Accrual, Vesting, Contributions and Mandatory Contributions
What this domain tests
How contributions are calculated, when they are due, what vests when, and the different positions of employees, employers, casual employees and SEPs.
The calculation
Mandatory contributions are 5% of relevant income from the employee and 5% from the employer. Relevant income includes wages, salary, leave pay, commission, bonuses and allowances, but excludes housing or housing allowance and expense reimbursements. For monthly-paid staff the minimum relevant income level is HK$7,100 and the maximum is HK$30,000, so contributions are capped at HK$1,500 each side. Where relevant income is below HK$7,100 the employee pays nothing but the employer still contributes 5% of the actual income. SEPs contribute 5% of relevant income, subject to the same floor and ceiling on an annualised basis.
Timing and enforcement
The contribution day is the 10th day of the month following the end of the contribution period. Late contributions attract a 5% surcharge on the overdue amount, and the MPFA can pursue arrears and prosecute. Employers must keep contribution and wage records and give employees a monthly record of contributions.
Vesting
Mandatory contributions vest immediately and belong to the member from day one, even if the member resigns after a month. Voluntary contributions vest according to the scheme's governing rules. ORSO schemes use a statutory minimum vesting scale, typically rising in steps to 100% after 10 years of service, which is why ORSO and MPF benefits behave differently on early departure.
Worked example
An employee earns HK$40,000 a month. Relevant income is capped at HK$30,000, so the employee contributes HK$1,500 and the employer HK$1,500: HK$3,000 a month, not HK$4,000. If the same employee earns HK$6,000, the employee contributes nothing, the employer contributes HK$300, and the member still keeps that HK$300 on leaving.
Traps that cost marks
- Applying 5% to actual salary instead of capped relevant income.
- Believing the employee must contribute when income is below HK$7,100.
- Thinking benefits are forfeited if the employee resigns early; mandatory benefits are fully and immediately vested.
- Confusing the 5% late-payment surcharge with an MPFA penalty.
- Including housing allowance in relevant income.