How to Pay Your Employee’s MPF

Once you have started a business venture in Hong Kong and have employees on the payroll, it is time to familiarize yourself with the occupational retirement schemes and other obligations you must fulfill as an employer.

Mandatory Provident Fund (MPF) contribution is one of the key responsibilities an employer must discharge in Hong Kong. 

In simple terms, MPF is a retirement investment plan to safeguard the interests of the employees once they retire.

The pension scheme is outsourced to a private trustee and is supervised by the Mandatory Provident Fund Schemes Authority (MPFA).

MPFA has an obligation to ensure that the approved trustees administer schemes properly. 

Here's a detailed guide to understanding how MPF works and what you need to do to contribute. 

What Is MPF, and Who Are the Beneficiaries of MPF?

MPF was started by the Hong Kong government back in 1995.

The objective of MPF is to create a mandatory retirement savings scheme to support the retired workforce. 

The beneficiaries of MPF include employees and self-employed persons in Hong Kong between the ages of 18 to 64.

Moreover, such employees should be employed for 60 days or more under a continuous employment contract, or work as casual employees hired on a day-to-day basis in the construction and catering industry, or for hired for less than 60 days.  

There are different types of MPF schemes available.

As an employer, you must choose one and mandatorily enroll your employees.

While selecting a scheme, you should be mindful about:

• The fees and charges you'd need to pay under the scheme
• Type of funds each scheme provides
• Customer service provided by the trustee of a scheme

Employers are also encouraged to consult with their employees before locking in a scheme.

What Are the Different Types of MPF Schemes Available?

• Master Trust Schemes: This is the most common type of MPF system, which involves pooling contributions from various employers and scheme members.  The objective of the investment is to enjoy economies of scale and a better governance structure. 
• Employer-sponsored Schemes:  Employees of a single employer, including the subsidiaries and associated companies, can get the benefits under this scheme. This scheme works better for larger corporate entities. However, personal accounts are not permitted to be set up. 
• Industry Schemes: This scheme is specifically meant for casual employees who work in the construction and catering sectors. Typically, such employees are hired on a day-to-day basis or a period of less than 60 days.

Note that these contribution requirements apply to all qualifying or monthly paid employees.

Are There Any Employees Exempt from the Benefits of MPF?

Yes. These include:

• Domestic employees
• Employees who are covered under other statutory pension or provident fund schemes
• Non-permanent residents of Hong Kong who reside in Hong Kong for less than 13 months or avail of the benefits under overseas retirement schemes

MPF Account Types

There are three types of MPF accounts:

• Contribution account: This is the account into which an employer makes the mandatory contributions.
• Personal account: This account of the employee receives the MPF transferred from the contribution account of the present employer and MPF from previous employers. 
• TVC account: If you are a contribution account holder or a personal account holder under an MPF scheme, you can open a TVC account. The contributions made to this account are eligible for a tax deduction and can be made to the trustee directly. 

Employer's Contributions to MPF

Both you and the employees on your roll need to make mandatory contributions of 5% of the employee's relevant income.

In this context,  the relevant income includes wages, allowances, commissions, bonuses, gratuities, perquisites or allowances, and tips. 

This amount is deposited to the employee's MPF account, subject to the relevant maximum and minimum income levels.

The current maximum and minimum relevant income levels for employees who receive a monthly salary are HKD 30,000 and HKD 7,100, respectively.

The amount of an employer and the amount of the employee's contributions depends on their monthly income. Here's a breakdown:

• If their monthly income is less than HKD 7,100, you contribute 5% of their relevant income, and they contribute nothing.
• If their monthly income falls between HKD 7,100 and HKD 30,000, both you and your employee contribute 5% of their relevant income.
• If their monthly income is over HKD 30,000, the maximum contribution is reached. In this case, you contribute HKD 1,500, and your employee contributes HKD 1,500.

Employers also must deduct the contribution from the employee for a particular contribution period and deposit the same into the account. 

