The abolition of MPF offsetting arrangement is set to be implemented no later than 2025. Employers and relevant personnel must understand this in the light of the soon-to-be implemented new arrangement and new legislation.
The Government will likely abolish the MPF offsetting arrangement no later than 2025. Cecilia Chan, Senior Labour Officer of the Labour Department, said that the business community might worry about the increase in cost burden on employers, but the Government will also launch a support package for small and medium-sized enterprises to help them transition and adapt.
Should not lay off employees before abolition of offsetting arrangement
Chan said that the key point of abolishing the MPF offsetting arrangement is: The abolition has no retrospective effect and will take effect on the transition date. After the transition date, employers can no longer use their ERMC (accrued benefits derived from employers’ mandatory MPF contributions) to offset an employee’s severance payment (SP) or long service payment (LSP). On the other hand, ERVC (accrued benefits derived from employers’ voluntary MPF contributions) and gratuities based on the employee’s years of service can continue to be used for offsetting SP/LSP.
To reduce the risk of large-scale layoffs before the transition date, there will be a “grandfathering” arrangement for the pre-transition portion of SP/LSP of employees who are already in employment before the transition date. Chan explained that for employees who are already in employment before the transition date, their SP/LSP will be divided into pre-transition portion and post-transition portion. The pre-transition portion will be calculated on the basis of the monthly wages immediately preceding the transition date and the years of service before the transition date, whereas the post-transition portion will be calculated on the basis of the last monthly wages before termination of employment and the years of service starting from the transition date. The maximum amount of SP/LSP (i.e., the sum of pre-transition and post-transition portions of SP/LSP) is still capped at HKD390,000. If an employee’s total SP/LSP exceeds HKD390,000, the amount in excess of the cap will be deducted from the post-transition portion. Chan said that employers can continue to use the accrued benefits derived from their MPF contributions to offset the pre-transition portion of SP/LSP.
For employment period starting on or after the transition date, Chan said that ERMC cannot be used to offset the employee's SP/LSP, while other arrangements remain unchanged, i.e., ERVC and gratuities based on the employee's years of service can continue to be used for offsetting SP/LSP. At the same time, the method of calculating SP/LSP remains the same. She added that the adjusted abolition of MPF offsetting arrangement is also applicable to the benefits of some occupational retirement schemes.
Threshold set at HKD500,000 to assist MSMEs
As for the post-transition portions of SP/LSP, Chan disclosed that the Government will introduce a 25-year subsidy scheme amounting to HKD33.2 billion. She explained that in order to assist micro, small and medium-sized enterprises (MSMEs) in a more targeted manner, employers will receive a higher subsidy amount at the initial stage after the abolition, with the subsidy level progressively reduced over 25 years to help employers gradually adapt to the policy change.
Chan said that the threshold for government subsidy will be set at HKD500,000. Citing an example, she said that if an employer lays off an employee, he must first calculate whether the total amount of SP/LSP payable by him to all employees in that year exceeds HKD500,000. If the total amount is less than HKD500,000, he can enjoy a higher subsidy ratio for the amount of SP/LSP payable by him for the said Employee A. The subsidy ratio will be lower if the total amount exceeds HKD500,000. She further said that for cases where the total amount falls within HKD500,000, there will be a “capped amount” in respect of the amount payable by the employer for each employee in the initial nine years. If the amount payable by an employer calculated according to the subsidy ratio exceeds the “capped amount”, the employer only needs to pay the “capped amount”. The remaining amount will be subsidised by the Government. The “capped amount” is as low as HKD3,000 for the initial three years.
Chan also mentioned that the Government has set up a thematic website to make the public more aware of the abolition of the MPF offsetting arrangement. It also features “EasyCal”, a calculating tool to help employers estimate the amount of SP/LSP that they will have to bear in the future.
This is an abstract of the webinar “Abolition of MPF Offsetting Arrangement” held by the Chamber’s Commerce, Industry and Social Affairs Committee.
