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Article exclusively contributed by the Mandatory Provident Fund Schemes Authority

Housing allowance to become "relevant income"


David Kwong was recently recruited as an administrative officer with a monthly salary of HK$10,000. When reviewing the employment contract though, he discovered that more than 40 per cent of the salary offered was labelled housing allowance.

Naturally, Mr Kwong suspected the employer deliberately attempted to reduce MPF contributions by classifying such a large portion of his salary as "housing allowance". However, he was also afraid of losing the employment opportunity.

The amendment

With a view to refining the MPF system and further protecting scheme members' interests, the Mandatory Provident Fund Schemes (Amendment) Ordinance 2008 (Amendment Ordinance), which encompasses the inclusion of housing allowance as "relevant income" in MPF contributions, will become fully effective on 1 November 2008.

According to the current Mandatory Provident Fund Schemes Ordinance (MPFSO), "relevant income" refers to all wages in money form given to employees, including wages, holiday pay, commission, bonuses, gratuities and allowances. At present however, it does not include housing allowance or housing benefit.

The Mandatory Provident Fund Schemes Authority (MPFA) noted that certain employers have deliberately evaded their responsibilities to pay MPF contributions by labelling part of their employees' salary as housing allowance. To rectify the situation, the MPFA proposed including housing allowance as MPF "relevant income" for MPF contributions.

After the amendment comes into effect, all payment items in money form, including housing allowance and housing benefit, will be included as "relevant income" for MPF contribution purposes. Therefore, in Mr Kwong's case, the amount earmarked as housing allowance will be included in the calculation of MPF contributions. As the MPFSO requires both employers and employees to contribute an amount equal to five per cent of an employee's monthly relevant income, both David and his employer will be required to pay HK$500 each as monthly MPF contributions starting from November.

Employees should take note of the details of their employment contracts and report to the MPFA should there be any unreasonable provisions relating to MPF in the employment contract, or if an employer deliberately alters the terms in an employment contract to evade MPF responsibilities.

Q&A on housing allowances and MPF payments
Q1 What will be the penalties for an employer who evades paying full MPF contributions by labelling part of an employee's salary as housing allowance and not considering it for MPF purposes after the full commencement of the Amendment Ordinance?
A1 If an employer deliberately evades his responsibility to pay MPF contributions by labelling part of an employee's salary as housing allowance and does not consider it for MPF purposes, the employer may need to pay a five per cent surcharge on the defaulted contribution. The employer may also be subject to a financial penalty of HK$5,000 or 10 per cent of the amount of default contributions (whichever is greater). The defaulting employer may also be prosecuted and will be liable for a maximum penalty of six months' imprisonment and a fine of HK$100,000 on the first conviction.

Q2 What are the necessary steps employers should take in order to avoid breaching the MPF amendment?
A2 Employers may take the following steps to avoid breaching the law:
  • Include any housing allowance and housing benefits as "relevant income" when calculating MPF contributions
  • Adjust contribution arrangements
  • Amend payroll and other remuneration systems
  • Explain to employees that contributions deducted from their salaries as MPF may change following the legislative amendment to include housing allowance as part of "relevant income"
  • Amend the terms of employment contracts or retirement benefit arrangements

Q3 Where can scheme members and employers obtain information about the Amendment Ordinance?
A3 In order to publicise the effective date on 1 November 2008 of the inclusion of housing allowance as relevant income and the removal of the 30-day settlement period, the MPFA has produced TV advertisements, print advertisements and a bilingual flyer A new page for the MPF to guarantee your future to help MPF scheme members understand the amendments. The flyer is currently available to the public free of charge at the office of the MPFA, Home Affairs Department District Offices, Labour Department Offices of Labour Relations Division and Job Centres. It is also available on the MPFA's website.


Taken from Career Times 25 July 2008, p. A20

(Last review date: 23 August 2013)


Disclaimer: The opinions expressed in this article are those of the contributor

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