Are you an employer in Hong Kong, or do you plan to hire staff for your Hong Kong company? You must register your employees under a Mandatory Provident Fund (“MPF”) scheme and make monthly contributions towards it.
With one of the lowest fertility rates in the world, Hong Kong has a rapidly ageing population. The median age of its population rose from 41.7 in 2011 to 46.3 in 2021. In addition, the percentage of elderly residents aged 65 and over increased from 13% in 2011 to 20% in 2021.
In view of the city’s shifting demographics, the MPF was launched in 2000. As a statutorily mandated pension fund, the MPF provides a financial safety net for its ageing workforce and retired citizens. Failing to provide adequate coverage, former occupational schemes operated on a voluntary basis. The MPF sought to remedy this by making participation compulsory for all employees working in Hong Kong.
As an employer in Hong Kong, you are required to comply with the various regulations governing the MPF system. Employers found to be in breach of their duties, including failing to make contributions and enrol employees on an MPF scheme, can face penalties and criminal prosecution.
This article helps you navigate the workings of the MPF system and the different types of MPF schemes available. It also details the method of calculation in respect of MPF contributions.
Table of Contents
What is the MPF?
The MPF is a compulsory pension system that operates by way of privately managed savings schemes in Hong Kong. With over 413 investment funds under its purview, the MPF enjoys a membership of 4.7 million in Hong Kong. MPF schemes fall under the administration of authorised MPF trustees. Their role entails appointing investment managers and service providers and making sure they abide by all relevant regulations and guidelines. In addition, provident fund schemes must undergo a rigorous vetting process conducted by the Mandatory Provident Fund Schemes Authority (“MPFA”) to be registered as recognised MPF schemes. The MPFA is a statutory body formed pursuant to the provisions under the Mandatory Provident Fund Schemes Ordinance. Its primary responsibility is to regulate and supervise the operations of MPF schemes.
To whom does the MPF apply?
Except certain persons who are exempt from registration (discussed further below), all employees and self-employed individuals aged between 18 and 64 are required to participate in an approved MPF scheme.
An employee is defined as a person with whom an employer has entered into an employment contract. This may be concluded in writing or verbally and contain express or implied terms.
The definition covers regular employees and casual employees. Regular employees are those aged between 18 and 64, employed in any sector for 60 or more consecutive days. Casual employees are those aged between 18 and 64, employed in the construction or catering industries on a day-to-day or temporary basis for a period of fewer than 60 days.
It is also mandatory for self-employed individuals to register for an MPF scheme. Self-employed persons refer to those who are not employees and receive income from the manufacture of goods or the sale of goods or services. Sole traders and partners in a partnership business are deemed to be self-employed.
Who is exempt from registration?
The following types of individuals are not required to enrol on an MPF scheme:
- Employees and self-employed persons under 18 or over 65 years old.
- Domestic employees, i.e., babysitters, domestic helpers, gardeners, and security guards who render services at the employer’s premises or household.
- Self-employed hawkers.
- Members of statutory pension or other provident funds, including civil servants as well as subsidised or grant school teachers.
- Persons registered under occupational retirement schemes who have received MPF exemption certificates.
- Persons entering Hong Kong under section 11 of the Immigration Ordinance for the purpose of employment for a period not exceeding 13 months, or who are covered by a retirement scheme outside Hong Kong.
- Staff employed by the European Union Office of the European Commission in Hong Kong.
What are the different types of MPF schemes?
MPF schemes can be broadly divided into three groups.
- Master Trust Schemes
Master Trust Schemes represent the most popular form of MPF scheme. Such schemes pool together the contributions made by all participating employers, employees, and other scheme members. The aggregative model allows the advantages of economies of scale in administration and investment to be more effectively harnessed.
Master Trust Schemes are open to all employers, employees, self-employed individuals as well as those wishing to set up personal or tax-deductible voluntary contribution accounts.
- Employer-Sponsored Schemes
Membership to Employer-Sponsored Schemes is restricted to employees of a single employer and its affiliated organisations, including subsidiaries. Unlike under Master Trust Schemes, personal accounts cannot be opened under Employer-Sponsored Schemes.
Large corporations with many employees usually choose this pathway.
- Industry Schemes
Industry Schemes are special schemes specifically tailored to the needs of casual workers employed in the catering and construction industries. As stated above, casual workers are hired on a day-to-day or temporary basis for a period of no more than 60 days.
Permanent or regular employees working in the catering and construction industries can also opt for Industry Schemes. But their contributions will be computed in the same fashion as those of normal staff.
Besides contribution accounts, personal or tax-deductible voluntary contribution accounts can be set up under Industry Schemes.
A key advantage of Industry Schemes is a lighter administrative burden for both employees and employers. Casual workers are not required to switch schemes when they change jobs – if the previous and new employers are members of the same Industry Scheme. Likewise, employers need not notify the trustee when they terminate employment of a casual worker.
What should you consider when choosing an MPF scheme?
The decision on which MPF scheme to choose ultimately rests with you as the employer. However, you are well advised to discuss with your employees their needs and preferences to arrive at an informed decision. You are free to participate in more than one MPF scheme, providing your employees with a broader selection from which to choose the most suitable option that best caters to their requirements.
