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Hong Kong Mandatory Provident Fund Scheme – All Employee Must Know
The Mandatory Provident Fund System (MPF) in Hong Kong is a system which concerns both employers and employees alike. Both parties will be required to make regular contributions. The contributions are calculated at 5% of the employee’s relevant income, and the contributions will be subjected to the minimum and maximum relevant income levels.
For an employee who is paid on a monthly basis, the minimum and maximum relevant income level amount for MPF contributions are $7,100 and $30,000 respectively. For an employee who earns less than $7,000 monthly, they will not be required to contribute anything. However, the employer will be required to contribute to the relevant income of 5%. If the employee earns more than $10,000 per month, they will be required to contribute $1,500, a similar amount which must also be contributed by the employer.
The current minimum relevant income contribution level of $7,100 per month is applicable for contribution periods which commence on or after 1 November 2013. The current maximum relevant income contribution level is applicable for periods commencing on or after 1 June 2014.
Employers and employees are free to make voluntary contributions in addition to the mandatory contributions required.
What Is Relevant Income?
This refers to the monetary payments which are paid (or payable) by an employee to an employee. This includes wages, leave pay, fees, salary, bonuses, gratuities, perquisites, commission or allowances. Relevant income excludes severance payments or long service payments under the Employment Ordinance (Chapter 57).
Any individual who is self-employed in Hong Kong is covered by the MPF system and must make regular mandatory contributions. These contributions are calculated at 5% of their relevant income, subject to the minimum and maximum levels. Self-employed individuals have the option of opting out of the MPF system. However, if they wish to do so, it can only be done on or before the date of contribution.
The minimum relevant income levels are $7,100 per month (or $85,200 per year). The maximum relevant income levels are $30,000 per month (or $360,000 per year). Self-employed individuals are also free to make voluntary contributions on top of the required mandatory contribution levels.
Employers and the MPF System
Employers must calculate an employee’s relevant income to ascertain the mandatory amount of contributions which need to be paid each period. The required amount will be deducted from the employee’s monthly income. The contributions from the employee must be paid together with the contributions from the employer’s own funds. All contributions must be paid to the MPF trustee on or before the date of contribution.
For employees who are receiving a monthly salary, the date of contribution will fall on the 10th day of each month. If the date falls on a weekend, public holiday, gale or black rainstorm warning day, the contribution day will be extended to the next following day. If an employer based in the construction and catering industry employs casual employees enrolled in the Industry Schemes, they may choose to make their mandatory contributions the next working day following a weekend or public holiday. Alternatively, they could make their contributions the following relevant-pay day or within 10 days after the contribution period.
For regular employees, employers will be required to make their mandatory contributions payable on the first day of employment. The employee on the other hand, enjoys what is known as a contribution holiday. During this period, they will not be required to make the mandatory employee contributions for the first 30 days of employment.
For casual employees, contributions from both employers and employees will be payable from the first day of employment. There will be no initial contribution holiday in this instance.
Remitting Statements and Pay-Records
Employers will be required to provide the trustee with remittance statements which show the amount of each employee’s relevant income. This must be done during the remittance of each payment contributions. The amount of both the employee and the employee’s contribution must be provided, along with a monthly pay-record which shows the required details.
For employers who are participating in the Industry Schemes and paying the mandatory contributions in respect of their casual employees, they will not be required to comply with the remittance statements and pay-records requirements.
Once an employee who is a member of the MPF system has ceased to work for the employer, the employer must arrange for the last payment of mandatory contributions to be contributed to the next working day. The MPF trustee must also be notified regarding the termination date. This must be done via the next remittance statement, or via written notice.
If a casual employee who is a member of an Employer Sponsored Scheme or Master Trust Scheme ceases to work for the employer, the employer must arrange for the last mandatory contributions payment to be contributed the next day. The MPF trustee must also be notified of the termination date via the next remittance statement, or via a written notice within 30 days of the employment cessation.
Employees and the MPF System
Once an MPF trustee has confirmed the employee’s membership into the MPF system, the employee will be issued with a notice of participation. This notice replaces the membership certificate with effect from 1 August 2015. Employees are given the right to choose which constituent funds they would prefer to select under the MPF scheme selected by the employer.
