Limited expenses in the initial years after the abolition and get prepared early

The pre-transition portion of severance payment (SP) and long service payment (LSP) can continue to be offset by employers’ MPF mandatory contributions.

Employers’ MPF voluntary contributions and gratuities based of years of service can continue to be used to offset SP/LSP (irrespective of pre- or post-transition portion)

To assist employers to adapt to the policy change, the Government will implement a 25-year subsidy scheme to share out employers’ expenses of the post-transition portion of SP/LSP. There will be a “capped amount” under the Subsidy Scheme for Abolition of MPF Offsetting Arrangement in the first nine years, and the “capped amount” is as low as $3,000 in the first three years.

In the long run, employers’ expenses of the post-transition portion of SP/LSP may increase and employers should get prepared early.

Besides, under the current accounting standards in Hong Kong, enterprises are required to assess their potential LSP liabilities according to their circumstances.

Employers may make use of the online calculating tool “EasyCal” to estimate the amount of SP/LSP after the abolition and Government subsidy.