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Money Matter


Article exclusively contributed by Johnson Stokes & Master

MPF rules about relevant income

By Sophia Man, Solicitor and Hong Tran, Registered Foreign Lawyer, Employment and Employee Benefits

A security firm was recently fined at the Kwun Tong Magistracy for breaching the Mandatory Provident Fund Schemes Ordinance (the "MPFSO"). They had restructured an employee's remuneration package to introduce a housing allowance and, thereby, reduce the amount of MPF contributions they were required to make. This was the first case in which the Mandatory Provident Fund Schemes Authority (the "MPFA") successfully prosecuted an employer for such an arrangement.

The legal position under the MPFSO is that each employer and employee (with very limited exceptions) is required to make mandatory contributions of 5 percent of the employee's relevant income to an MPF registered scheme.

The term "relevant income" is defined in the MPFSO to include:

"any wages, salary, leave pay, fee, commission, bonus, gratuity, perquisite or allowance (other than a housing allowance or other housing benefit), expressed in monetary terms, paid or payable by an employer ... to that relevant employee in consideration of his employment ..."

If an employee's relevant income is below HK$5,000, only the employer is required to make mandatory contributions. (Now revised: Following the MPF amendments taking effect on 1 November 2011, the minimum relevant income has been adjusted to HK$6,500.)  It should be noted, though, that the only exception to the definition of relevant income is "a housing allowance or other housing benefit". Therefore, if an employee is entitled to monthly remuneration of HK$30,000, of which HK$20,000 is paid as a housing allowance, the mandatory contribution payable by both the employee and the employer will be HK$500 (i.e. 5 percent of HK$10,000).

In this case, Courage Security Limited (Courage) employed a security guard (the "Employee") from 1 June 2001 to 30 April 2004. The Employee's total remuneration was HK$5,500 per month throughout that period.

In the final month of employment, the Employee's salary structure was changed. The change involved describing HK$3,000 of the total remuneration as a housing allowance. This meant the relevant income for the purposes of the MPFSO was reduced to HK$2,500.

As a result, the mandatory contributions payable by Courage in respect of the Employee were also reduced. In addition, the Employee was no longer required to make any mandatory contributions because his relevant income was now less than HK$5,000. (Now revised: Following the MPF amendments taking effect on 1 November 2011, the minimum relevant income has been adjusted to HK$6,500.)

After hearing about the case, the MPFA prosecuted Courage for contravening the MPFSO. The company pleaded guilty and was fined HK$12,000 on eight counts. Unfortunately, since a guilty plea was entered, we do not have the benefit of substantial reasons for the decision.

However, we understand that the MPFA may have prosecuted Courage under section 7A of the MPFSO. This requires an employer to pay mandatory contributions of 5 percent of an employee's relevant income. It does not, though, restrict an employer from agreeing with an employee that even a substantial part of his or her monthly remuneration can be designated as a "housing allowance", so as to fall outside the definition of relevant income. No provision in the MPFSO imposes such a restriction.

Given that only limited information about the case was released to the public (and the full judgment is not available), we are unsure whether the Employee actually consented to the change being made. In our opinion, if the Employee did consent there would have been no breach of section 7A. If, however, the change had not been agreed, then:

  • the unilateral amendment of the structure of the remuneration package would have been a breach of trust, and
  • the prosecutors would have argued that the purported amendment was void and, therefore, the employer should have paid increased mandatory contributions.

    This case was given a high profile by the MPFA as an intended warning for unscrupulous employers. However, the Employee could probably have brought it before the Labour Tribunal just as easily as a simple breach of contract case.

    Q & A on "relevant income" for the purposes of MPF contributions
    Q1 What types of payment made by an employer to an employee will fall within the definition of "relevant income" in the MPFSO?
    A1 Almost all payments made by an employer to an employee will fall within the definition. The only type of payment not considered to be relevant income is "a housing allowance or other housing benefit".

    Q2 When would a "housing allowance" be treated as relevant income?
    A2 It is unclear from the Courage Security Limited case when the MPFA would treat a purported housing allowance as relevant income. There is also doubt as to the legal basis on which the MPFA can challenge an arrangement between an employer and an employee to provide a housing allowance. However, there would appear to be a risk that the MPFA may challenge an arrangement whereby an employer purports to designate part of an employee's remuneration as a housing allowance shortly before termination of employment. This may be so particularly if the component of remuneration attributable to the housing allowance is greater than the remaining component of basic salary.


  • Taken from Career Times 19 November 2004

    (Last review date: 23 August 2013)


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