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MPF Offset Abolition Calculator
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Use the “MPF Offset Abolition Calculator” to calculate and analyse your investments and explore options for MPF Offset Abolition. Learn important information about the cap on MPF Offsetting and understand the core mechanism and pros and cons of MPF Offsetting to make better investment decisions.
The current MPF Offsetting arrangement allows employers to use MPF to offset long service payments (LSP) and severance payments (SP), but the government is planning to abolish the offsetting arrangement, which will bring significant changes.
GUM provides comprehensive services to businesses, including legal, operational, and accounting guidance, enabling employers to stay informed about the latest hedging arrangements and make early preparations.
History and Legislative Arrangements for MPF Offset Abolition
The MPF Scheme was introduced in Hong Kong in 2000 as an important system to ensure basic economic security for employees in their retirement years, following several economic fluctuations and social changes. The core objective of this scheme is to encourage employers and employees to jointly save for their future retirement. However, over time, the practice of “MPF Offsetting” within the MPF system has become a contentious issue in society.The introduction of MPF Offsetting aimed to consider the economic pressure faced by employers. When an employment relationship is terminated for certain reasons, employers were allowed to use a portion of the funds in the employee's MPF account to offset the long service payment or severance payment they need to provide. Particularly during economic downturns or when companies face difficulties, MPF Offsetting partially alleviated the financial burden on employers. However, from another perspective, such MPF Offsetting reduced employees' retirement funds and affected their quality of life after retirement.
The Hong Kong government and various stakeholders have recognized the severity of this issue. Over the past few years, legislative arrangements to abolish MPF Offsetting have become a focal point of public discussion. The government, business community, labour organizations, and other stakeholders have been working to find a fair and reasonable solution that benefits both employers and employees.
Legislative arrangements to abolish MPF Offsetting may include capping the maximum amount that can be offset. Additionally, the government may introduce a compensation mechanism to ensure employees receive appropriate financial compensation upon termination of employment while protecting employers from excessive financial pressure.
This issue not only concerns retirement protection in Hong Kong but also involves labour relations and social justice. Hong Kong needs to achieve broad consensus on MPF Offsetting to safeguard the rights of workers while considering the sustainable development of businesses.
Understanding Severance Payment and Long Service Payment
Severance payment (SP) and long service payment (LSP) are fundamental labor rights established under Hong Kong’s Employment Ordinance. These provisions ensure that employees receive financial compensation under specific circumstances, such as dismissal, redundancy, or business closure. Both payments are subject to statutory caps.Severance Payment (SP)
Employment Period RequirementEmployees must have been employed under a continuous contract for at least 24 months to be eligible for severance payment.
Eligibility CriteriaAn employee must meet one of the following conditions:
1. Dismissal due to redundancy
This includes business closure, cessation of operations at the workplace, or a reduction in workforce demand.
2. Fixed-term contract not renewed due to redundancy
If the contract was not renewed for redundancy-related reasons, and the employee did not unreasonably refuse a renewal offer, they may qualify.
3. Employment suspension (temporary layoff)
o Within any continuous 4-week period they had more than half of the normal working days without work or pay. 26-week period they had more than one-third of the normal working days without work or pay.
Definition of RedundancyRedundancy refers to an employer terminating an employee due to business closure, cessation of operations, or a reduction in workforce demand.
Long Service Payment (LSP)
Employment Period RequirementEmployees must have been employed under a continuous contract for at least 5 years to be eligible for long service payment.
Eligibility CriteriaAn employee must meet one of the following conditions:
1. Dismissal not due to serious misconduct
For example, dismissal due to business restructuring or reduction in workforce demand.
2. Fixed-term contract not renewed
If the employer chooses not to renew the contract upon expiry for business reasons, and the employee did not unreasonably refuse a renewal offer.
3. Resignation due to health reasons
The employee must provide a medical certificate issued by a registered doctor or Chinese medicine practitioner.
4. Resignation at age 65 or above
Employees aged 65 or older who voluntarily resign.
5. Death of the employee
In this case, the employee's family may apply to receive the long service payment as financial support.
Important NotesThe calculation method for LSP is the same as for Severance Payment (SP). Employers must pay LSP within 7 days after the termination of the employment contract. If an employee qualifies for both SP and LSP, they can only receive the higher amount of the two.
