- MPF offsetting ended on 1 May 2025. Employers can’t use mandatory MPF contributions to offset severance or long-service payments for service from that date.
- Earlier service is treated differently. For staff hired before 1 May 2025, employer contributions may still reduce the pre-transition portion of SP/LSP.
- The Government shares the new cost. Its 25-year subsidy scheme covers part of eligible post-transition SP/LSP.
- Employers need a clean service split. Keep the right wage records, budget for cash payouts, and claim the subsidy within three months of payment.
- What ended: mandatory employer MPF can't offset SP/LSP for service from 1 May 2025
- What still offsets: employer contributions can offset the pre-transition portion; voluntary contributions and service-based gratuities may offset both portions
- Maximum entitlement: total statutory SP or LSP remains capped at HK$390,000
- Subsidy: apply through TransitionEase within three months after paying the employee
MPF offset abolition in Hong Kong changed what employers pay when eligible staff leave. Since 1 May 2025, you can’t use mandatory employer MPF contributions to reduce severance payment (SP) or long service payment (LSP) earned from that date.
The awkward part is the transition. Staff hired before 1 May 2025 can have two calculations, two wage bases, and different offset rules. Here’s how to handle them.
In this guide, you’ll learn:
- What MPF offsetting was and what the abolition changed
- How severance and long-service payments work (inline basics)
- Pre- vs post-transition treatment and the before/after table
- The government SSA subsidy scheme
- What employers must do now, including budgeting
What is the MPF offsetting abolition?
Before abolition, you could calculate SP/LSP, offset it against accrued benefits from employer MPF contributions, and pay the balance in cash. That lowered your termination bill but took money from the employee’s retirement savings.
From 1 May 2025 (the transition date), mandatory employer contributions (ERMC) can’t offset SP/LSP for service from that date. They can still offset the pre-transition portion for staff hired earlier, according to the Labour Department’s abolition guidance.
Employer voluntary contributions (ERVC) and service-based gratuities may still offset SP/LSP for service before and after the transition date, if your scheme allows it. The MPFA’s SP/LSP guidance explains the distinction.
What changed when MPF offsetting was abolished?
Mandatory employer MPF no longer reduces SP/LSP for service from 1 May 2025. Existing staff may have a pre-transition portion that still qualifies for offsetting.
|
Area |
Before 1 May 2025 |
After abolition (1 May 2025 onwards) |
|
Offset with mandatory MPF |
Allowed against SP/LSP (subject to EO rules) |
Not allowed for post-transition service |
|
Pre-transition service |
Same offset rules |
Mandatory/voluntary MPF can still offset pre-transition portion only |
|
Employer cash cost |
MPF could absorb part of SP/LSP |
Higher for post-transition service; budget separately |
Someone hired on or after 1 May 2025 has no pre-transition portion. If they later qualify for SP/LSP, none of it can be offset with mandatory employer MPF.
If pre- plus post-transition SP/LSP exceeds the HK$390,000 cap, the excess is deducted from the post-transition portion (not the pre-transition portion). That can push more of the bill into the no-mandatory-offset zone. Run split calculations before you agree a termination package.
What are severance payment and long service payment?
SP and LSP are statutory payments based on wages and service. The abolition changed how employers fund them, not who qualifies.
|
Payment |
Who qualifies (summary) |
Formula (monthly-paid employee) |
|
Severance payment (SP) |
Continuous contract ≥24 months; dismissed by reason of redundancy or laid off |
⅔ × last month’s wages (max HK$15,000/month) × reckonable years |
|
Long service payment (LSP) |
Continuous contract ≥5 years; contract ends in qualifying circumstances (e.g. resignation at age 65+, dismissal not for cause) |
Same formula as SP |
An employee receives either SP or LSP, not both. The maximum statutory payment is HK$390,000.
For an employee whose service doesn’t cross the transition date, the wage basis is their last full month’s pay. They may elect a 12-month average instead. The amount used in the formula can’t exceed two-thirds of HK$22,500, or HK$15,000.
The Labour Department’s entitlement calculator covers the full eligibility rules.
How are pre- and post-transition benefits treated?
Service before 1 May 2025 forms the pre-transition portion; service from that date forms the post-transition portion. The two portions also use different wage dates.
|
Portion |
Wage basis |
Can mandatory MPF offset it? |
|
Pre-transition |
Last full month’s wages immediately before 1 May 2025 |
Yes |
|
Post-transition |
Last full month’s wages before termination |
No |
For example, an employee hired in 2020 and dismissed in 2027 has both portions. You calculate the years before May 2025 using the April 2025 wage basis, then calculate later service using the wage basis at termination. Employer contributions from the employee’s whole service period may offset the pre-transition portion.
An employee hired from 1 May 2025 has only a post-transition portion. An employee who left before that date stays under the old rules.
What is the government transitional subsidy scheme?
