Abolition of MPF Offset Severance Payment (SP) and Long Service Payment (LSP) Arrangement

What is MPF Offsetting?

According to the Employment Ordinance, the employee is entitled to Severance Payment (SP) or Long Service Payment (LSP) payable by their employers when an employee is terminated.
(For eligibility conditions and calculation methods, please refer to Severance Payment / Long Service Payment)

Before May 1, 2025, employers can use the accrued benefits from Employer MPF Mandatoryand Voluntary contributions to offset employee's LSP/SP (MPF offsetting arrangement).

What is the Abolition of MPF Offsetting Arrangement?

The government has announced that the Abolition of MPF Offsetting Arrangement takes effect on May 1, 2025 (the "transition date").

Under the new arrangement:

• Employers CANNOT use the accrued benefits from their Mandatory MPF contributions to offset SP/LSP for years of service starting on or after the transition date.
• However, employers can still use the accrued benefits from Voluntary MPF contributions to offset SP/LSP (irrespective of whether the years of service are before or after the transition date).

Does the Abolition of MPF Offsetting have Retrospective Effect?

The abolition of the offsetting arrangement has NO retrospective effect.

For employees who were employed BEFORE the transition date:

• The accrued benefits derived from Employer MPF contributions throughout the employee’s entire employment period (irrespective of Mandatory and Voluntary contributions, irrespective of whether the contributions are made before, on, or after the transition date) can continue to offset employees' SP/LSP for years of service before the transition date.

• The amount of SP/LSP for the period before the transition date will be calculated based on the Last Full Month’s Wages immediately preceding the Transition date# and the years of service up to the transition date

  • For employees paid Daily or on a Piece-rate basis, their wage for any 18 days chosen by the employee out of the last 30 normal working days immediately preceding the Transition date#

  (#Alternatively, employees can select to calculate the payment based on the Average Monthly Wage over the last 12 months immediately preceding 1 May 2025)

• The maximum amount of total SP/LSP remains HK$390,000. Any amount exceeding this cap will be deducted from the employment period starting from the “transition date”.

Overview of the Abolition of MPF Offsetting

*For Daily or Piece-rate employees, the wage can be calculated using 18 days out of the last 30 normal working days

Application of the Arrangements

The arrangements do not apply to employees who are not covered by the MPF System (employers are not required to make Mandatory MPF contributions for employees) or other statutory retirement schemes. Examples include Domestic helpers and Employees under 18 years old or aged 65 or above.

For these employees, SP/LSP will continue to be calculated based on the Last Full monthly Wage before Termination or the Average Monthly Wage over the preceding 12 months.

Employer Attention

• Employers must keep the employment and wage records of each employee for the 12 months before termination of employment.
• For employees employed before the Transition Date, employers must also keep wage records for 12 months before the Transition Date.

These records must be retained until 6 months after the employee ceases to be employed.
‼️Employers who fail to keep the wage and employment records of employees are liable to prosecution and upon conviction, to a fine of $10,000.‼️