Employment & Retirement Schemes Legislation (Offsetting Arrangement) (Amendment) Bill 2022 Gazetted

Employment & Retirement Schemes Legislation (Offsetting Arrangement) (Amendment) Bill 2022 Gazetted

Employment & Retirement Schemes Legislation (Offsetting Arrangement) (Amendment) Bill 2022 Gazetted 1400 788 Charing

The Government published the Employment and Retirement Schemes Legislation (Offsetting Arrangement) (Amendment) Bill 2022 in the Gazette recently on 11 February 2022.  The amendment bill abolishes the use of the accrued benefits of employers’ mandatory contributions (“EMC”) under the Mandatory Provident Fund (“MPF”) scheme to offset severance payment (“SP”) and long service payment (“LSP”).

The amendment bill will amend eight pieces of ordinance/subsidiary legislation that currently provides for such offsetting arrangement, which includes the Employment Ordinance (Cap. 57 of the Laws of Hong Kong) and the Mandatory Provident Fund Schemes Ordinance (Cap. 485 of the Laws of Hong Kong).

After the amendments come into effect on a date to be appointed (the ”Transition Date”), the offsetting arrangement will be abolished.  Employers, however, can still continue to use their voluntary contribution made in excess of the mandatory requirement to offset SP/LSP before or after the Transition Date.

It should be note that the amendment bill proposes that the abolition of the offsetting arrangement has no retrospective effect.  Therefore, where an employee’s employment commenced before the Transition Date, the employer can continue to use the accrued benefit of the MPF contribution to offset the employee’s SP/LSP in respect of the employment before the Transition i.e. Pre-Transition SP/LSP being those SP/LSP payable in respect of the period up to the Transition Date can be offset.  The Government is of the opinion that this would help reduce of the risk of large-scale dismissal employee, in particular those with long years of service before the Transition Date.

The current calculation for SP/LSP is two-thirds of the last monthly wages, subject to a maximum of HK$22,500 for each year of service and a maximum sum of SP/LSP at HK$390,000.  The amendment bill will not change the rate and maximum payment of SP/LSP.  The pre-transition portion of SL/LSP will be calculated on the basis of the monthly wages immediately before the Transition Date and the years of service before the Transition Date.  For the post-transition portion, SP/LSP would be calculated on the basis of the last monthly wages before the termination of employment and years of service.

The abolition of the offsetting arrangement will also be applicable to other retirement schemes under the Occupational Retirement Schemes Ordinance (Cap. 426 of the Laws of Hong Kong), the two school provident funds under the Grant Schools Provident Fund Rules (Cap. 279C of the Laws of Hong Kong) and Subsidized Schools Provident Fund Rules (Cap. 279D of the Laws of Hong Kong) and overseas occupational retirement schemes of employees from outside Hong Kong which are exempted from the MPF System.

Although there are no indication on when the Transition Date would be, it is advisable for employer and employee to familiarize themselves with the amendments and their respective rights under Hong Kong’s employment law regime.

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