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Since the Mandatory Provident Fund Schemes Ordinance ("MPFSO") came into effect in Hong Kong in December 2000, the Mandatory Provident Fund Schemes Authority ("MPFA") has been monitoring the implementation of MPF Schemes by the employers and has introduced a number of amendment of the MPFSO since then.
Under the MPFSO, an employer and an employee are each required to make a monthly MPF mandatory contribution based on 5% of the employee's "relevant income" which has been capped at HK$20,000 per month. Employee who earns less than HK$5,000 per month is exempt from making employee MPF mandatory contribution although his or her employer is still required to make the employer's MPF mandatory contribution.
Relevant income includes wages, salary, leave pay, fee, commission, bonus, gratuity, perquisite or allowance (other than a housing allowance or other housing benefit), expressed in monetary terms, but does not include severance payments or long service payments under the Hong Kong Employment Ordinance.
Closing the loophole for reducing MPF contribution
The primary reason for excluding housing allowance from the definition of relevant income by the government was to minimize the contribution burden of employees since the housing allowance for employees could be significant because of the high housing cost in Hong Kong while not affecting the low-paid employees who generally do not receive housing allowance.
Unfortunately, it has been shown that a small number of employers have tried to reduce their employer's MPF mandatory contribution by labelling a portion of their employees' salary as either a housing allowance or a housing benefit even though their employees' monthly salary is in the low end (e.g. HK$5,000 only).
As a result, the government recently amended the definition of relevant income such that housing allowance and other housing benefit are no longer excluded from relevant income for MPF contribution purposes. For the avoidance of doubt, only housing allowance and housing benefit payable in cash terms will be included as relevant income while the monetary value of quarters or accommodation provided by employer would not be included as relevant income.
Effective date to be announced
According to the MPFA, the effective date of the above change in relevant income is yet to be announced by the government. However, it is anticipated that the change may take place in October 2008. While we are waiting for the government's announcement in this respect, it will be good for the employers to review now the implications that the above change may bring and to determine the actions that they may need to take.
Implications to the top-up contribution of pension plans
Where employers have implemented a rental reimbursement scheme, some employers have topped up the employer's MPF contribution by the amount of the rental reimbursement benefit in order to avoid a reduction in the employer's MPF contribution after implementing rental reimbursement benefit.
As regards the Occupational Retirement Schemes ("ORSO plans") still implemented by some employers, some employers may have topped up the employer's ORSO contribution for the above reason.
Therefore, employers may need to re-visit their MPF/ORSO plan rules to exclude the top-up element for rental reimbursement benefit to avoid double contribution after the effective date of the change in relevant income.
If you would like to review and discuss the above implications to your organisations, please feel free to reach out to your PwC contacts. |
