MPF Obligations for Hong Kong Employers: A Complete Compliance Guide

Introduction

The Mandatory Provident Fund (MPF) system is Hong Kong’s compulsory retirement savings scheme, established under the Mandatory Provident Fund Schemes Ordinance (Cap. 485) (MPFSO). Since its introduction in December 2000, the MPF has provided a framework for both employers and employees to make regular contributions to approved provident fund schemes, building retirement savings for Hong Kong’s workforce.

Compliance with MPF obligations is mandatory for virtually all Hong Kong employers. Non-compliance carries significant penalties and reputational consequences. This guide explains the key obligations for employers, contribution mechanics, exemptions, and recent legislative changes including the abolition of the offsetting arrangement.

Who Must Comply with MPF?

Covered Employers and Employees

The MPF system covers:

• Employers – any person or entity that employs one or more employees in Hong Kong;
• Employees – any person employed under a contract of employment in Hong Kong, aged between 18 and 64.

Both employers and employees must contribute to the MPF.

Exemptions

Certain categories of persons are exempt from MPF:

• Domestic workers – persons employed solely to perform domestic service in a private household are exempt from the MPF (employers of domestic workers are exempt from contributing on their behalf);
• Persons with overseas retirement schemes – employees who are members of occupational retirement schemes (ORSO schemes) approved under the Occupational Retirement Schemes Ordinance (Cap. 426) and providing benefits at least equivalent to MPF may be exempt;
• Self-employed persons – self-employed persons must contribute to MPF on their own behalf but there is no employer contribution;
• Casual workers in construction and catering industries – subject to industry-specific provisions;
• Employees on contracts of less than 60 days – employees engaged under contracts of 60 days or less, or for seasonal work, are exempt.

MPF Contribution Obligations

Mandatory Contribution Rates

Both employers and employees must contribute at the rate of 5% of the employee’s relevant income per contribution period, subject to minimum and maximum income levels.

Relevant Income

“Relevant income” includes wages, salary, leave pay, fee, commission, bonus, gratuity, housing allowance or housing benefits, and other remuneration. It excludes:

• Severance pay;
• Long service payment;
• End of contract gratuities (subject to offset provisions).

Minimum and Maximum Income Levels (2025)

• Minimum relevant income: HKD 7,100 per month. Employees earning below this level are exempt from making employee contributions, but employers must still make their 5% contribution;
• Maximum relevant income: HKD 30,000 per month. Contributions are capped at 5% of HKD 30,000 = HKD 1,500 per month each for employer and employee.

An employee earning more than HKD 30,000 per month contributes a maximum of HKD 1,500 (mandatory), and the employer contributes HKD 1,500 (mandatory). Voluntary contributions above the maximum are permitted.

Contribution Day

Contributions must be remitted to the MPF trustee by the 10th day of the month following the contribution period. For monthly-paid employees, the contribution period is the calendar month. For non-monthly employees, the contribution period is each relevant pay period.

Employer Obligations

1. Enrolment

Employers must enrol all eligible employees in an MPF scheme within 60 days of the commencement of employment. Employers may choose from any MPFA-approved MPF trustee and scheme.

2. Contribution Calculation and Remittance

Employers are responsible for:

• Calculating both the employer’s mandatory contribution and deducting the employee’s mandatory contribution from the employee’s salary;
• Remitting the total contributions to the MPF trustee by the contribution day;
• Maintaining accurate records of contributions for each employee for at least seven years.

3. Voluntary Contributions

Employers and employees may make voluntary contributions above the mandatory minimum. Voluntary contributions are subject to more flexible terms regarding withdrawal and investment, as specified in the scheme rules.

4. Employee Choice Arrangement (ECA)

Under the Employee Choice Arrangement, each employee has the right to transfer the accumulated mandatory contributions in their employee contribution sub-account to a scheme of their choice, once per calendar year. Employers do not have control over employee’s ECA transfers but must cooperate with the trustee on the administrative process.

The Offsetting Arrangement Abolition

One of the most significant recent changes to the MPF system is the abolition of the offsetting arrangement, which came into effect on 1 May 2025.

What Was the Offsetting Arrangement?

Before May 2025, employers were entitled to offset severance payments and long service payments (LSP) payable to eligible employees against the employer’s mandatory MPF contributions accumulated in the employee’s MPF account. This meant that an employee’s severance/LSP entitlement could be partially or fully extinguished by the employer’s MPF contributions.

What Changed?

From 1 May 2025, the offsetting arrangement is abolished. Employers can no longer offset their MPF accrued benefits against severance or long service payments. This means:

• Employer mandatory contributions in MPF accounts belong entirely to the employee as retirement savings;
• Employers must pay severance/LSP out of their own funds, in addition to the MPF contributions already made;
• The Government has introduced a subsidy scheme to assist small and medium enterprises (SMEs) with the additional financial burden during a transitional period.

Employers should review their employment contracts, payroll systems, and financial provisions to ensure they are prepared for the increased severance/LSP liability under the post-offsetting regime.

Penalties for Non-Compliance

The MPFA actively enforces MPF contributions. Penalties include:

• Surcharge – employers who fail to make contributions on time are liable to a surcharge of 5% per annum (accruing from the contribution day) on unpaid amounts, plus a minimum surcharge of HKD 400;
• Criminal prosecution – persistent non-payment of contributions is a criminal offence. Convicted employers face fines of up to HKD 450,000 and imprisonment of up to 4 years for repeat offenders;
• Director liability – directors and officers of a corporate employer may be personally liable for MPF non-compliance where the offence is committed with their consent or connivance.

Employee Termination and MPF

Upon termination of employment:

• The employer must make all outstanding mandatory contributions for the relevant pay period within 10 days;
• The employer notifies the MPF trustee of the termination, and the employee’s accrued benefits are preserved in the MPF scheme until the employee reaches age 65 (or another permitted withdrawal event);
• Under the post-offsetting regime, the employer must calculate and pay severance/LSP separately from the employee’s MPF account.

Tax Deductibility of MPF Contributions

For employers, mandatory MPF contributions are a deductible expense for profits tax purposes. For employees, mandatory MPF contributions are deductible from assessable income for salaries tax purposes, up to a maximum of HKD 18,000 per year (as at 2025).

Practical Compliance Tips for Employers

• Set up payroll systems for automatic MPF deduction – integrate MPF calculations into payroll software to ensure accurate and timely contributions;
• Maintain complete records – keep contribution records, employee enrolment forms, and trustee remittance confirmations for at least seven years;
• Monitor MPFA guidance – the Mandatory Provident Fund Schemes Authority (MPFA) regularly issues guidance on contribution periods, holiday adjustment, and new employee processing;
• Review employment contracts post-offsetting abolition – update termination payment clauses to reflect the abolition of the offsetting arrangement;
• Train HR and payroll staff – ensure staff understand the new regime and can handle employee MPF queries.

How Alan Wong LLP Can Assist

Alan Wong LLP’s Corporate & Commercial team advises employers on all aspects of employment law compliance in Hong Kong, including MPF obligations. Our services include:

• Review of employment contracts and MPF compliance policies;
• Advice on the abolition of the offsetting arrangement and its financial implications;
• Assessment of ORSO scheme eligibility for MPF exemption;
• Employment dispute resolution involving MPF non-payment claims;
• Corporate restructuring advice involving employee transfer and MPF implications.

Contact us to discuss your employment and MPF compliance requirements.