If you pay your employees on a daily, weekly, or bi-monthly basis, then you need to calculate the minimum and maximum relevant income levels of the relevant wage period by accounting for the daily minimum and maximum relevant income levels of HKD 280 and HKD 1,000, respectively. 

The contribution amounts depend on the employee's income during the wage period, which considers daily minimums and maximums. Here's how it breaks down:

• If the employee's total income for the wage period is less than the minimum level (calculated by multiplying the daily minimum of HKD 280 by the number of days in the period), you contribute 5% of their actual income, and they contribute nothing.
• If their income falls between the minimum and maximum levels (calculated by multiplying the daily maximum of HKD 1,000 by the number of days in the period), both you and the employee contribute 5% of their total income for the period.
• If their income surpasses the maximum level, the maximum contribution is reached. In this case, you contribute the total maximum amount (daily maximum x number of days) multiplied by 5%, and your employee contributes the same amount (daily maximum x number of days) multiplied by 5%.

What Happens If the Employer Fails to Make an MPF Contribution?

If you fail to deposit the mandatory contribution, the trustee will report the default to MPFA, who is free to issue a default notice to recover the amount plus 5% default interest. 

If you fail to rectify the default, MPFA can impose a penalty or initiate legal proceedings on behalf of your employees to recover the contributions and surcharges. 

Voluntary Contributions

Employers are not obligated to make voluntary contributions, but they can choose to do so. This would be beneficial for employees who want to save more for retirement. There are also tax benefits associated with voluntary contributions.

Choosing an MPF Provider

Here's a list of the approved MPF trustees (as of date) from which you can choose.

Since the scheme is for the benefit of your employees, always opt for a trustee who can provide the relevant services that suit their needs for commensurate fees.

The suitability of the fund for your organization is a critical factor, and the quality of service delivered. 

Enrolling Employees in MPF Schemes

Every employer must enroll all full-time and part-time employees between the age of 18 to 64 and be employed continuously for  60 days or more in an MPF scheme.

The enrollment should be completed within the first  60 days of their employment, starting, from the first day of the employment as per the calendar. 

For example, if Mr. X's first day of employment is 20 June, then his enrolment in an MPF scheme should be completed by 18 August, the 60th day from the first day of employment.

You must provide an enrolment form for the relevant scheme to the employees.

The following details should be filled up in the form:

• Particulars of the MPF fund selected
• personal details of the employee
• Self-certification about whether the employee is a tax resident outside Hong Kong
• Specimen signature of the employee

The duly filled forms should be submitted to the trustee to initiate the account opening process.

Usually, employers provide the employees to read through the details of the funds offered by a specific MPF scheme and decide which ones they would like to invest in.

If the employees don't choose one, employers can make contributions as per the default investment strategy. 

Failure to enroll the employees within the specified timelines attracts action from MPFA. 

When to Pay MPF Contributions

If your employees are paid on a monthly basis, you should make your contribution on the 10th day of each month.

For example, the contribution for June should be deposited to the account on or before July 10. 

A record of the monthly contribution should be provided to every employee within seven working days.

Additionally, an annual benefit statement should be provided to the employees within three months from the end of a financial period.

You can make the contribution either through Direct Debit authorization from your account or by depositing a cheque. 

Please note that while your obligation to pay your contribution kicks in from an employee's first day of employment, they enjoy a 30-day contribution break.

This allows them to not make any contribution for the first 30 days of employment.

Do I need to contribute if I am terminating an employee?

You would still need to pay the last contribution before the services are terminated and report it along with other contributions to the trustee.

You will also need to notify the MPF trustee in writing about the termination. 

Can I claim a tax deduction against employer contribution to MPF?

Every Hong Kong company can claim a tax deduction not exceeding 15 percent of your employee's annual income under Profits Tax.

You'll need to file the relevant forms with the Inland Revenue Department. 

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