The Subsidy Scheme for Abolition of MPF Offsetting Arrangement (SSA) reimburses part of eligible post-transition SP/LSP for 25 years.
The scheme runs from 1 May 2025 to 30 April 2050. The subsidy year is set by the employee’s termination date, not the date you submit the claim.
Item | Detail |
What is subsidised | Post-transition portion of SP/LSP only (after allowed voluntary/gratuity offsets) |
Subsidy period | 25 years (subsidy years run 1 May to 30 April) |
Years 1–3 (1 May 2025 – 30 Apr 2028) | 50% of net post-transition SP/LSP per employee, or the amount above a HK$3,000 employer cap, whichever is greater (within the first HK$500,000 of an employer’s aggregate claims) |
Application deadline | Within three months after you pay SP/LSP to the employee |
How to apply | TransitionEase portal; one bulk template can cover up to 30 applications |
July 2026 falls in Subsidy Year 2, so the same 50% / HK$3,000 formula applies. Ratios step down from Year 4. Claims above the HK$500,000 employer threshold use a separate formula for the excess, as set out in the SSA application guidance.
Employees who receive less in aggregate (SP/LSP plus mandatory MPF) than they would have under the old offset rules may also claim a shortfall subsidy through TransitionEase.
What must Hong Kong employers do now?
Split service at 1 May 2025, preserve the right wage records, update exit calculations, and claim SSA after payment.
Employer action checklist
- Map service dates: record who started before 1 May 2025 and who started later.
- Preserve transition wages: keep the wage records needed to calculate each existing employee’s pre-transition portion.
- Update exit calculations: show pre- and post-transition SP/LSP separately, including the HK$390,000 cap.
- Check voluntary benefits: confirm with your trustee whether ERVC or service-based gratuities remain available for offset.
- Fund the cash payment: don’t treat expected SSA reimbursement as cash available on the termination date.
- Claim on time: submit SSA documents within three months after payment.
Keep transition-period wage records longer than your normal rolling file. For staff employed before 1 May 2025, retain wage records for the 12 months immediately before that date until six months after the employee leaves. You'll need them to calculate the pre-transition portion correctly.
How should employers budget for termination costs?
Budget for the full cash payment first, then treat SSA as a later reimbursement.
A practical approach:
- Calculate both portions for staff hired before 1 May 2025.
- Deduct only permitted offsets, such as qualifying voluntary contributions or gratuities.
- Fund the employee payment in full before applying for SSA.
- Forecast the reimbursement separately using the subsidy year in which termination occurs.
Even without an HR system, keep hire dates, April 2025 wage records, final wages and MPF data together. Rebuilding them after someone leaves is slow and leaves little room to correct a payout.
How Sleek handles payroll and MPF after the abolition
Sleek runs monthly payroll and MPF e-submissions, giving you organised wage and service records when an employee leaves.
With Sleek, you can:
- Process monthly pay and MPF with on-time eMPF filings
- Maintain payroll records finance and HR can use for SP/LSP calculations
- File the annual employer’s return (BIR56A) and situational IR56 forms
- Add leaver filings (IR56F/G) when staff exit
Sleek’s payroll plan doesn’t replace employment-law advice or promise to prepare SSA claims. If a termination is disputed or the calculation is unusual, involve an employment lawyer.
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FAQs about MPF offset abolition in Hong Kong
No. Notice periods, payment in lieu of notice and redundancy eligibility still follow the Employment Ordinance. The abolition only changed how employers fund SP/LSP earned from 1 May 2025. You must still calculate notice pay separately from severance payment and settle each amount by its applicable deadline.
No general statutory notice is required solely because offsetting ended. Still, you should remove outdated offset clauses from contracts, handbooks and exit templates. Clear wording reduces disputes when a long-serving employee sees separate pre- and post-transition figures for the first time.
Yes, it also covers specified occupational retirement schemes. This includes MPF-exempted ORSO schemes, the two school provident funds and certain overseas occupational retirement schemes. The detailed calculations differ from standard MPF cases, so confirm the scheme-specific rules before processing an exit.
Not by the abolition itself. Domestic helpers and employees outside mandatory MPF coverage weren’t part of the mandatory-contribution offset arrangement. Their SP/LSP eligibility and calculations remain under the Employment Ordinance. For age exceptions, check the employee’s age at the relevant commencement or termination date rather than assuming every part-time worker is exempt.
The employee may claim a shortfall subsidy through TransitionEase if SP/LSP plus mandatory MPF benefits are lower than under the old arrangement. This can happen after a large pay rise when pre-transition service is long but post-transition service is short. Give the employee a clear calculation and payout breakdown.
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Sleek can handle the payroll records around the process. Standard plans include monthly payroll, MPF e-submission and employer return filing from HK$5,880/fy. Sleek doesn’t replace an employment lawyer or promise SSA claim preparation, so use specialist advice for disputed or unusual terminations.
