Expenses for dismissed employees increased before the abolition of MPF "offset"

In June this year, the Legislative Council passed the abolition of the arrangement under the Mandatory Provident Fund (MPF) system to "offset" severance payments and long service payments (Long Service Payments) with employers' mandatory contributions accruing benefits.

The Government will implement it no later than 2025 when the Mandatory Provident Fund Schemes Authority's "eMPF" platform is fully operational.

After the cancellation of MPF "offset" becomes effective (i.e. the conversion date), employers cannot use the accrued benefits of MPF mandatory contributions to "offset" the employee's severance payment or long-term service payment.

Cancellation of the "offsetting" arrangement is not retroactive, and the employer's MPF contributions (whether made before or after the conversion date, whether mandatory or voluntary contributions) can still continue to "offset" the severance payment Or Changfujin "before conversion".

Employers should not fire employees before canceling MPF "offset"

If the employee has been employed before the conversion date, the severance pay or long-term service payment will be divided into "before conversion" and "after conversion".

The "pre-transition part" will be calculated based on the employee's last month's salary before the conversion date. Even if the employer continues to hire employees or raise wages after the conversion date, the "pre-transition part" of severance pay or long-term service payment will not increase accordingly.

In addition, the accrued benefits of the employer’s MPF contributions throughout the employee’s employment period can continue to be used to “offset” the amount of the severance payment or the “pre-conversion portion” of the long-term service payment.

Retaining existing employees can allow employers to continue to grow the accrued benefits of MPF contributions, which can be used to "offset" the amount of the "before conversion" in the future.

Therefore, the employer will not save the severance payment or the "pre-transformation part" of the long-term service pension by terminating employees before canceling the "offset" of the MPF.

Firing employees will increase expenses

The statutory maximum amount of severance pay and long-term service payment is 390,000 yuan.

If the employee's severance payment or long-term service payment exceeds RMB 390,000 before the conversion date, the amount of severance payment or long-term service payment will not increase even if the employer continues to employ the employee after the conversion date.

On the contrary, if the employer fires the employee before the conversion date and then hires a new employee, the severance pay or long-term service payment of the new employee will be accumulated from the beginning, and cannot be “offset” with the employer’s mandatory contributions to the employer’s mandatory contributions. The employer’s total expenditure would be higher than retaining current employees.

Human resources are a valuable asset of a company. Re-employment and training of employees will bring additional costs to the company. Retaining excellent employees will not only save costs than dismissing employees before canceling the "offset" of the MPF, but also promote harmony between labor and management to achieve a win-win situation .

For more information and reference examples: https://www.labour.gov.hk/en/news/aoa.htm

(Information provided by customer)