Expert Tips for Managing Hong Kong Dismissals & Severance

Hong Kong’s economy grew steadily by 3.1% in early 2025. Yet, the labor market remains challenging, with 25% of employers planning staff cuts soon amid ongoing global uncertainties and business restructuring. These shifts require HR professionals in Hong Kong to understand the laws governing layoffs, dismissals, and severance payments carefully while adopting efficient HR technologies to manage these complex processes effectively.[1][2]

Essential Employee Termination Types and Procedures in Hong Kong

Based on the Employment Ordinance and detailed guidance from local HR experts, here is a clear breakdown of termination types, procedures, and compensation obligations:[3]

1. General Dismissal: Notice or Payment in Lieu
   • Applicable to: Poor performance, misconduct, or business restructuring.
   • Legal Basis: Employers must either give advance notice or pay salary equivalent to the notice period (notice pay or payment in lieu).[3]
   • Notice Period Options: None, 7 days, or 1 month depending on contract terms.
   • Compensation: Notice pay includes basic salary, fixed allowances, and other qualifying income.
   • Best Practice: Clearly state notice periods in employment contracts to avoid disputes.
   Advantages of Notice Period:
   • Facilitates knowledge transfer and smooth business continuity.
   • Demonstrates respect for employees, enhancing employer brand.
   Advantages of Payment in Lieu:
   • Suitable for sensitive positions or broken relations.
   • Enables immediate workforce adjustment and risk control.

2. Summary Dismissal: Immediate Termination Due to Serious Misconduct
   • Examples: Fraud, insubordination, safety violations, harassment.
   • No Notice Required: But employers must still pay outstanding wages, accrued statutory leave, and contractual benefits.
   • Risk Management: Requires strong evidence and proper documentation to prevent legal challenges.

3. Redundancy (Layoff) Termination: Due to Business Needs
   • Eligibility: Employees employed for 24 months or more qualify for severance payment.
   • Compensation Includes:
     • Notice pay or payment in lieu.
     • Severance payment or long service payment (not both).
     • Payment for unused annual leave and other contractual benefits.
   • Calculation: Severance or long service payment = (last monthly wage × 2/3) × years of service; capped at HK$390,000.[3]
   • Procedure: Transparent communication, fair and objective selection criteria, internal redeployment considerations, and proper documentation are essential.

Restrictions on Termination

Employers cannot dismiss employees under certain protected conditions, including but not limited to:

• Pregnant employees or employees who have notified pregnancy.
• Employees on paid sick leave.
• Employees participating in legal proceedings related to employment rights.
• Employees involved in union activities.
• Employees injured at work without settled compensation agreements.

Illegal dismissals may result in prosecution and fines up to HK$100,000.[3]

HR Risk Management in Termination

• Maintain Legal Compliance: Ensure all procedures align with Employment Ordinance requirements.
• Internal Communication: Conduct individual meetings to explain termination reasons, address emotional responses, and unify messaging among management and HR.
• Social Media Monitoring: Prepare public relations responses for potential backlash.
• Demonstrate Compassion: Provide outplacement support, psychological counseling, and reference letters to ease employee transitions and protect employer reputation.

Crafting Effective Termination Letters

A professional termination letter should include:

• Clear and factual reasons for termination, avoiding accusatory language.
• Last working day, notice period, or payment details.
• Gratitude for employee contributions and best wishes for the future.
• Examples include separate templates for redundancy and performance-related termination.[3]

The Art of Notice: Respectful, Transparent One-on-One Communication

• Face-to-face meetings before issuing termination notices help maintain dignity and lower hostility.
• HR should listen empathetically, explain the company’s strategic reasons rather than focusing on personal faults, and allow for employee feedback.
• Offering post-termination transition assistance strengthens relationships and reputation.

Case Studies of Peaceful Terminations by Leading Corporations

• Netflix: Transparent communication and generous severance with career transition support.
• Patagonia: Empathetic culture with personalized counseling.
• Google: Structured “transition plans” including professional development and extended benefits.
• Airbnb: Founder-led communication with substantial severance and health coverage.
• Microsoft: Focus on internal redeployment to reduce unemployment gaps.

These examples emphasize transparency, respect, and support as keys to managing layoffs well.[3]

Enhanced HR System & Technology: HRMS / HRIS

In 2025, leveraging technology plays a pivotal role in managing layoffs and HR compliance effectively:

• Compliance Automation: Human Resources Management System (HRMS) or Human Resources Information System (HRIS) automate complex calculations for notice pay, severance, and long service payments, integrating recent legislative updates like the abolishment of MPF offsetting.
• Process Efficiency: Streamlining workflow from termination approval to documentation reduces administrative errors and saves time.
• Record Keeping: Digital systems securely maintain audit trails for notice, payments, and employee communications—critical for defending against potential claims.
• Employee Experience: Systems facilitate smoother communications, distribution of legal documents, reference letters, and support resources, ensuring a respectful separation.
• Data Analytics: Insights from HRIS can help plan workforce changes strategically, reducing unnecessary terminations and optimizing retention.

Conclusion

For Hong Kong HR professionals navigating 2025’s evolving economic and legal landscape, mastering lawful and humane employee terminations is critical. Thorough knowledge of termination types, legally mandated payments, and robust risk management is essential.

Simultaneously, integrating advanced HR technology such as HRMS and Hong Kong-specific HRIS solutions will empower HR teams to maintain compliance, efficiency, and employee dignity during challenging workforce transitions—all while reinforcing the employer brand and minimizing risk.

This comprehensive approach enables HR to transform layoffs from a liability into a managed, dignified process aligned with modern corporate values and Hong Kong’s stringent HR rules.

Reference:

1. https://www.scmp.com/news/hong-kong/hong-kong-economy/article/3314826/25-hong-kong-employers-plan-cut-staff-next-quarter-survey
2. https://www.navigator-insurance.com/blog/hong-kong-job-cuts-25-of-firms-plan-layoffs/
3. https://hk.employer.seek.com/hiring-advice/article/guide-to-employee-termination
4. https://www.hkeconomy.gov.hk/en/situation/development/index.htm
5. https://www.info.gov.hk/gia/general/202505/16/P2025051600440.htm
6. https://slotine.hk/2025/07/hong-kong-legal-update-changes-to-definition-of-continuous-employment/
7. https://www.jsm.com/publications/2024/2024-highlights-and-2025-outlook-for-hong-kong-employers-and-hr-practitioners/
8. https://www.robertwalters.com.hk/insights/hiring-advice/blog/2025-outlook-hiring-trends-in-HK.html
9. https://www.hk-lawyer.org/content/hong-kong-policy-address-key-employment-initiatives-watch-2025