2018 Policy Address – how it affects employers and employees?

On 10 October 2018, the Chief Executive Carrie Lam released the 2018 Policy Address, in which she put forward various proposals which aim to benefit employees in Hong Kong.

A.      Abolition of the MPF offsetting mechanism

In the 2018 Policy Address, it is proposed that the Mandatory Provident Fund (MPF) offsetting mechanism shall be abolished. The government targets to secure the passage of legislative amendments by the Legislative Council by 2022 and fully abolish the MPF offsetting mechanism two years thereafter. 

The current MPF offsetting mechanism 

Under the current MPF offsetting mechanism, an employer may offset the statutory long service payment and statutory severance payment (LSP/SP) paid to any employee against the value of the employer’s contribution account of the employee’s MPF scheme with the employer. The out of pocket amount payable by the employer with respect to LSP/SP is minimal after the offsetting.

The controversial question of whether to abolish the MPF offsetting mechanism has been heatedly debated. While labour groups complain that the MPF offsetting mechanism deprives employees of their LSP/SP entitlements, the business sector argues that micro, small and medium-sized enterprises (MSMEs) may not be able to afford the LSP/SP if the MPF offsetting mechanism is scrapped.

Earlier in March 2018, the government mapped out an abolition plan (March Proposal) in an attempt to scrap the MPF offsetting mechanism in a way that is agreeable to both the business sector and the labour side. Under the March Proposal, the government would set aside HK$17.2 billion to subsidize businesses on SP/LSP for the first 12 years after the proposed abolition of the MPF offsetting mechanism. The March Proposal also required employers to contribute the equivalent of one percent of the employees’ monthly income to a designated savings account to cover SP/LSP until the designated account reaches 15 percent of the employees’ annual income. Despite the effort of the government, the March Proposal was met with strong opposition from the business sector.

Proposal under the 2018 Policy Address

To gain support from the business sector, the government intends to devote further resources to incentivise the abolition of the MPF offsetting mechanism:

  • The government reserves for subsidising businesses for SP/LSP will be increased from HK$17.2 billion to HK$29.3 billion.
  • The transitional subsidy period will extend from 12 years to 25 years. This means that employers will receive government subsidy for SP/LSP for a much longer period after the abolition of the MPF offsetting mechanism.
  • In the event that the amount of aggregate benefits (SP/LSP entitlement together with the accrued MPF benefits) of individual employees is smaller than the amount that they would otherwise receive under the MPF offsetting mechanism, the government would make up for the shortfall. 

Implications to employers

The 2018 Policy Address demonstrates the government’s determination to scrap the MPF offsetting mechanism completely. Although legislative actions in relation to the abolition of the MPF offsetting mechanism will take a few years to take place, businesses, in particular MSMEs, should keep watch on further developments as the abolition of the MPF offsetting mechanism may bring about heavy SP/LSP burden. Businesses are also advised to make appropriate plans to mitigate the potential impact of any forthcoming legislative changes or actions.

B.      Extension of statutory maternity leave and paternity leave 

The 2018 Policy Address also proposes to strengthen the pro-family elements of the employment regulatory regime in Hong Kong.

Statutory maternity benefits 

The implementation of the new proposal would bring about the following changes to existing maternity benefits:

  • Statutory maternity leave (ML) would be extended from the existing 10 weeks to 14 weeks.
  • On top of the existing 10 weeks’ statutory ML pay, eligible employees would be entitled to an additional four weeks’ statutory ML pay, which would be capped at HK$36,822 (equivalent to four-fifths of four weeks’ wages of an employee with a month’s wage of HK$50,000). On application to the government, employers would be reimbursed the additional four weeks’ statutory ML pay. 

According to the 2018 Policy Address, the government has taken the initiative to extend the ML for female civil servants to 14 weeks with immediate effect.

Statutory paternity benefits

While the Employment (Amendment) Bill 2018, which seeks to extend the statutory paternity leave from the existing three days to five days, is still being debated in the Legislative Council, Carrie Lam reaffirms in the 2018 Policy Address that the government will continue to strive for an early passage of the bill.

Implications to employers

The 2018 Policy Address demonstrates the government’s unwavering stance towards the improvement of employee benefits in Hong Kong. It is anticipated that legislative amendments in relation to statutory maternity leave and paternity leave may come into force next year at the earliest. Employers are advised to keep abreast of the legislative developments of the employee benefits regime in Hong Kong and ensure that their employment policies are in full compliance with relevant statutory requirements.