Employers’ handling of Mandatory Provident Fund (MPF) arrangements after employees leaves the company

Employers' handling of Mandatory Provident Fund (MPF) arrangements after employees leaves the company

As the most important retirement protection for workers in Hong Kong, the Mandatory Provident Fund (MPF) system is particularly concerned by employers and employees. In case of termination of employment, whether it is dismissed or resigned, the employer has the responsibility to notify the MPF trustee. This article will briefly outline the main points of this article.

Termination of employment requires notice to MPF trustee

Once the employer and the employee terminate the employment relationship, the employer should notify the MPF trustee of the employee’s termination in writing and a payment statement.

The trustee will be responsible for recording the information of the resigned employee, including the name of the employee and the date of resignation, to prevent the MPFA from unknowingly thinking that the employee is in arrears of contributions.

What is the employer’s final contribution arrangement before the employee leaves the company?

According to the Mandatory Provident Fund Ordinance (MPF), before the employee leaves the company, the employer should calculate the last mandatory contribution of the employee who is to leave the company on or before the tenth day of the next month, that is, the “contribution day”. 5% of the relevant income (including wages, salaries, holiday allowances, and commissions) was paid to the MPF trustee as his final MPF contribution.

Incidentally, the accumulated annual leave of former employees can be compensated by “leave with pay” in the form of leave allowance, as well as bonuses, etc., which are all relevant income.

The payment in lieu of notice does not include relevant income and does not include MPF contributions

Once the company dismisses an employee, the employee will receive a payment in lieu of notice in accordance with the employment contract as compensation for the termination of the employment relationship without notifying the other party within the required notice period.

Therefore, this payment in lieu of notice does not fall into the category of “relevant income” in principle, and therefore will not be used to calculate Mandatory Provident Fund (MPF) contributions. By extension, termination compensation, severance payment, or long service payment provided by other companies are not considered “relevant income”.

Employers’ Approach to Mandatory Provident Fund (MPF) for Former Employees (Hedging)

Generally, companies handle the Mandatory Provident Fund (MPF) of former employees with reference to the following situations, and the procedures and time may vary:

Offset long service payment/severance payment

If the employer pays full long service payment or severance payment to the employee, the employer can apply to the MPF trustee with supporting documents to withdraw the equivalent from the accrued benefits of the employer’s contribution (employer’s contribution account only) payment without the employee having to go through any formalities.

However, if the accrued benefits from the employer’s contributions are not sufficient to fully offset the long service payment or severance payment, the balance will need to be paid to the employee.

Conversely, if the accrued benefits contributed by the employer are greater than the long service payment or severance payment, the balance after offsetting will remain in the employee’s account and the benefits will belong to the employee.

If the employer has not paid long service payment or severance payment to the employee within 7 days of statutory resignation, the employee may, together with supporting documents, apply in writing to the trustee to withdraw the equivalent amount arising from the employer’s contribution in the benefit account, The entire procedure is usually completed within two weeks.

The above information is for reference only. If you have any questions about the Mandatory Provident Fund (MPF) and accounting, we welcome your inquiries.

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