Employees will be provided with a monthly pay-record which details all the relevant information they need. This includes the relevant income information and both the employee and employee’s contributions. This must be done within 7 working days once the mandatory contributions have been made.
Members of the scheme will also be provided with an annual benefit statement within 3 months after each financial period. This will be issued by the MPF trustee and must contain all the pertinent and relevant information, including the value of accrued benefits.
Mandatory contributions can be made on either a monthly or yearly basis. This must be done on or before the date of contribution. The amount that self-employed individuals are required to contribute is calculated at 5% of their relevant income. This is subjected to the minimum and maximum relevant income levels.
The relevant income of a self-employed individual is determined via:
- “Assessable profits” stated in the most recent notice of assessment issued by the Inland Revenue Department as their relevant income.
- Basic allowance defined under Section 28 of the Inland Revenue Ordinance as their relevant income.
- Income declaration to the MPF trustee
- Contribute the maximum amount of mandatory contributions payable per month or per year.
If the self-employed individual is running a business and that business has suffered a loss, they may lodge a statement with the MPF trustee with the details. They may then opt to discontinue mandatory contribution payment until their income meets the relevant income levels once more.
The individuals will be provided with an annual benefit statement within 3 months after each financial period of the MPF scheme. This statement will contain the relevant details pertaining to the contribution.
As an employer, it is your legal obligation under the MPF System to enrol your new employees into the MPF scheme you are participating.
Except for exempt persons, you should enrol both full-time and part-time employees who are at least 18 but under 65 years of age in an MPF scheme within the first 60 days of employment. The 60-days employment rule does not apply to casual employees in the construction and catering industries.
Note: If the 60th day of employment is a Saturday, a public holiday, a gale warning day or a black rainstorm warning day, the enrolment deadline is extended to end on the next following day which is not a Saturday, a public holiday, a gale warning day or a black rainstorm warning day.
Exempt persons include:
- employees and self-employed persons who have attained 64 years of age on the date the relevant provision in the Mandatory Provident Fund Schemes Ordinance is implemented, i.e. 1 Dec 2000;
- domestic employees;
- self-employed hawkers;
- people covered by statutory pension or provident fund schemes, such as civil servants and subsidized or grant school teachers;
- members of occupational retirement schemes which are granted exemption certificates;
- people from overseas who enter Hong Kong for employment or self-employment for not more than 13 months;
- people from overseas who enter Hong Kong for employment or self-employment and who are covered by overseas retirement schemes; and
- employees of the European Union Office of the European Commission in Hong Kong.
It is not uncommon for employers to set a probation period, say three months, for any particular position in their company. You should note that the probation period has no bearing on the 60-days employment rule.
As mentioned above, enrolling your employees into an MPF scheme is a legal obligation, and failing to do so is a criminal offence. The employer is liable to a maximum penalty of a $350,000 fine and imprisonment for three years.
To enrol an employee, simply provide an enrolment form for the MPF scheme you are participating into the employee. They will need to indicate their investment portfolio, i.e. the types of funds they wish to invest their MPF contributions into and sign the form. You should then return the completed form to your trustee to arrange for the setting up of an MPF account for your employee.
You are advised to allow sufficient time for your employees to study the funds available in the MPF scheme you have chosen in order to decide on their own investment portfolio. The enrolment form should, therefore, be provided to your employees as soon as possible.
Note: In the event that an employee refuses to cooperate and does not return the completed enrolment form to you, you should still send the incomplete enrolment form to your trustee before the 60-days deadline to fulfil your obligation as an employer. Contributions made for that employee will be invested according to the Default Investment Strategy (“DIS”) of the scheme.
Notice of participation
After the scheme trustee has confirmed an employee’s membership of an MPF scheme, it will issue a notice of participation to the employee.
The notice of participation will state the name of the scheme in which the employee is enrolled, the name and address of the trustee, the employee’s name and the issue date of the notice. With effect from 1 August 2015, the notice of participation replaces the membership certificate.