MPF System

Arrangements for Offsetting Long Service Payment and Severance Payment

Long Service Payment (LSP) / Severance Payment (SP) made by employers

 

Under the Employment Ordinance, employees may be entitled to LSP/SP payable by their employers. 

 

For more information on the eligibility for and calculation of LSP/SP, please visit the Labour Department’s website.

Abolition of MPF Offsetting Arrangement

 

The abolition of MPF offsetting arrangement takes effect on 1 May 2025 (i.e. the transition date), and is applicable to employees who cease to be employed on or after the transition date.  Starting from the transition date, employers can no longer use the MPF derived from their mandatory contributions to offset LSP/SP of their employees in respect of the years of service starting from the transition date. However, they can continue to use the MPF derived from their voluntary contributions to offset LSP/SP of the employees (irrespective of whether the LSP/SP are for the years of service before or after the transition date).


The abolition of the offsetting arrangement has no retrospective effect. For those  employees who commence employment before the transition date and cease to be employed on or after the transition date, employers can continue to use MPF derived from the employer contributions (irrespective of whether the contributions are mandatory or voluntary, and whether the contributions are made before, on or after the transition date) throughout the employees’ whole employment period to offset the LSP/SP of the employees in respect of the years of service before the transition date.


For those employees who cease to be employed before the transition date, employers can use the MPF derived from the employer mandatory and voluntary contributions to offset LSP/SP of their employees.

 

For details, please refer to Labour Department’s Thematic Webpage on the Abolition of MPF Offsetting Arrangement.

Offsetting procedures

 

Employers are allowed to use the MPF derived from their contributions to offset the LSP/SP of the employees payable by employers under the Employment Ordinance. The offsetting may take place under two different scenarios.

 

If LSP/SP has been paid by employers:

Employers may make an application with supporting documents to their trustees to withdraw the MPF derived from the employer contributions from the employees’ accounts. The amount withdrawn should not exceed the amount of MPF that can be used to offset the LSP/SP under the Employment Ordinance.


Employers may require their employees to acknowledge receipt of such payment in writing to facilitate their application for offsetting to their trustees.

 

If LSP/SP has not been paid by employers:

Employees may make an application to their trustees directly to withdraw the MPF derived from the employer contributions from their accounts.  The amount withdrawn should not exceed the amount of MPF that can be used to offset the LSP/SP under the Employment Ordinance.


If the MPF derived from the employer contributions is insufficient to cover the amount of LSP/SP that can be offset, employees are entitled to recover the shortfall from their employers.


When making the application to trustees, employees are required to provide supporting documents to prove their eligibility for the LSP/SP under the Employment Ordinance, and to confirm that their employers have not paid any LSP/SP that can be offset.


 

MPF Tips

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.