In reaching a decision, you should take into account the following factors:
- Different kinds of funds under each scheme
- Fees and charges under each scheme
- Level of customer service provided by the scheme trustee.
You can also consult the MPF Fund Platform and the Trustee Service Comparative Platform. Both platforms provided by the MPFA allow you to compare different funds against a wide range of criteria, including any surcharges payable, the quality and breadth of services offered, the risk level and performance of funds, etc.
How do you enrol employees?
The MPFA operates a 60-day enrolment rule. You must register both your full-time and part-time staff who are employed for 60 or more consecutive days and aged between 18 and 64 within 60 days of commencement of employment. The 60-day period, beginning on the first day of employment, is based on calendar days, rather than working days. However, this rule does not apply to casual workers employed in the catering and construction industries.
Employers are strictly prohibited from deliberately signing employment contracts that last fewer than 60 days to avoid triggering the requirement for registration under an MPF scheme. As long as there is an employer–employee relationship of 60 days or more, the employer must register the employee and contribute to an MPF scheme.
To enrol an employee on an MPF scheme, you must complete and submit a form with the following details to the scheme trustee:
- Employee’s personal particulars
- Chosen MPF scheme
- Employee’s signature
- Tax residency self-certification
Upon acceptance on to an MPF scheme, the employee will receive a notice of participation issued by the trustee.
The notice of participation contains the following information:
- Name of the MPF scheme under which the employee is registered
- Name and address of the trustee
- Name of the scheme member
- Date of issuance
Failure to submit the enrolment form within the 60-day period can result in a fine of up to HKD 350,000 and three-years’ imprisonment. Where an employee declines to fill out the enrolment form or fails to return it to you on time, you must, nonetheless, submit the incomplete form to the trustee as part of your obligations as an employer.
How much do you have to contribute?
Employees are required to contribute five per cent of their income. You, as the employer, must make a matching contribution of five per cent. The definition of income covers any wages, salary, leave pay, fees, commissions, bonuses, gratuities, perquisites, or allowances. It, however, excludes severance payments or long-service payments under the Employment Ordinance.
In addition to making matching contributions, you must deduct your employees’ contributions from their income for each contribution period. The contribution period is usually the wage period. Newly hired employees are entitled to a contribution holiday for the initial 30 days of employment. Hence, they are not required to make contributions during this period.
For monthly paid employees, the amount of mandatory contributions paid by the employer and employee is as follows:
Employee’s monthly income |
Employer’s mandatory contributions |
Employee’s mandatory contributions |
|---|---|---|
|
Less than HKD 7,100 |
5% of income |
Not required |
|
HKD 7,100 to HKD 30,000 |
5% of income |
5% of income |
|
More than HKD 30,000 |
HKD 1,500 maximum |
HKD 1,500 maximum |
As shown above, MPF contributions are subject to a cap of HKD 1,500 per month for employees whose monthly income exceeds HKD 30,000.
Contribution day, i.e., the day on which contributions are paid to trustees, is the tenth day of every month. For instance, contributions covering the wage period of February must be remitted to trustees by 10 March.
On a related note, you are entitled to a tax deduction on MPF contributions insofar they do not exceed 15 per cent of the employee’s yearly income. On the other hand, employees can claim a deduction of up to HK 18,000 on MPF contributions. Voluntary contributions are, however, not eligible for tax deduction.
What other obligations do you have as an employer?
- Record-keeping
For regular employees, you are mandated to keep and preserve records of the following information:
- Employee’s particulars, including name, address, and employment start date – for at least six months after termination.
- Employee’s income, including a breakdown of items (e.g., wages, salary, leave pay, commission, allowances, etc.), and dates on which payments were made – for at least six months after payment.
- Details in the remittance advice, including the amount of contributions made by both the employer and employee, and, if applicable, the amount of voluntary contributions – for at least seven years after the issuance date of the remittance advice.
- Monthly summary record for employees
Every month, you are required to prepare a pay record within seven days of remitting contributions to the trustee. The record should contain the following information:
- Employee’s income
- Amount of mandatory contributions paid by both parties
- Amount of voluntary contributions made, if applicable
- Date on which the contributions were remitted to the trustee
- Notify trustee upon termination of employment
You must notify the trustee of an employee’s termination of employment by the tenth day of the following month. This is to enable the trustee to update your records accordingly. It is important to note that, in the absence of the requisite notification, non-payment may be deemed a default contribution and reported as such to the MPFA. In addition, you may be liable to a fine of up to HKD 20,000.
For more information, visit the MPFA’s dedicated website for employers.
What can CW do for you?
Managing payroll and MPF contributions for your employees can be a time-consuming and complex affair, which takes your focus away from your core business operations. Outsourcing these functions to us can deliver tangible benefits for your company. It can provide you with a cost-effective and efficient solution, freeing up your valuable resources, which can now be invested in growth- and revenue-driving areas of your business. With over 30 years’ experience in helping companies of different shapes and sizes manage their human resources, our seasoned professionals can streamline your HR processes while ensuring full compliance – from MPF enrolment and registration, payroll calculation and remittance, to Employer’s Return preparation and filing.
Contact us today to find out how we can boost your organisational efficiency.