Eligibility for Severance Payment (SP) / Long Service Payment (LSP)
Employees may qualify for severance payment or long service payment under the following conditions:
Compensation Type
Severance Payment (SP)
Long Service Payment (LSP)
Employment Period
Eligibility Conditions
Employed under a continuous contract for at least 24 months
• Dismissal due to redundancy*
• Fixed-term contract not renewed due to redundancy reasons
• Employment suspension (temporary layoff)
Employed under a continuous contract for at least 5 years
• Dismissal, but not due to the following reasons: 1. Serious misconduct resulting in summary dismissal 2. Redundancy
• Fixed-term contract not renewed at the end of its term
• Death of the employee during employment • Resignation due to health reasons • Voluntary resignation at age 65 or above
Severance Payment (SP) Calculation Method & Long Service Payment (LSP) Calculation Method
Formula for Calculating SP / LSP
The following calculation methods apply to both Severance Payment (SP) and Long Service Payment (LSP). Both payments are subject to the statutory caps.
Monthly-paid employees
(Last full month’s salary × 2/3) × Years of service
Daily-paid or piece-rate employees
(Sum of any 18 days’ wages chosen from the last 30 normal working days × 2/3) × Years of service
Notes
• Employees may opt to use their average monthly salary from the 12 months preceding termination as the calculation basis. If the employment contract is terminated with payment in lieu of notice, the average salary may include earnings during the notice period.
• Maximum payable amount:HK$390,000• Monthly cap for calculation:Two-thirds ofHK$22,500HK$15,000• Incomplete years of service will be calculated on a pro-rata basis
Example CalculationsIf a monthly-paid employee has worked for 10 years and their last full-month salary was HK$15,000, the compensation calculation is:(HK$15,000 × 2/3) × 10 = HK$100,000If the employee’s salary exceeds HK$22,500, the cap of HK$15,000 applies, so the calculation is:(HK$15,000 × 2/3) × 10 = HK$100,000
Payment Terms
1. Severance Payment (SP):
Employers must paywithin 2 monthsupon receiving a written claim from the employee. Employees must file a claimwithin 3 monthsafter dismissal or layoff, or they may lose their entitlement.
2. Long Service Payment (LSP):
Employers must paywithin 7 daysafter the termination of the employment contract. Failure to comply may result in legal consequences and penalties.
Penalties for Non-Payment
If an employer fails to pay Severance Payment (SP) within the stipulated period, the maximum penalty isHK$50,000
If an employer fails to pay Long Service Payment (LSP), the maximum penalty isHK$350,000and up to3 years’ imprisonment.
Severance Payment Cap and Long Service Payment Cap
The Employees’ Compensation Ordinance sets statutory caps for Severance Payment (SP) and Long Service Payment (LSP). The maximum compensation an employee can receive through either SP or LSP is HK$390,000. In addition, the monthly wage used for calculation is capped at two-thirds of HK$22,500 (i.e., HK$15,000). Even if an employee’s actual monthly salary exceeds this amount, the compensation will still be subject to this cap.Mechanism of MPF Offset Abolition
In 2022, the Hong Kong government took decisive measures to revise the existing MPF Offsetting mechanism to ensure that employees receive their rightful compensation upon retirement. This revision aimed to limit the cap on MPF Offsetting. It received widespread support from the majority of citizens and labour organizations as it represented the government's commitment to protecting citizen rights and pursuing social justice.First, the new regulations clearly define that the employer's use of the MPF Offsetting cap is limited to the accumulated sum before the implementation date.
Previously, the cap on MPF Offsetting was based on the amount of long service payment. However, the new regulations restrict this practice to ensure that MPF provides a certain level of security for employees' retirement. This revision offers better protection for employees upon retirement and helps safeguard their basic living needs.
Secondly, the revision emphasizes the social responsibility of employers.
When reducing the workforce, employers are required to bear a certain level of financial responsibility and cannot solely rely on the MPF Offsetting mechanism to alleviate the burden. This not only protects the interests of employees but also encourages employers to make more responsible decisions in terms of operations and human resource management.
Furthermore, the development and implementation of the new regulations require in-depth social discussions and broad public participation.
The government, employers, employees, and various sectors of society need to engage in thorough discussions and communication to ensure that the new regulations receive widespread support and understanding. Through public participation and feedback, the government can better understand the needs and expectations of citizens and formulate more reasonable and fair policies.
The implementation of the new regulations requires a robust regulatory framework to ensure effectiveness.
Therefore, the government needs to establish an effective regulatory framework to ensure that both employers and employees understand and comply with the new regulations. Additionally, to address potential disputes and issues, a fair and transparent appeal mechanism needs to be established.
At the same time, the government needs to provide support and guidance to the potentially affected employers and employees. For example, by providing information and training to help them understand the new regulations and requirements. Additionally, providing some financial assistance and subsidies can alleviate the economic pressures they may face.
