Further to our recent update in February 2022, the Hong Kong Legislative Council has passed the Employment and Retirement Schemes Legislation (Offsetting Arrangement) (Amendment) Bill 2022 (“Amendment Bill”) on 8 June 2022. We set out some frequently asked questions below to help you understand the abolishment of existing offsetting arrangement (“Offsetting Arrangement”):
1. What has the Amendment Bill changed?
Before the Amendment Bill was passed, an employer is generally permitted to offset an employer’s obligation for severance payment (SP) or long severance payment (LSP) by clawing back the amount contributed by the employer from the employee’s MPF funds. In effect, this means that the employer will not be out-of-pocket (provided there are sufficient funds available for claw back), but the employee will be able to access a certain portion of his/her MPF funds now (instead of waiting until retirement). The Amendment Bill has now passed and will prohibit employers to adopt such offsetting arrangement, starting from the Transition Date (see below).
2. When will the offsetting arrangement be abolished?
A date will be appointed (the “Transition Date”) and the Offsetting Arrangement will be abolished thereafter. The Government expects that the offsetting arrangement could be formally abolished in 2025.
3. How are severance/long service payments calculated?
• For monthly paid employee: (last full month's wages* x 2/3) # x (reckonable years of service).
• For daily-paid...
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