Impact of the Cancellation of the MPF Offsetting Arrangement on Employers and Employees

With the Hong Kong Labour Department announcing the abolition of the MPF offsetting mechanism effective from May 1, 2025, this change will have profound impacts on both employers and employees. The following analysis covers the main effects of this policy change and its potential consequences.

Impact on Employees:

1. Enhanced Protection of Severance Pay and Long Service Payment
   In the past, employers could use mandatory MPF contributions to offset part of severance pay or long service payments, which meant employees received reduced compensation during layoffs or company closures. With the cancellation of offsetting, employees will be able to receive the full amount of severance pay or long service payments, significantly strengthening their financial protection and providing better support during career instability.

2. Possible Risks of Layoffs
   Although the new system enhances protection for employees, it may also lead employers to conduct layoffs ahead of the reform to reduce costs. Employees might face unnecessary layoff pressure, especially during the transitional period of the policy change, which requires special attention.

Impact on Employers:

1. Increased Cost Burden
   With the cancellation of MPF offsetting, employers’ financial burden when paying severance and long service payments will significantly increase. Although the government provides transitional subsidies, employers still need to prepare financially to cope with potentially higher severance expenses in the future.

2. Adjustment of Recruitment and Retention Strategies
   To manage the increased costs, employers may need to reconsider their recruitment and talent retention strategies. They might strengthen training and development for existing employees and reduce turnover to lower future severance costs. Additionally, employers might adjust their compensation structures to attract and retain talent more effectively.

The abolition of MPF offsetting is an important protective measure for employees, enhancing their financial security amid layoff risks. However, employers will face challenges from increased costs, which will require adjustments in business strategies. While this change might bring short-term instability, careful planning and management are essential for long-term success.

If your company would like to learn more, feel free to contact Adviser Grace, who can help you easily manage MPF arrangements.