Employment law updates: MPF offsetting arrangement expected to be abolished in 2025; COVID-19-related amendments to the Employment Ordinance now in effect

The Hong Kong Legislative Council (“LegCo“) recently passed two amendment bills that will bring about considerable changes to the current employment law landscape in Hong Kong.  Below is a brief summary of what employers and employees should be mindful of:

  1. MPF offsetting arrangement expected to be abolished in 2025

Further to our news article published on 6 April 2022, the Employment and Retirement Schemes Legislation (Offsetting Arrangement) (Amendment) Bill 2022 was passed by  LegCo on 9 June 2022.  This means that, starting from 2025 at the earliest, employers will not be allowed to offset statutory severance payments (“SP“) or long service payments (“LSP“) against the accrued benefits derived from the employers’ mandatory contributions under the Mandatory Provident Fund (“MPF“) Scheme (the “Offsetting Arrangement“).

The abolition of the existing Offsetting Arrangement will take effect on a date to be determined by the Government (the “Transition Date“) after the eMPF Platform being developed by the Mandatory Provident Fund Schemes Authority has become fully operational – likely in 2025.  You may refer to our previous news article for the respective treatment of SP/LSP entitlement of employees who commence their employment before and after the Transition Date.  Employers should note that, after the Transition Date, they can continue to offset SP/LSP against (a) the accrued benefits derived from employers’ voluntary contributions under the MPF Scheme and (b) gratuities payable based on employees’ length of service, irrespective of whether they are used to offset the pre-transition or post-transition portion of SP/LSP.

Corresponding amendments will also be made to the Employment Ordinance (Cap. 57, the “EO“), Protection of Wages on Insolvency Ordinance (Cap. 380), Mandatory Provident Fund Schemes Ordinance (Cap. 485), Occupational Retirement Schemes Ordinance (Cap. 426) and Inland Revenue Ordinance (Cap. 112, the “IRO“).  Notably, the IRO will be amended to provide that SP/LSP paid in accordance with the EO is not chargeable to salaries tax.

Apart from introducing a 25-year subsidy scheme which aims to lessen the financial burden on micro-, small- and medium-sized enterprises, the Government will also enact a new piece of legislation to launch a Designated Savings Accounts (the “DSAs“) Scheme under which employers will be required to save up  to meet their future SP/SLP liabilities by contributing 1% of their employees’ monthly income to the DSAs until reaching 15% of their annual income.  The relevant bill is expected to be introduced in the next legislative session.

  1. COVID-19-related amendments to the EO now in effect

In another news article published on 20 April 2022, we provided a summary of the Employment (Amendment) Bill 2022 (the “Bill“) which seeks to, among other things, clarify the statutory definition of “sickness day” and what constitutes a valid reason for dismissal or variation of contract for the purpose of addressing COVID-19-related employment issues.

The Bill was passed by the LegCo on 15 June 2022 and came into operation on 17 June 2022. To recap, the major amendments to the EO, which do not have retrospective effect, are as follows:

  • The definition of “sickness day” now includes a day on which an employee (the “Affected Employee“) is absent from work by reason of his/her compliance of a requirement under the Prevention and Control of Disease Ordinance (Cap. 599) which restricts his/her movement, namely a compulsory testing, isolation or quarantine order.
  • Accordingly, an Affected Employee is entitled to sickness allowance where certain criteria are fulfilled.
  • An Affected Employee’s absence from work due to his/her compliance with a Cap. 599 requirement is not a valid reason for dismissal or variation of the terms of his/her contract.
  • However, an employee’s failure to comply with a legitimate vaccination request by the employer may constitute a valid reason for dismissal or variation of the terms of his/her contract.

Employers are encouraged to seek legal advice to ensure that their existing policies and practices are in compliance with the aforesaid abolition and amendments.

29 June 2022
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