3. I am going to terminate the employment contract of one of my staff members. Can I use my previous contribution to his mandatory provident fund (MPF) to offset part of the severance payment/long service payment payable to him?

3. I am going to terminate the employment contract of one of my staff members. Can I use my previous contribution to his mandatory provident fund (MPF) to offset part of the severance payment/long service payment payable to him?

If an employee is entitled to severance payment or long service payment and

1. gratuities based on length of service or occupational retirement scheme benefits (excluding any part attributable to employee contributions) have been paid to the employee or
2. an accrued benefit (excluding any part attributable to employee contributions) is being held in a MPF scheme for the employee, or has been paid to the employee,

then the severance payment/long service payment that is payable can be reduced by the amount of MPF contribution (employer’s share) to the extent that it relates to the employee’s years of service for which the severance payment/long service payment is payable.

The Government has announced that the abolition of offsetting arrangement will take effect on 1 May 2025. After the abolition of MPF offsetting arrangement, employers can no longer use their mandatory contribution to offset an employee’s severance payment / long service payment in respect of the employment period starting from the transition date (i.e. the post-transition portion). The abolition of MPF offsetting arrangement has no retrospective effect. If an employee commences employment before the transition date, employers can continue to use the accrued benefits derived from their MPF contributions (irrespective of the contributions made before, on or after the transition date, and irrespective of mandatory or voluntary contributions) to offset severance payment / long service payment in respect of the employment period before the transition date (i.e. the pre-transition portion).