Dismissing staff before MPF offsetting transition date offers no financial advantage: FTU

The Mandatory Provident Fund (MPF) offsetting arrangement will be abolished on May 1, 2025. In light of this, Tang Ka-piu, Vice-Chairman of the Hong Kong Federation of Trade Unions (FTU) and Legislative Council Member, alongside lawmaker Kwok Wai-keung, addressed concerns regarding early employee dismissals. They clarified that dismissing staff before this date under the assumption of reducing costs is a misconception.

The legislators highlighted that early dismissals offer no financial benefit. They urged employers to consult the Labour Department’s website for accurate calculations and guidelines on Long Service Payment (LSP) and Severance Payment (SP) obligations post-abolition. The FTU also encourages inquiries from employees, HR departments, and employers about the changes.

Under the current system, if an employee earns a final monthly salary of HK$18,000 after five years of service, their LSP/SP would be HK$60,000. Presently, employers can offset HK$54,000 from the employee’s MPF, leaving only HK$6,000 due. However, with the upcoming changes, future MPF contributions can still offset LSP/SP accrued before May 1, but not beyond.

For retained employees, their LSP/SP will be capped at HK$390,000, with any excess amount deducted from the non-offsettable portion. After the policy change, new hires will start accumulating their benefits from zero up to the same cap, making it advantageous for employers to retain long-serving staff.

To ease the transition, the government will introduce a 25-year subsidy scheme to assist businesses with LSP/SP payments following the offsetting abolition. This is particularly relevant as historical data indicates that 90 percent of small and medium-sized enterprises (SMEs) manage LSP/SP payments of HK$500,000 or less, which the government has budgeted for.

Employers concerned about the financial implications are encouraged to seek further information from the Labour Department. The FTU reassures businesses that the abolition will not disrupt normal operations, given Hong Kong’s low unemployment rate. Employers are advised against premature layoffs, which could lead to a loss of valuable talent and difficulties in hiring suitable replacements.

The FTU remains dedicated to ongoing outreach efforts to dispel misconceptions and ensure that both employers and employees are well-informed about the policy changes, ultimately protecting workers’ retirement benefits.