About one-fifth of civil servants will be on contract terms in the long run after a new recruitment policy starts in April.
Recruits will only be hired on permanent terms after completing six years' service.
They will be on probation for three years, then, if they pass this, another three-year contract will be granted.
The recruits will be employed on permanent terms only if their performance is satisfactory during the second contract.
The Government originally suggested new recruits would only be employed on permanent terms when promoted to supervisory rank. That would have meant two-thirds of the civil service working on contract terms, which critics said would cause instability.
The Mandatory Provident Fund will also replace the current pension scheme.
Fringe benefits including the number of holidays will be cut and housing allowances granted in lump sum to save administration costs.
Officers from the disciplined services will be hired as permanent staff once they pass probation.
'This is due to the intensive training they receive during probation and the strict conditions for passing the probation,' a Civil Service Bureau spokesman said.
Starting salaries will be cut by six to 31 per cent for civilian grades. The cut will be three to 17 per cent for the disciplined services.
About $335 million a year will be saved as a result.
Cecilia So Chui-kuen, president of the Chinese Civil Servant's Association, said: 'Six years is too much. Three years is enough for determining whether a staff member could be hired or not.' Lee Cheuk-yan of the Confederation of Trade Unions found the proposed new entry system 'unacceptable' and said it amounted to a blow to civil service stability.
He accused the administration of setting a bad example for the private sector.
'Why should they need to go through six years of uncertainty before they can be permanent staff? This is totally unreasonable.' He proposed the Government should introduce a probationary term of one year.
But James Tien Pei-chun, chairman of the Liberal Party, found the proposal 'acceptable' and pledged his support. It would put the dead wood in the civil service on full alert to perform better, he said.