In conclusion, the revision of the MPF Offsetting mechanism is an important and significant step.
It not only represents the government's determination to protect employee rights but also reflects society's pursuit of fairness and justice. Through this revision, it is expected to promote social harmony and stability and lay a solid foundation for future social development.
Comprehensive Analysis on the Pros and Cons of the MPF Offset Abolition
The MPF Offsetting Abolition mechanism is an important policy change in Hong Kong, and it requires a comprehensive analysis of its pros and cons to fully understand the impact of this reform.
For employers, the pros and cons of the MPF Offsetting Abolition mechanism are reflected in increased operating costs. After the abolition, employers cannot use MPF Offsetting when paying Severance Payment or Long Service Payment, which increases their cash outflow. However, the MPF Offsetting Abolition mechanism also encourages employers to be more cautious in layoffs and to responsibly manage their human resources.For employees, the pros and cons of the MPF Offsetting Abolition mechanism lie in the ability to receive the full amount of retirement funds. With MPF no longer being used as a hedging tool, it ensures employees' retirement security. However, when companies downsize, the MPF Offsetting Abolition mechanism may also bring some unemployment risks, which can be considered as a con.
From a societal perspective, the pros and cons of the MPF Offsetting Abolition mechanism relate to social fairness and justice. The government stated that the MPF Offsetting Abolition mechanism is aimed at protecting the rights of employees while also considering the interests of employers. This poses a challenge to the government in formulating complementary policies.
The MPF Offsetting Abolition mechanism will also have an impact on the development of the insurance industry. There may be more products offering severance pay insurance in the future, and it will affect the confidence of investors and consumers.
In conclusion, the pros and cons of the MPF Offsetting mechanism abolition are far-reaching and wide-ranging.
In the process of implementing the policy change, the government needs to consider the pros and cons of the MPF Offsetting Abolition mechanism in various aspects and develop complementary measures to balance the demands of different interest groups and maintain the stable development of Hong Kong society. Only through a comprehensive and in-depth analysis of the pros and cons of the MPF Offsetting Abolition mechanism can we better understand and grasp the significance of this reform.
Arrangements Before and After the MPF Offset Abolition
The regulation of the upper limit of Offsetable MPF assets has brought a series of changes to businesses in Hong Kong, particularly in the calculation of Long Service Payment. Before the transitional period, businesses could use the MPF Offsetting mechanism to offset a portion of the Long Service Payment or Severance Payment. However, after the transitional period, this mechanism is restricted, requiring businesses to reassess and adjust their financial strategies.The upper limit of Offsetable MPF assets before the transitional period:
Before the transitional period, businesses could utilize the MPF Offsetting mechanism to reduce the burden of Long Service Payment or Severance Payment based on the prevailing legal provisions. This mechanism allowed businesses to use a portion of the MPF funds to offset these expenses, thereby alleviating their financial pressure. However, the existence of this mechanism has also faced criticism, primarily because it may affect employees' retirement funds, reducing their retirement security.The upper limit of Offsetable MPF assets after the transitional period:
After the transitional period, the new regulations of upper limit of Offsetable MPF assets changed. Businesses now need a more accurate calculation method to determine how much funds they need to allocate for Long Service Payment or Severance Payment. This change makes the “MPF Offset Abolition Calculator” a focal point for businesses. Through this calculator, businesses can calculate more accurately the amount of funds they need to allocate under the new legal framework to ensure compliance with the law and protect employees' rights.Impact and response:
The upper limit of Offsetable MPF assets require businesses to reassess their financial arrangements and human resources strategies. This may increase operating costs for businesses and require them to invest more time and resources to comply with the new regulations. Businesses may need to seek professional legal and financial advice to ensure compliance with the new regulations and protect employees' rights. At the same time, the government and relevant departments also need to provide sufficient guidance and support to help businesses transition smoothly to the new legal framework. In conclusion, the arrangements for the upper limit of Offsetable MPF assets before and after the transitional period are important adjustments to the operations and financial management of businesses in Hong Kong. It not only affects businesses' financial arrangements but also has profound implications for employees' retirement security and rights protection. Under the new legal framework, both businesses and the government need to make efforts to ensure the smooth implementation of the new regulations and achieve the goals of protecting employees' rights and enhancing social welfare.
