Key takeaways
- Since 1 May 2025, mandatory MPF contributions can no longer offset SP or LSP for post-transition service.
- One year on, severance and long service payments are a continuing cost and record-keeping issue.
- Review employment dates, wage and MPF records, and know the three-month deadline for the government subsidy.
The abolition of the MPF offsetting arrangement took effect on 1 May 2025. One year into the new regime, severance payment and long service payment are now a continuing cost, record-keeping and workforce-planning issue for Hong Kong employers.
For service from the transition date, employers can no longer use accrued benefits derived from mandatory employer MPF contributions to offset severance payment or long service payment. The change has no retrospective effect. Where employment began before the transition date and ends on or after it, the calculation may include both pre-transition and post-transition portions.
Why the change matters in 2026
The first full year of the regime gives employers a practical reason to review how employment dates, wages, MPF contributions, voluntary contributions and termination payments are recorded. A calculation can become difficult if source records are incomplete or different teams apply inconsistent assumptions.
Records employers should review
- Employment commencement and termination dates.
- Wage and payroll records used for the calculation.
- Mandatory and voluntary MPF contribution records.
- Any ORSO or contractual gratuity arrangements.
- Evidence required for the Government subsidy application.
- Approval and payment steps across HR, payroll and finance.
Subsidy and planning considerations
The Subsidy Scheme for Abolition of MPF Offsetting Arrangement is intended to share employers’ post-transition severance and long service payment expenses over a 25-year period. Eligible employers should submit an application within three months after making the relevant payment. Internal owners should therefore know when documents need to be prepared.
For worked examples, read our guide to the two-part severance and long service payment calculation.
Our view
This is an operational issue as much as a policy change. Employers need reliable records, a consistent calculation method and clear communication with affected employees. Complex cases should be reviewed before figures are confirmed.
HR actions to take now
Document the internal workflow, assign responsibility and test a sample case that crosses the transition date. Employers reviewing administration capacity may also consider payroll outsourcing or secondment support.
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Sources
Sources: MPFA, Long Service and Severance Payments; Labour Department, Subsidy Scheme for Abolition of MPF Offsetting Arrangement
This article is for general information only and does not constitute legal advice.