Abolition of MPF Offsetting Arrangement
The Legislative Council passed the Employment and Retirement Schemes Legislation (Offsetting Arrangement) (Amendment) Bill 2022 on 9 June 2022 to abolish the use of the accrued benefits of employers' mandatory contributions under the Mandatory Provident Fund (MPF) System to offset severance payment (SP) / long service payment (LSP). The Government has announced that the abolition of MPF offsetting arrangement will take effect on 1 May 2025.
What is "MPF Offsetting Arrangement"?
Currently, accrued benefits attributable to the employer’s contributions to the China Life Scheme can be used to offset statutory SP/LSP payable to the employees in accordance with the Employment Ordinance (the "MPF Offsetting Arrangement").
When will the abolition of the "MPF offsetting arrangement" be implemented?
Effective from 1 May 2025 (the "Transition Date"), the MPF Offsetting Arrangement will be changed as follows (the "Offsetting Change"):
- An employer cannot use its own Mandatory Contributions to offset an employee’s SP /LSP in respect of the employee’s years of service from and including the Transition Date ("post-Transition portion of SP/LSP"). Despite this, an employer can continue to use its own Mandatory Contributions to offset an employee’s SP/LSP in respect of the employee’s years of service before the Transition Date ("pre-Transition portion of SP/LSP").
- An employer can continue to use its own Voluntary Contributions to offset both an employee’s pre-Transition portion of SP/LSP and post-Transition portion of SP/LSP.
Does the abolition have retrospective effect?
The abolition has no retrospective effect. If an employee commenced employment before 1 May 2025, an employer can continue to use the accrued benefits derived from employer’s MPF mandatory contributions to offset an employee’s pre-transition portion of SP/LSP (but not the post-transition portion of SP/LSP). The accrued benefits derived from employer’s MPF voluntary contributions and gratuities based on length of service can continue to be used to offset pre- and/or post-transition portion of SP/LSP.
What is implications of the Offsetting Change to Employer?
Situation 1: For an employee whose employment commences prior to the Transition Date and is terminated on or after the Transition Date:
- with respect to the employee’s years of service prior to the Transition Date: an employer may offset the pre-Transition portion of SP/LSP against both its own Mandatory Contributions and Voluntary Contributions (if any) attributable to the employee's years of service prior to the Transition Date; and
- with respect to the employee’s years of service from and including the Transition Date: an employer may offset the post-Transition portion of SP/LSP against its own Voluntary Contributions (if any) attributable to the employee’s years of service from and including the Transition Date. However, an employer cannot use its own Mandatory Contributions to offset the post-Transition portion of SP/LSP.
Situation 2: For an employee whose employment commences on or after the Transition Date, an employer may offset the SP/LSP against its own Voluntary Contributions but cannot offset the SP/LSP against its own Mandatory Contributions.
For further details and illustrative examples of the Offsetting Change, please visit the Thematic Webpage of the Labour Department (https://www.op.labour.gov.hk/en/index.html)
Calculating Tool - for the Abolition of MPF Offsetting Arrangement
How to calculate the amount of severance payment (SP) / long service payment (LSP) and the Government subsidy after the abolition of MPF offsetting arrangement
For further details of the calculation of SP/LSP and the Government subsidy, please visit the Thematic Webpage of the Labour Department (https://www.offsettingsubsidy.gov.hk/en/calculator.html).
Subsidy Scheme for Abolition of MPF Offsetting Arrangement
What is Subsidy Scheme for Abolition of MPF Offsetting Arrangement?
The Government will launch a 25-year subsidy scheme totaling over $33 billion (at 2021 prices) to share out employers’ expenses on post-transition portion of severance payment (SP) / long service payment (LSP).
Key points of the scheme are as follows:
- There will be a specified share ratio in respect of the amount of SP/LSP payable to an employee by an employer each year.
- The threshold for an employer’s total expenses of SP/LSP in a year is set at $500,000. Specified share ratios/ "capped amounts" are set for cases falling within and beyond the threshold respectively.
- For cases where the accumulated expenses of SP/LSP fall within $500,000, there will be a "capped amount" per case in respect of the SP/LSP payable by an employer for the initial nine years. If the shared amount payable by an employer calculated according to the share ratio exceeds the "capped amount", the employer only needs to pay the "capped amount". The remaining amount of SP/LSP will be subsidised by the Government.
- For cases where the accumulated expenses of SP/LSP go beyond $500,000, the amount payable by an employer is calculated according to the share ratio with no "capped amount". The remaining amount of SP/LSP will be subsidised by the Government.
- Given that nearly 90% of micro, small and medium-sized enterprises have no more than $500,000 SP/LSP liabilities a year, they will generally be benefited from a higher subsidy for each SP/LSP case within the $500,000 threshold.
- More subsidies are provided by setting a lower "capped amount" during the initial period. The "capped amount" of SP/LSP payable to an employee by an employer is as low as $3,000 for the initial three years. The subsidy level will be progressively reduced over the 25-year subsidy period to help employers gradually adapt to the policy change.
What is "$500,000 threshold"?
The $500,000 threshold refers to whether the accumulated amount of post-transition portion of SP/LSP payable by an employer during the same year exceeds $500,000.
What is the method of subsidy?
Employers should pay SP/LSP to employees in accordance with the provisions under the Employment Ordinance and then submit applications for disbursement of Government subsidy.
Employers should prepare all supporting documents required when submitting their applications to facilitate approval of applications and disbursement of subsidies as soon as possible. Please click here for information on application of the Subsidy Scheme for Abolition of MPF Offsetting Arrangement.
Information on application
Employees who are currently not covered by the MPF System or other statutory retirement schemes are not affected by the abolition of MPF offsetting arrangement. Their employers will not be eligible for Government subsidy.
Public bodies/subvented organisations will not be eligible for Government subsidy if their employees’ SP/LSP has been fully funded by the Government. Please click here for information on application of the Subsidy Scheme for Abolition of MPF Offsetting Arrangement.
For application details of the Subsify scheme, please visit the Offsetting Subsidy website (www.offsettingsubsidy.gov.hk).
How to apply MPF offsetting through eMPF Platform
How to apply MPF offsetting through eMPF Platform?
Starting from 29 July 2024, the administrative work of China Life MPF Master Trust Scheme (“Scheme”) have been transferred to the eMPF Platform, becoming the second MPF Scheme to join the platform. Employers can submit applications for offset severance payment (SP) / long service payment (LSP) through the eMPF Platform. Employers should pay attention to the latest arrangements before applying for offsetting.
For further details and illustrative examples of the Offsetting SP/LSP through the eMPF Platform, please visit the eMPF Webpage (https://www.empf.org.hk/tutorial/tutorials/employee-management?parent=/tutorial/employer)