The government proposes to progressively abolish the “offsetting” of severance payments (SP) or long-service payments (LSP) with mandatory provident fund (MPF) contributions, Chief Executive Leung Chun-ying said.
“The government will share part of the expenses on SP and LSP of employers in the 10 years after the implementation date of the abolition to help employers, especially small-and-medium-sized enterprises,” Leung said in his annual policy address on Wednesday.
As some SP and LSP functions overlap with those of the MPF system, the government proposes that the amount of SP and LSP payable for an employment period from the implementation date be adjusted downwards, from the existing entitlement of two-thirds of one month’s wages to half a month’s wages as compensation for each year of service.
The abolition will have no retrospective effect, Leung said.
The offsetting practice that allows employers to withdraw their contributions in their employees’ MPF accounts to pay for SP and LSP has been criticized by labor groups for many years.
Under the arrangement, employees could be sacked easily as employers don’t have to bear the expenses of SP and LSP, critics have said.
Some employer groups, meanwhile, have voiced their opposition to the abolition of the offsetting practice. The government now proposes a 10-year transition period for the abolition.
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