What is MPF in Hong Kong: A Guide
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You might have asked, “What is MPF?” if you are in Hong Kong. Here is a guide on what is MPF.
Plans for retirement savings are a crucial component of the benefits package for employees.
Due to the ageing population, Hong Kong’s citizens are required to enrol in a Mandatory Provident Fund (MPF), a mandatory government retirement program, which was put into place in December 2000.
In the US and Canada, MPF is the 401K pension fund’s counterpart. The Mandatory Provident Fund Schemes Authority (MPFA), which was established in September 2000, is responsible for enforcing the MPF set of mandatory savings programs for working people in the Hong Kong area.
According to the MPFA, an MPF scheme will be applicable to:
Global companies operating in the region may be required to register with and make contributions to a scheme in order to comply with these regulations and make sure their employees have the proper retirement plan in place.
Here is the Hong Kong government information on MPF.
The MPF scheme wasn’t actually put into effect until 2000, after the enactment of the following:
The governing body that is in charge of ensuring the availability of the various MPF programs available is the Mandatory Provident Fund Authority (MPFA). They also make sure that trustees don’t break any laws.
Employers who do not adhere to the legal requirements will be charged a fine. Alternatively, based on the nature of the non-compliance and the severity associated with it, they might be prosecuted.
The best option for small to medium-sized businesses and the most typical kind of MPF in Hong Kong is the master trust scheme.
It is made available to workers who hold multiple jobs, self-employed individuals, and former employees who have accrued savings benefits from their working service.
The pension contributions from participating members are combined in this scheme at various levels of risk, giving investors more options.
Employees of participating employers, independent contractors, and individuals with accrued benefits from other programs are all eligible to participate in this type of program, which is the most prevalent.
As said, Master Trust Schemes combine contributions from numerous employers and their employees, as well as contributions from self-employed individuals. Because of economies of scale, master trust schemes have a high level of efficiency in terms of scheme administration.
The employer-sponsored program is designed for larger companies that can provide their employees with their own savings plans. This contrasts with the master trust scheme, which combines funds with other businesses. The employer-sponsored plan, meanwhile, is limited to the particular choices provided by the business.
This is only available to staff members of a single employer and its affiliated businesses.
Running an employer-sponsored plan is only affordable if the business has a large number of employees due to the membership restriction.
For businesses in the construction and catering industries, this plan is the ideal choice. It’s also ideal for businesses that need casual, remote, or temporary workers who are not employed by just one company.
The MPFA created this plan especially for these employees to make sure they wouldn’t miss out on retirement income.
This is specifically made for workers in the construction and catering industries, especially casual workers, or those hired on a daily basis or for a fixed period of less than 60 days.
If casual employees switch jobs within the construction and catering industries, they are not required to switch schemes as long as both their new employer and their previous employer are members of the same industry scheme.
If your international company employs people in Hong Kong, you should implement the proper MPF plan to protect yourself from potential pitfalls, severe penalties, and exorbitant fines.
An easy-to-read summary of your company’s duties is provided below:
Employers in Hong Kong are required by law to enrol their workers in an MPF program.
Here is a quick summary of what you need to be aware of, but IRIS FMP is fortunately prepared to support and direct you with your MPF employee enrollment needs and procedures:
Some employees will be exempt from the Mandatory Provident Fund despite all these different plans and fund types.
These are:
Within the first 60 days of employment, you must enroll full-time and part-time workers between the ages of 18 and 65.
Keep in mind that the 60-day employment rules refer to the length of the employment relationship with the new hire. As a result, it has no effect on how many working days there are.
The employee won’t need to be enrolled in a Mandatory Provident Fund scheme at all if their employment ends before their 60th day of employment.
The deadline for enrolling will then be extended to end on the day after; the days before those are excluded.
As an illustration, Chloe is a recent hire at your company as an executive. 15 October 2021 marks her first day of work (Thursday). Since she will have worked for 60 days after her first day of employment, you must enroll her in the MPF Scheme by Tuesday, December 14, 2021.
What if Chloe’s first day of work is October 20, 2021, a Tuesday? The enrollment deadline would then move from December 19 to December 21, 2021. This is due to the fact that December 19 and December 20 of 2021 are on different weekends.
The employment and enrollment rule of 60 days is still in effect. By the employee’s 60th day, you, the employer, must enroll them.
You must submit an enrollment form for the chosen MPF scheme in which your business is enrolled in order to enroll an employee. The employee will then have to:
In order to set up your employee’s MPF account, you must then give your trustee the completed form.
What will happen if your employee fails to fill out the enrollment form? The incomplete enrollment form must still be delivered to your trustee by the deadline. This is to make sure that you’ve complied with your duty as an employer.
A maximum mandatory contribution of $1,500HKD, or 5% of an employee’s monthly income, may be viewed by some employees and employers as being inadequate for a retirement plan. In light of this, they might want to voluntarily contribute more.
Voluntary contributions, as opposed to required contributions, are frequently determined and defined in accordance with the enrolled scheme’s rules. Employers should speak with their MPF trustees for specific information on how to make voluntary contributions under your selected plan.
