MPF offsetting was abolished in Hong Kong

MPF Offsetting Was Abolished in Hong Kong

MPF offsetting was abolished with effect from 1 May 2025. Employers can no longer use accrued benefits from their mandatory MPF contributions to offset severance payment or long service payment owed to employees. This change affects all payments made on or after that date, regardless of when the employment contract began.

MPF Offsetting Severance Payment

Before abolition, an employer could deduct accrued benefits from mandatory MPF contributions when calculating severance payment. From 1 May 2025, this deduction is no longer permitted for the portion of severance payment attributable to service on or after that date. The employer must pay the full severance payment calculated under the Employment Ordinance (Cap. 57) without reducing it by the value of mandatory MPF contributions.

End of MPF Offsetting

The end of MPF offsetting removes a long-standing feature of Hong Kong's employment and retirement protection system. Employers must now budget for severance payment and long service payment as separate costs, distinct from their MPF contribution obligations. The change applies to all employers enrolled in MPF schemes, regardless of the size of the business or the number of employees.

Severance Payment MPF Changes

For service on or after 1 May 2025, the employer's mandatory contributions and the employee's mandatory contributions remain in the MPF account. They cannot be used to reduce the employer's statutory liability. The calculation of severance payment now follows the formula in the Employment Ordinance without the offsetting step. Review your payroll systems and employment contracts to reflect this change.

Long Service Payment MPF

The long service payment MPF rules follow the same principle. An employer may not use accrued benefits from mandatory contributions to offset long service payment for service on or after 1 May 2025. Long service payment is calculated on years of continuous employment under the 4-18 rule, and the offsetting prohibition applies to the portion of the payment that relates to post-abolition service.

No Retrospective Effect

The abolition has no retrospective effect. For employees whose employment began before 1 May 2025, accrued benefits from mandatory contributions may still offset the portion of severance payment or long service payment calculated on years of service before that date. You must calculate the pre-abolition and post-abolition portions separately. This transitional arrangement applies only to mandatory contributions, not to voluntary contributions.

Voluntary Contributions and Gratuities

Accrued benefits from voluntary contributions, and gratuities based on length of service, may still be used to offset severance payment and long service payment. The abolition targets only the mandatory contributions that employers are required to make under the MPF legislation. Voluntary contributions remain at the employer's discretion and are not subject to the same restriction.

Subsidy Scheme for Employers

The Government runs a subsidy scheme sharing employers' expenses on severance payment and long service payment for service on or after 1 May 2025. The scheme is designed to ease the transition for employers who now bear the full cost of these payments without the offsetting mechanism. Check the scheme's eligibility criteria and application process with the relevant government department.