What Changed on 1 May 2025?

• Employers cannot use mandatory MPF contributions to offset SP/LSP for employment periods starting on or after 1 May 2025.
• Voluntary MPF contributions and gratuities based on service length may still be used to offset SP/LSP.
• A “grandfathering” arrangement applies to employees hired before the transition date:
• SP/LSP will be split into pre-transition and post-transition portions.
• Employers may still offset the pre-transition portion using MPF contributions.
• The maximum SP/LSP payout remains capped at HK$390,000.

Example Scenarios

For employees hired on or after 1 May 2025:

• SP/LSP is calculated based on the last full month’s wages before termination.
• Employers cannot offset this amount using mandatory MPF contributions.
• Employees retain both their full SP/LSP and MPF benefits.

For employees hired before 1 May 2025:

• SP/LSP is divided into pre-transition and post-transition portions.
• Employers may offset the pre-transition portion using MPF contributions, but not the post-transition portion.

What About Occupational Retirement Schemes (ORS)?

The abolition arrangement also applies to employees covered by ORS, including:

• Schemes exempted under the MPF Schemes Ordinance (MPFSO)
• Provident funds under the Grant School and Subsidized Schools Provident Fund Rules
• Overseas ORS for employees outside Hong Kong who are exempted from the MPF system

Since ORS contributions aren’t split into mandatory and voluntary portions, the system uses:

• Carved-out benefits: Equivalent to mandatory MPF contributions; cannot offset SP/LSP for post-transition service.
• Remaining benefits: Equivalent to voluntary MPF contributions; can offset SP/LSP regardless of service period.

These are calculated based on the employee’s average monthly relevant income over the 12 months before termination, capped at HK$30,000 per month.

Employer Support: 25-Year Subsidy Scheme

To ease the financial impact, the government has introduced a HK$33.2 billion Subsidy Scheme. This supports employers—especially SMEs—in covering SP/LSP costs for employment periods starting on or after 1 May 2025. The subsidy ratio will gradually decrease over time to help businesses adapt.

Who Is Affected?

The new rules apply to most employees under the MPF or ORS systems. However, exempted persons—such as domestic helpers and those under 18 or over 65 at the start of employment—are not covered by the MPF and thus unaffected by the offsetting abolition.

Hong Kong – Global Insights

For further detailed guidance on payroll, employment law, and compliance in Hong Kong, visit our Hong Kong Global Insight guide on the activpayroll website. You can also explore broader regional updates and expertise in the APAC Global Expertise web section.

Next Steps

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