Long Service Payment Accounting

What is Long Service Payment?

Long Service Payment (LSP) accounting is a new requirement due to the new legislation abolishing MPF-LSP offsetting. Long Service Payment (LSP) is entitled by employees who work for the employers for five or more years and are dismissed by reasons other than redundancy or misconduct.

Abolition of MPF-LSP Offsetting Mechanism

The Legislative Council has passed the legislation to abolish using the accrued benefits of employers’ mandatory contributions under the Mandatory Provident Fund (MPF) System to offset severance payment (SP) and long service payment (LSP) in June 2022. The Government has announced that the abolition of offsetting arrangement will take effect on 1 May 2025.

Prior to 1 May 2025, employers are allowed to offset their obligation of LSP against the contribution they make under the MPF scheme. After the abolition of the MPF-LSP offsetting mechanism, employers in Hong Kong are required to bear and pay SP/LSP to their employees on top of the MPF they contributed.

Why Does It Matter and Why Does It Matter Now?

The abolition of the MPF-LSP offsetting mechanism carries significant accounting implications that may appear intricate and challenging to comprehend. HKICPA has issued Alert 44 that discussed the accounting implications. The two recommended methodologies put forth by the Hong Kong Institute of Certified Public Accountants (HKICPA) for addressing the accounting treatment of relevant costs.

Who Are Affected?

All companies with local Hong Kong employees are affected by the change. In terms of accounting treatment, the accounting requirements apply to all companies with local Hong Kong employees, no matter they are

  • listed companies,
  • private limited companies,
  • partnerships or
  • sole proprietorships

as long as they prepare financial statements in accordance with the Hong Kong Financial Reporting Standards (HKFRS) or International Financial Reporting Standards (IFRS).

Why Use LSP Genie?

LSP Genie is a comprehensive solution designed to streamline the calculation of LSP number for proper accounting entries. The tool, implemented as a web application, follows Approach 1 as illustrated in HKIPCA’s guidance (Approach 1: Account for the amount expected to be offset as a deemed employee contribution towards his LSP benefits in terms of HKAS 19.93(a)). The tool is much more than a calculator. It is engineered to handle the complexities of LSP accrual calculations, factoring in all the parameters included in HKICPA’s guidance, and we have put in some flexibilities in the algorithm to cater for the needs of individual companies.

You can try to figure it out from the guidance from HKICPA, or perhaps you can ask your IT department to develop the system and deliver it a few months later (if you are lucky) for the calculations. But we are already here to solve your problem.

LSP Genie takes in your data and create for you:

  • Processing for many staffers in one go
  • Journal entries for current fiscal year costs and accruals
  • Prior Year Adjustment journal entries
  • Reversal entries for next fiscal year
  • LSP and offsetting amount calculations for individual staffers
  • LSP liability summary for the whole staff
  • LSP expense summary for the whole staff
  • Email enquiry on the general accounting treatment of MPF-LSP offsetting mechanism

All these will be necessary for you to satisfy the accounting requirements and the auditing of the LSP calculations.

Try LSP Genie

Still feel a bit lost? Try to do some computations using LSP Genie Free to test if you already have the necessary data for your LSP accounting.

If you are ready, use LSP Genie Pro to complete your LSP accounting tasks.

Try LSP Genie FreeUse LSP Genie Pro

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