China
Hong Kong Eliminates MPF Offsetting: Essential Information for Employers
Starting May 1, 2025, Hong Kong employers cannot use Mandatory Provident Fund (MPF) contributions to offset severance and long service payments, following the Abolition of the MPF Offsetting Arrangement. Employers must prepare for compliance and financial impacts, ensuring effective resource allocation.
From May 1, 2025, Hong Kong employers will no longer be able to offset severance payments (SP) and long service payments (LSP) using Mandatory Provident Fund (MPF) contributions, following Abolition of the MPF Offsetting Arrangement. Business should get well prepared, including managing financial impact, allocate adequate resources, and navigate government subsidies effectively.
Hong Kong’s MPF system was established in the year 2000, and from its inception, the MPF Offsetting Arrangement has allowed employers to use their mandatory MPF contributions to offset SP and LSP owed to employees upon termination.
However, starting May 1, 2025, the Hong Kong government will implement the Abolition of the MPF Offsetting Arrangement, marking a major shift in employment and retirement policies. This reform aims to strengthen retirement protection for employees while aligning Hong Kong’s employment practices with international standards.
On June 9, 2022, Hong Kong’s Legislative Council passed the Employment and Retirement Schemes Legislation (Offsetting Arrangement) (Amendment) Bill 2022, officially abolishing the use of employers’ mandatory MPF contributions to offset their SP and LSP owed to employees upon termination. The abolition will take effect on May 1, 2025.
some employers may consider dismissing their existing employees immediately before the transition date and hiring new staff afterwards, to make use of the employer’s mandatory MPF contributions to offset the employees’ SP/LSP. To reduce such risks, the Hong Kong Government put in place the below “grandfathering” arrangement for the pre-transition of SP/LSP of employees who are already in employment before the transition date:
This major policy change strengthens retirement protection for employees while ensuring employers plan ahead for compliance and financial adjustments.
Understanding the calculation method for SP and LSP is essential for implementing the MPF Offsetting Abolication policy. Below are the calculation methods and the corresponding offsetting arrangements for employees based on their employment start date.
| This article was first published by China Briefing , which is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia from offices across the world, including in in China, Hong Kong, Vietnam, Singapore, and India . Readers may write to info@dezshira.com for more support. |
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