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Abolition of MPF Offsetting Arrangement

  • allawyershk
  • May 9
  • 3 min read

  • Effective from 1 May 2025 (“Transition Date”), employers’ mandatory MPF contributions can no longer be used to offset severance (“SP”) or long-service payments (“LSP”) payable to employees.

  • That said, employers’ MPF voluntary contributions/gratuities (e.g. end-of-contract gratuities and gratuities as part of termination payments) may continue to be used for offsetting SP/LSP.


Employees Hired Before 1 May 2025

  • For employees hired before the Transition Date, SP/LSP payable should be split into pre- and post-transition portions. Generally:

    • Pre-transition SP/LSP should be calculated using:

  • Last full month’s wages before Transition Date x 2/3 (but capped at HK$15,000/month) × pre-transition service years*

  • Post-transition SP/LSP should be calculated using:

    • Last full month’s wages before termination date of employment × 2/3 (but capped at HK$15,000/month) × post-transition service years*

* Service of an incomplete year should be calculated on a pro rata basis.

  • Total cap of SP/LSP payable to an employee remains at HK$390,000 (any excess will be capped off from post-transition portion).


Offsetting Mechanism for Pre- and Post-transition SP/LSP

  • Employers may still offset pre-transition SP/LSP using all employer’s MPF contributions (including mandatory and voluntary employer’s contributions, and regardless of whether they are made during pre/post-transition phase).

  • However, post-transition SP/LSP cannot be offset by any MPF funds (except for employers’ voluntary contributions/gratuities).


Government Subsidy Scheme on Post-transition SP/LSP

  • To ease employers’ cost burden, the Labour Department has implemented a 25-year subsidy scheme to cover partial costs of the post-transition SP/LSP paid to employees.

  • Under the subsidy scheme, employers may receive subsidies calculated at a certain ratio of the post-transition SP/LSP payments made during a subsidy year (“Subsidy Ratio”), with the subsidy ratios reducing gradually over the 25 year scheme.

  • It should be noted that employers are required to pay the SP/LSP to employees in full before applying for the subsidy.


Our Recommendations

  • In view of the Abolition of MPF Offsetting Arrangement, employers are reminded to:

    • Keep good wage and employment records for the purpose of determining the pre- and post-transition SP/LSP payable to employees at termination of their employment.

    • Get prepared early for expenses on post-transition portion of SP/LSP payable, which are required to be made upfront to employees before making the government subsidy applications. SP/LSP net amounts payable by the employer to employees are also expected to increase over the years with Subsidy Ratios gradually decreasing under the subsidy scheme.


Remarks: The information provided in this statement does not, and is not intended to, constitute legal advice.


About the authors


Principal Partner and founder of the firm

B.Sc. (Hon.), LL.B. (Hon.), LL.M.


Adrian was officially qualified as a lawyer in Hong Kong in 1995 and qualified as a lawyer in England and Wales in 1997.

Mr. Lau served as a securities industry regulator at the Securities and Futures Commission of Hong Kong.


Adrian has in-depth knowledge and extensive experience in handling complicated matters in practice areas like Corporate and Commercial, Banking and Finance, Employment, Intellectual Property, Compliance and Regulatory and China-related matters.


Partner

LL.B. (Hon.)


Grace (LL.B. (Hon.)) is a Partner of our Firm. Grace graduated from the University of Hong Kong with a Bachelor Degree in Laws and obtained her Postgraduate Certificate in Laws (Distinction) at the same university. Grace is dually-qualified

as a solicitor in Hong Kong since 2019 and in England and Wales since 2024.


Grace specialises in corporate and commercial law, with a focus on M&A transactions, financing, regulatory compliance, and corporate governance. Grace also brings on board expertise in banking, employment, insolvency, and intellectual property matters.

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