MPF offsetting

Background of the MPF Offsetting Arrangement

The Mandatory Provident Fund (MPF) is a Hong Kong compulsory retirement savings scheme from 2000. Except for exempt persons, this system is mandatory for all employees in Hong Kong who:

  • Aged between ages 18 and 65
  • Have an employment contract of 60 days or more.

Under the scheme, the employer and the employee are required each contribute 5% of the salary of employee while the total contributions are capped at HKD1,500 a month. At present, under the Employment Ordinance (Cap. 57), Mandatory Provident Fund Schemes Ordinance (Cap. 485) and Occupational Retirement Schemes Ordinance (Cap. 426) (ORSO), employers can offset employees’ severance payment (SP) or long service payment (LSP) against the accrued benefits attributable to their contributions to the MPF or ORSO schemes.

Introduction of Abolition of MPF Offsetting Arrangement

The Legislative Council passed the Employment and Retirement Schemes Legislation (Offsetting Arrangement) (Amendment) Bill 2022 to abolish MPF Offsetting Arrangement. Nevertheless, the government has announced that it will take effect on 1 May 2025. After the implementation, it will change how MPF contributions help offset severance and long service payments.

1. For employees who commence employment on or after the transition date

Employers can no longer use the accrued benefits derived from their employer’s mandatory MPF contributions (ERMC) to offset SP or LSP. However, the accrued benefits derived from employers’ voluntary MPF contributions (ERVC) and gratuities based on employees’ years of service can still offset SP or LSP.

2. For employees who commenced employment before the transition date

Employers can no longer use ERMC to offset the employees’ post-transition portion of SP or LSP. Nonetheless, they can still use ERMC to offset pre-transition portion of SP or LSP. Additionally, ERVC and gratuities on employees’ years of service can continue to offset pre and post transition portion of SP or LSP. Calculation of SP or LSP to eligible employee with consider in 2 parts: before and starting from the transition date.

a. Employment Period is before the transition date:

Employee’s last full month’s wages immediately preceding the transition date × 2/3 × years of service before the transition date.

b. Employment Period is starting from the transition date:

Employee’s last full month’s wages before termination of employment × 2/3 × years of service starting from the transition date.

Ceiling on the monthly wages for calculating SP/LSP:  HKD$22,500

Maximum SP/LSP amount: HKD $390,000.

Potential Challenges for Employers

✤ Administrative Burden: 

Employers will need to adjust their payroll systems and human resources policies to comply with the new regulations. This may require additional staff training and updates to employment contracts and other HR-related documents.

✤ Compliance Challenges:

Employers may face challenges in complying with the new regulations. They particularly do if they have complex employment arrangements or if they are not familiar with the new rules. This could result in penalties or legal action if they fail to meet their obligations under the law.

✤ Impact on Small and Medium-Sized Enterprises (SMEs): 

For SMEs, the increasing financial burden of paying severance and long service payments in full may be significant which could impact their cash flow and financial stability. Additionally, it may make it more difficult for them to compete with larger businesses. In addition, the extra administrative tasks may be time-consuming and may divert resources away from other business operations, as SMEs may have limited administrative capacity, it may be more difficult for them to handle the changes.

How can FastLane HR Help?

FastLane HR specializes in payroll and MPF outsourcing, as well as HR advisory and support services for small and medium-sized enterprises in Hong Kong. We are experienced in helping businesses navigate the complexities of the MPF system, ensuring that every area is fully compliant with the latest regulations and ordinances. We provide comprehensive MPF services including MPF enrolment and termination during staff turnover, monthly contribution and monthly remittance statement for MPF trustee. With our help, you can free up valuable time and resources, allowing you to focus on achieving your business goals.

Please contact us now if you wish to learn more about MPF system in Hong Kong.