What is the Abolition of MPF Offsetting Arrangement?
The Legislative Council passed the "Employment and Retirement Schemes Legislation (Offsetting Arrangement) (Amendment) Bill 2022" in June 2022 to abolish the arrangement for employers using the accrued benefits derived from employers’ MPF mandatory contributions (ERMC) to offset employees’ severance payments (SP) / long service payments (LSP) under the Employment Ordinance (“MPF offsetting arrangement”).
When Will the Abolition of "MPF Offsetting Arrangement" be Implemented?
The abolition of MPF Offsetting Arrangement will be effective on 1 May 2025 (transition date). Starting from the “transition date”, the accrued benefits derived from ERMC cannot offset employees’ SP and LSP in respect of the years of service starting from the “transition date”. However, these accrued benefits can still offset the employees’ SP/LSP in respect of the years of service prior to the “transition date”. Meanwhile, the accrued benefits derived from employers’ MPF voluntary contributions (ERVC) and gratuities based on employees’ years of service are not subjected to the restriction. It can be used to offset SP/LSP regardless of whether the years of service are before or after the “transition date”.
Which Area Does the Abolition of MPF Offsetting Arrangement NOT Apply to?
The arrangements are NOT applicable to employees who are not covered by the MPF System or other statutory retirement schemes, including domestic helpers and employees aged less than 18 or over 65. Their SP/LSP will continue to be calculated on the basis of the last month’s wages or the average wages in the 12 months immediately preceding the termination of employment in accordance with the existing provisions under the Employment Ordinance.
How to Calculate?
Regarding the calculations before and after the “transition date”, please refer to the official website of the Labour Department:
When employers are handling the SP/LSP after the “transition date”, they have to take the employment date of each employer into account and divide the calculations into two portions by the “transition date” – the pre-transition portion (i.e. the employment period before the “transition date”) and post-transition portion (i.e. the employment period starting from the “transition date”). Due to the complexity of this process, it is error-prone to rely heavily on traditional Excel calculations which may lead to errors in payroll, thereby increasing the risk of labor disputes.
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