Hong Kong’s employee protections have undergone a major change. The long-debated abolition of MPF offsetting took effect on 1 May 2025, the transition date. The policy strengthens employees’ retirement protection while introducing new financial planning considerations for employers. As your human resources and MPF partner, M&N explains the changes, transitional arrangements and practical effects for both sides, helping you prepare with confidence.
One: What Is MPF Offsetting?
To understand the abolition, first consider offsetting. Under the previous arrangement, when an employee qualified for severance or long-service payment, an employer could use the accrued benefits from its mandatory MPF contributions, including investment returns, to offset some or all of the payment due.
Advantages and disadvantages of this arrangement:
- For employers: it reduced the immediate financial pressure of a substantial payment.
- For employees: it reduced retirement savings and the balance in their MPF account, weakening long-term retirement protection.
Two: The 2025 Transition Date and How Service Is Divided
The abolition does not apply uniformly to all service. The key dividing date is 1 May 2025:
Service After the Transition Date, from 1 May 2025
- Offsetting is prohibited: employers can no longer use accrued benefits from mandatory contributions to offset severance or long-service payments attributable to service after this date.
- Employees benefit directly: they receive this portion of the payment while retaining the employer’s mandatory contributions for the period, strengthening retirement protection.
Service Before the Transition Date, up to 30 April 2025
- The previous arrangement continues: employers may use accrued benefits from mandatory MPF contributions to offset severance or long-service payments attributable to this period.
Three: Who the Arrangements Cover
The arrangements do not apply to employees outside the MPF system or other statutory retirement schemes, such as domestic workers and employees aged under 18 at departure or 65 or over when they joined. Employers are not required to make mandatory MPF contributions for these employees, so the abolition does not affect them. Their severance or long-service payments continue to be calculated using their final month’s wages before termination or their average wages over 12 months.
Four: 3 Practical Benefits for Employees
Higher Combined Benefits:
Employees, especially those with long service, can receive full severance or long-service payments while keeping employer contributions in their MPF accounts, increasing their combined benefits compared with the previous arrangement.
Stronger Retirement Protection:
MPF’s role as a core retirement savings pillar is strengthened, so employees no longer need to worry about losing accumulated retirement savings when leaving a job.
Protection Is Maintained:
Even employees whose entitlements had reached the cap before the transition date will not receive less in total than under the previous arrangement.
Five: Do All Employees Benefit?
Employees Covered:
- Employees participating in an MPF scheme.
- Employees participating in an MPF-exempt Occupational Retirement Scheme (ORSO).
- Teachers in certain school provident fund schemes.
- Eligible overseas employees whose overseas retirement schemes must follow similar arrangements.
Employees Not Covered:
- Domestic workers
- Employees aged under 18 or 65 and above
Reason: these employees are outside mandatory MPF coverage, so their severance or long-service payments continue to be calculated under the existing provisions of the Employment Ordinance.
Six: M&N's Practical Advice for Employers
- With offsetting abolished, employers need dedicated reserves for severance and long-service payments attributable to service after the transition date. M&N recommends:
- Assess finances: estimate potential long-service payment liabilities and start a savings or insurance plan.
- Review HR systems: ensure they clearly and accurately distinguish service before and after the transition date.
- Review remuneration and benefits: understand the future role of voluntary contributions and service-based gratuities.
- Improve internal communication: explain the arrangements to management and staff to improve transparency and avoid misunderstandings.
More Related Services
Company Incorporation Services
Tax Filing Services
Company Secretarial Services
Virtual Offices
Conclusion
The abolition of MPF offsetting in 2025 is an important milestone in Hong Kong’s employee protection. Employers and employees should understand the new system and prepare early.
M&N has extensive MPF and human resources experience. For an assessment, planning or advice on the abolition of offsetting, contact the M&N professional team for support with the transition and protection of your interests.
References:
- Labour Department, Brief Introduction to the Abolition of MPF Offsetting, 2025
https://www.op.labour.gov.hk/tc/abolition-of-the-offsetting.html#overall Labour Department, Calculator for the Abolition of MPF Offsetting Arrangement, 2025
