In July 2007, Mr Wong was employed by a security company as a security guard with a monthly salary of HK$6,000. When he was about to sign the employment contract, he was puzzled by the pay structure, which included a basic salary of HK$1,000; a meal allowance of HK$1,500; a travel allowance of HK$1,000; and a housing allowance of HK$2,500.
In fact, Mr Wong rented public housing and his monthly rental amounted to a mere HK$1,300. The amount his employer broke down as housing allowance obviously did not correspond to his actual housing expenses. Moreover, his employer did not ask him to provide any proof of residency or rental expenditure such as the tenancy agreement, rental receipts or proof of residential address.
Mr Wong sought an explanation from the human resources officer at the security company before signing the contract but was informed the procedure was company policy. He finally signed the contract without further questions as he did not want to see the employment offer withdrawn.
According to the then Mandatory Provident Fund Schemes Ordinance (MPFSO), "relevant income" referred to all wages in money form given to employees, including wages, holiday pay, commission, bonuses, gratuities and allowances. However, it did not include housing allowance or housing benefits.
The MPFSO requires employers and employees to contribute an amount equal to five per cent of an employee's monthly relevant income to the employee's provident fund. In Mr Wong's particular case, both he and his employer each paid HK$175 as monthly MPF contributions. His relevant income amounted to HK$3,500, comprising HK$1,000 basic salary, HK$1,500 meal allowance and HK$1,000 travel allowance. The HK$2,500 housing allowance was not included in the formula. If it had been, the monthly contribution from both Mr Wong and his employer would have been HK$300 each.
It is possible that Mr Wong's employer had reduced MPF contributions by labelling a substantial part of Mr Wong's income as housing allowance.
In order to avoid such scenarios which allowed unscrupulous employers to evade or reduce MPF contributions, the Legislative Council passed the Mandatory Provident Fund Schemes (Amendment) Bill 2007 on 9 January 2008. One of the major amendments was to include housing allowances as MPF "relevant income".
After enactment of the amendment, "relevant income" will include all wages in money form given to employees, including housing allowances or housing benefits. In Mr Wong's case, his employer must pay HK$300 for Mr Wong's monthly MPF contribution, instead of the original HK$175.
Although the amendment will offer better protection for employees, they should continue to exercise due diligence to safeguard their own interests and carefully check the details of any new employment contracts.
|Q&A on relevant income|
|Q1 ||What are the major changes regarding "relevant income" after passage of the Mandatory Provident Fund Schemes (Amendment) Bill 2007? |
|A1 ||After the amendment becomes effective, housing allowances and housing benefits will be included as "relevant income" for MPF contribution purposes. This was not the case before the enactment of the bill. |
|Q2 ||What are the penalties for employers who evade MPF contributions for employees?|
|A2 ||The MPFA may initiate civil and criminal actions against employers who fail to enroll their employees into an MPF scheme, or fail to make contributions for their employees. If an employer fails to make mandatory contributions to the approved trustee on time, it will need to pay five per cent surcharge of the defaulted contribution. The MPFA can also impose a financial penalty of HK$5,000 or 10 per cent of the defaulted contribution, whichever is greater. The employer may also be prosecuted. The maximum penalty is a fine of HK$100,000 and six months' imprisonment on the first occasion of conviction and a fine of HK$200,000 and one year's imprisonment after each subsequent conviction. |
|Q3 ||In light of the passage of the MPFS (Amendment) Bill 2007, what should an employer do?|
|A3 ||The following are some practical tips for employers in light of the amendment regarding housing allowances: |
- Employers are advised to make necessary amendments to their payroll systems to ensure that the calculation of MPF contributions is based on the entire relevant income of the employees, including housing allowances.
- Affected employers should communicate with their employees regarding the amendment and explain the increased salary deduction related to larger MPF contributions.
- Pay records should be amended accordingly to reflect the changes in salary deductions and MPF contributions.
- Employers ought to notify the MPF trustees of any changes to the relevant income and MPF contributions made for the affected employees.