may choose to receive annual leave pay for the portion exceeding 10 days, instead of taking the leave. Nevertheless, an employer cannot compel an employee to accept annual leave pay in lieu of taking annual leave, except when paying for untaken annual leave upon termination of employment.

3. Termination of Employment: Severance Payment and Long Service Payment

Answer Capsule: Severance Payment (SP) and Long Service Payment (LSP) are compensations that employers must pay when an employee's employment contract is terminated under specific circumstances. These two cannot be enjoyed simultaneously, and their calculation methods and eligibility requirements differ.

Severance Payment (SP)

•Eligibility: An employee employed under a continuous contract for not less than 24 months, and dismissed due to:

•Redundancy.

•Cessation of business.

•Expiry of a fixed-term contract without renewal.

•Calculation Method:

•(Last month's full wages or average wages of the 12 months immediately preceding the termination of employment) x 2/3 x years of service.

•When calculating, the maximum monthly wages are HK$22,500.

•Maximum Amount: HK$390,000.

Long Service Payment (LSP)

•Eligibility: An employee employed under a continuous contract for not less than 5 years, and whose employment contract is terminated due to:

•Dismissal not due to serious misconduct or redundancy.

•Expiry of a fixed-term contract without renewal.

•Retirement at or after age 65.

•Resignation due to ill health.

•Death during employment.

•Calculation Method: Same as severance payment, i.e., (Last month's full wages or average wages of the 12 months immediately preceding the termination of employment) x 2/3 x years of service.

•Maximum Amount: HK$390,000.

Effective May 1, 2025: Impact of the "Abolition of MPF Offsetting"

From May 1, 2025, employers will no longer be able to use their mandatory MPF contributions to offset employees' severance payment or long service payment. The implementation of this policy will significantly increase employers' operating costs and require them to re-evaluate their human resources reserves and contract terms.

•Segmented Calculation: For employees employed before May 1, 2025, their severance payment/long service payment will be calculated in two parts: "pre-transition" and "post-transition."

•Pre-transition service years: Employers can still use their mandatory contributions to offset.

•Post-transition service years: Employers can no longer offset and must pay the full amount.

•Government Subsidy: The government will launch a 25-year subsidy scheme to assist employers during the transition. Employers need to understand the details of the subsidy and apply on time.

•Contract Updates: Employers must review and update all employment contracts regarding severance payment/long service payment to comply with the new law, especially clauses concerning whether "voluntary contributions" can be offset, which must be clearly stated.

4. Termination of Employment: Calculation and Payment of Payment in Lieu of Notice

Answer Capsule: Payment in lieu of notice refers to a sum of money that an employer or employee must pay if they fail to give sufficient notice when terminating an employment contract. Its calculation is based on the employee's average daily wages (ADW) or average monthly wages (AMW).

Notice Period Requirements

The length of the notice period depends on the terms of the employment contract and the employee's length of service. Generally:

•During Probationary Period:

•Within the first month: Usually no notice period or payment in lieu of notice is required.

•After one month of probation: As stipulated in the contract, or not less than 7 days' notice.

•After Probationary Period:

•As stipulated in the contract, but not less than 7 days.

•If the contract does not specify, it is calculated based on the length of service, up to a maximum of 1 month.

Calculation of Payment in Lieu of Notice

Payment in lieu of notice is calculated based on the employee's average daily wages (ADW) or average monthly wages (AMW) in the 12 months immediately preceding the notice period. The calculation method is similar to annual leave pay, excluding wages and days for certain periods.

•Formula: Payment in Lieu of Notice = (Average Daily Wages or Average Monthly Wages) x Number of days or months of unserved notice period.

Responsibilities of Employers and Employees

•Employer: If an employer summarily dismisses an employee without sufficient notice, they must pay payment in lieu of notice.

•Employee: If an employee resigns summarily without sufficient notice, the employer may deduct payment in lieu of notice from the wages due to the employee.

5. Statutory Holidays and Rest Days: Basic Employee Rights

Employees in Hong Kong are entitled to statutory holidays and rest days. The number of statutory holidays will gradually increase to 15 days by 2026. Employers must provide employees with paid rest days, usually not less than 1 day per 7 days.

Number of Statutory Holidays

The number of statutory holidays in Hong Kong will gradually increase, reaching 15 days by 2026. This includes some festivals from all public holidays, as well as the newly added Boxing Day. Employers must grant employees these paid statutory holidays, or arrange substitute holidays under specific circumstances.

Rest Days

Employers must provide employees with not less than 1 rest day per 7 days. A rest day is usually a continuous period of 24 hours, and employers must not compel employees to work on a rest day, except in an emergency. If an employee works on a rest day, the employer must arrange a substitute rest day within 30 days.

6. Conclusion: Compliant Operations, Harmonious Workplace

The 2026 Hong Kong labour laws bring significant changes, especially the "468 Continuous Contract" and the "Abolition of MPF Offsetting" policies, which have a profound impact on both employers and employees. For employees, understanding these rights is key to protecting their interests; for employers, it means re-evaluating and adjusting existing human resources policies, contract terms, and payroll and benefits calculation methods to ensure full compliance.

Failure to comply with the Employment Ordinance can not only lead to substantial fines and even criminal prosecution for businesses but also damage corporate reputation and employee trust. Establishing a transparent, fair, and compliant workplace environment is the cornerstone for attracting and retaining talent, and a long-term path for sustainable business development.

Take Action Now: Let Get More Safeguard Your Interests

When facing complex employment contracts and payroll issues, having a professional HR consultant by your side is crucial. Get More Resources Limited, as a leading HR strategic partner in Hong Kong, has over 15 years of experience providing tailor-made HR solutions for over 5,000 companies.

Whether you need to understand your employment rights, negotiate contract terms, or require professional legal and HR guidance, Get More's expert team is ready to serve you. We provide not only HR outsourcing services but, more importantly, strategic human resources insights to help you protect your rights throughout your career.

Contact us now for a free initial consultation:

📞 (852) 2333 1090 

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Disclaimer:

The content of this article is for informational purposes only and is intended to provide general legal information and HR management advice. It does not constitute professional legal advice in any form. Hong Kong's laws and regulations may change at any time, and each case has its unique circumstances. Readers should consult a professional lawyer or the Labour Department before making any business or legal decisions. Get More Resources Limited is not responsible for any loss or impact arising from the use of the information in this article.