MPF System
Arrangements for Offsetting Long Service Payment and Severance Payment
Share
-
Facebook
-
LinkedIn
-
WhatsApp
-
Email
-
Copy Address
URL copied! -
Print This Page
Long Service Payment (LSP) / Severance Payment (SP) made by employers
Under the Employment Ordinance, employees may be entitled to LSP or SP payable by their employers.
For more information on the eligibility for and calculation of LSP/SP, please visit Labour Department’s website.
Offsetting LSP/SP against MPF
Currently, employers can offset the LSP/SP payable to employees under the Employment Ordinance against the MPF derived from employer mandatory and voluntary contributions (offsetting arrangement).
The Employment and Retirement Schemes Legislation (Offsetting Arrangement) (Amendment) Bill 2022 to abolish the offsetting arrangement using MPF derived from employer mandatory contributions was passed by the Legislative Council in June 2022. The abolition of offsetting arrangement will take effect on 1 May 2025.
Starting from 1 May 2025 (the transition date), employers can no longer use MPF derived from employer mandatory contributions to offset LSP/SP of employees for years of service since the transition date. However, MPF derived from employer voluntary contributions can continue to offset LSP/SP of employees (irrespective of whether the years of service are before or after the transition date).
The abolition of the offsetting arrangement has no retrospective effect. If an employee's employment commenced before the transition date, MPF derived from employer contributions throughout the employee’s whole employment period (irrespective of whether the contributions are mandatory or voluntary; and irrespective of whether the contributions are made before, on or after the transition date) can continue to be used for offsetting LSP/SP of the employee in respect of the years of service before the transition date.
For details, please refer to Labour Department’s Thematic Webpage on the Abolition of MPF Offsetting Arrangement.
Offsetting procedures
Offsetting may take place under two different scenarios, depending on whether or not the employers have already paid the LSP/SP to their employees.
If LSP/SP has been paid:
Employers may make an application with supporting documents to their trustees to withdraw the MPF derived from the employer’s contributions from the employee’s account.
Employers may require their employees to acknowledge receipt of such payment in writing to facilitate their application for offsetting with their trustees.
If LSP/SP has not been paid:
Employees may make an application in writing to their trustees directly to withdraw the MPF derived from the employer’s contributions from their accounts.
If the amount of MPF derived from the employer’s contributions is not enough to cover the LSP/SP, the employee is entitled to recover the shortfall from the employer.
In making the application, the employees may be required by their trustees to provide proof that they are entitled to the LSP/SP and that such payment has not been paid by their employers.
Employees should ask their employers for a letter to confirm that the LSP/SP has not been paid to them.
The letter should include:
- the employer’s authorized signature; and
- the company chop.
Example:
Scenario 1: If the amount of MPF derived from the employer’s contributions exceeds the amount of LSP/SP, the remaining balance after offsetting has to be retained in the employee’s account and is vested in the employee.