Once a settlement has been reached, voluntary contributions can be agreed upon by both employers and employees. According to their gross or net salary, this may be determined (after the mandatory contributions have been made).
Chloe’s employer has made the decision to go above and beyond and make voluntarily contributions. They have decided to voluntarily contribute 5% of her gross monthly income as a result of their decisions.
The Employer Voluntary Contribution will also be $1,500 HKD if Chloe earns $30,000 HKD and her employer already contributes $1,500 HKD as required by law.
Additionally, Nicholas’ employer has chosen to go above and beyond by offering voluntarily made contributions. They have decided to voluntarily contribute 5% of his net income as a result of their decisions.
Let’s assume that Nicholas makes $55,000 HKD after the required contributions. A $2,750 HKD voluntary contribution from the employer is required (55 000 x 5% = 2,750).
Nicholas will make a voluntary contribution of $2,750 HKD if he also makes an employee voluntary contribution equal to 5% of his net salary. Then, his total net pay will be $52,250 HKD.
Please keep in mind that the examples given above are of straightforward voluntary contributions. Depending on the circumstances, there may be instances where both parties have an agreement to provide a combination of voluntary percentage-based or fixed-sum contributions.
A contribution holiday will be in effect for new hires who have been unemployed for 60 days or longer. They won’t be required to pay the required MPF contributions in this situation.
In accordance with MPFA, the first contribution must be made to the trustee no later than the 10th day following the end of the month in which the employee’s 60th day of employment falls.
Consider Nicholas, a recent hire who started working for your company on September 5th, 2021.
Nicholas’ employer is required to start making employer contributions as soon as he starts working. The employer will then be required to make their first Employer Mandatory MPF Contribution for Nicholas by December 10, 2021, assuming a 60-day MPF Contribution Holiday.
Nicholas, however, is exempt from paying employee contributions for the first 30 days of his employment as well as the first incomplete wage period because he started on September 5th. Since the time frame typically lasts up to 60 days for the majority of businesses, the phrase “60-day MPF Contribution Holiday” is one that is frequently used. Nicholas will have to make his first Employee MPF contribution in the following month by December 10th, 2021, after the contribution holiday expires.
Now that you are aware of the contribution rates and the contribution holiday, you have probably noticed that it was stated here that the contributions must be made by the tenth day of the following month.
For regular employees who are paid on a monthly basis, an employer is required to make the required contributions on the tenth of each month.
The contribution day will extend to the next succeeding day which isn’t any of the days mentioned above if the contribution day is a Saturday, Sunday, a public holiday, a gale warning day, or a day with a black rainstorm warning.
A few things must be done by the employer after an employee leaves the company, whether through termination or resignation. The first would be to set up a final contribution, and the second would be to inform the trustee that your employment has come to an end.
You must also make arrangements for the departing employee’s final required MPF contribution in accordance with MPFA requirements. That must be submitted along with those of the other employees on or before the following month’s contribution deadline.
Due to MPFA regulations, it is crucial that you promptly inform your trustee if an employee leaves the company so that the employee’s account records can be updated. After all, you want to protect your business from being labeled a defaulter and future consequences.
You can inform your trustee of a departing employee in one of two ways:
Companies (and people) found to have been careless in their obligations due to improper MPF planning and diligence face severe penalties.
In addition to financial penalties, those who violate these laws risk being imprisoned.
If an employee believes their employer is violating their MPF rights, they also have the option to file a complaint with the MPFA.
The types of employer non-compliance offenses and their corresponding penalties are listed below.
Mandatory contributions to an employee’s MPF account must be made by both employers and employees. Subject to a minimum and maximum caps, this must be at least 5% of the employee’s relevant income.
Additionally, self-employed individuals must make contributions equal to 5% of their relevant income. You may elect to make additional voluntary contributions to top off your account in addition to the required MPF payments.
A tax deduction for employee contributions to an MPF plan is allowed, up to a maximum of 18,000 HKD. The specifics of the payment and MPF scheme will determine whether or not voluntary contributions are tax deductible.
Of course, a lot of people won’t begin withdrawing their MPF funds until they reach retirement. What happens, though, if you relocate? You might be qualified for an early withdrawal from MPF Hong Kong in this situation.
Only if you’re leaving Hong Kong permanently is early withdrawal possible. You must have already left the country or be planning to do so soon, and you must declare that you will not come back to Hong Kong to work or establish a permanent residence there.
It’s important to keep in mind that if you withdraw your money and then reapply to your provider for the same reason with a later departure date, MPF won’t receive payment again.
To withdraw money, you must submit an application to the relevant MPF scheme and must include the following information:
I hope this article has given you a better understanding of MPF and the various offered schemes.
Why not speak with an expat advisor if you’re still perplexed about how you’ll manually calculate and keep track of the MPF contributions for each of your employees?
After all, we automate the MPF calculations and make processing payroll month after month a breeze. You’ll spend less time on payroll calculations and more time on the things that are really important.