GUM One-Stop Solution: Comprehensive Support for Corporates to Successfully Adapt to the MPF Offsetting Abolition
The new measure of the MPF Offset Abolition in Hong Kong has significant impacts on business operations, legal compliance, and financial conditions. GUM is introducing a one-stop solution to assist corporates in completing the regulatory transition smoothly, ensuring compliance, and effectively managing the impacts on employers and employees.1. Human Resources Legal Consultation:
Comprehensive Review: By examining employment contracts, employee handbooks, and MPF voluntary contribution scheme rules, potential conflicts and issues that may arise from the newly announced offsetting arrangements can be identified. Document Analysis: Thoroughly review the relevant provisions regarding Long Service Payment/Severance Payment in employment contracts, employee handbooks, and MPF voluntary contribution scheme rules applicable to both general ''long-term employment contracts'' and ''short-term employment contracts.''2. Operational Process and Document Management Consultation:
Record Keeping Guidance: Provide accurate and comprehensive record-keeping recommendations in line with market practices, including reviewing current compensation policies and providing advice on record-keeping to demonstrate the accuracy and appropriateness of Long Service Payment liabilities. Handling of Long Service Payment/Severance Payment: Offer market practice advice on the handling of Long Service Payment/Severance Payment, transitional planning, and leveraging government subsidies. Employee Communication: Conduct ''Abolition of MPF Offsetting Arrangements'' briefing sessions (both offline and online) to facilitate communication and understanding among employees.3. Accounting and Actuarial Consultation Services:
Accounting Guidance: Provide analysis of the latest guidelines from the Hong Kong Institute of Certified Public Accountants, compare different treatment methods, and offer recommendations to assist human resources and accounting teams in accurately calculating annual provisions for Long Service Payment using the “MPF Offset Abolition Calculator”. Actuarial Services: Provide relevant actuarial services in accordance with Hong Kong Accounting Standard 19, including preparing actuarial assumptions related to turnover rates, mortality rates, investment return rates, and discount rates.
MPF Offset Abolition Calculator: The Accurate Tool for Long Service Payment Provision
With the abolition of the MPF Offsetting mechanism in Hong Kong, businesses are in urgent need of appropriate solutions, and the “MPF Offset Abolition Calculator” serves as a professional tool for calculating Long Service Payment provisions. The calculator not only accurately calculates the provisions for Long Service Payment but also helps businesses comply with the requirements of Hong Kong Accounting Standard 19 by accurately calculating the Long Service Payment provision item in financial statements, ensuring compliance with auditing regulations. By utilizing the ''MPF Offset Abolition Calculator,'' businesses can protect their own interests while safeguarding the rights of employees.The government's MPF Offset Abolition aims to enhance employee retirement protection but also poses challenges for financial management and human resources for businesses, particularly for small and medium-sized enterprises seeking effective methods to address the impact on operations and financial structures. The “MPF Offset Abolition Calculator” can accurately calculate and plan Long Service Payment provisions, filling the gaps in the market. Businesses can use this calculator to understand the specific impact of abolishing MPF Offsetting on their operations and make informed financial planning decisions based on it.Key Functions of the “MPF Offset Abolition Calculator” :
• Calculation of Long Service Payment provisions: Businesses can calculate the required provisions based on regulations and actual circumstances, which is crucial for financial planning. • Financial simulation and planning: Businesses can conduct simulations to understand the impact of abolishing MPF Offsetting on their finances and make sound financial and strategic decisions.The “MPF Offset Abolition Calculator” reflects the requirements of improving employee retirement protection while safeguarding business interests. By using this calculator, businesses can ensure the well-being of employees' rights while ensuring sustainable and robust financial growth. In various market challenges, the “MPF Offset Abolition Calculator” is a crucial tool for businesses to ensure ongoing success, avoid incorrect provisions, and gain insights into employee turnover rates and MPF investment returns through data analysis.
FAQs
about “MPF Offset Abolition Calculator”1. What payments do employers need to make after the MPF Offset Abolition?
2. Will the MPF Offset Abolition increase the burden on employers?
3. Can employers terminate employees before the conversion date to reduce costs?
4. Does the MPF Offset Abolition have retroactive effect?
5. How do you calculate Severance Payment/Long Service Payment for employees before the conversion date?
6. How should employers budget for the MPF Offset Abolition?
7. Can employees receive government subsidies if their voluntary MPF contribution rate exceeds 1%?
8. How does the government subsidize Severance Payment/Long Service Payment exceeding HKD 500,000?
9. Can government-funded organizations apply for subsidies resulting from the MPF Offset Abolition?
10. What are the steps to apply for government subsidies?
11. How is the subsidy calculated for the first HKD 500,000?
12. What is the calculation method for Severance Payment/Long Service Payment for monthly-paid employees?
13. Which retirement plans are subject to the MPF Offset Abolition arrangements?
14. Who is not affected by the MPF Offset Abolition?
15. What is the impact of the MPF Offset Abolition on accounting treatment?
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