Before you do the computation for LSP accounting, you need to gather some information in smoothen the process of the accounting for LSP.
Determine the Interest Rate
This is the discount rate used for discounting the future cash flows related to LSP. To come up with the interest rate, you may consider the general inflation rate (as reflected in the consumer index published by the Census and Statistics Department), prime lending rate, HIBOR, or other suitable references. You may want to look at the relevant parts of your accounting policies related to discounted cash flows and document how you arrive at the rate that you use.
Determine the Future Salary Growth Rate
This is the expected growth rate of salaries into the future. To come up with the growth rate, you may consider the general inflation rate (as reflected in the consumer index published by the Census and Statistics Department), adjust by the labor supply in your industry, the economic condition of your business sector, and other relevant factors. You may also use different rate for different staffers based on job type and performance. LSP Genie allows you to set a single number for the whole staff and also allows you to override the number on a by staffer basis. You may want to document how you arrive at the rates that you use.
Overriding Statutory Caps
As of 2024, the statutory limit for LSP benefit is $390,000 for each staffer, and the Last Full Month Salary for LSP benefit calculations is $22,500. If you have any reasons to use higher limits or no limits for the whole staff or for individual employees, you may override the default limits. Possible reasons are contractual obligations or general staff benefits. You may want to look at the relevant parts of your companies’ accounting policies.
Expected Years of Service
The LSP benefit of each staffer depends on his eventual number of years of service in your company. In accounting for LSP, an estimation is required for the computation of costs and obligations. The number can be estimated based on historical data in your company in general and for the specific role, the contract terms for the staffers, the age of a staffer versus the retirement age of your company, the current number of years of the staffer, or other relevant factors.
Minimum Expected Years of Service for Provision
According to Chapter 11 of the Employment Ordinance, employees are entitled to LSP benefits after working in the company a minimum 5 years in addition to other requirements. So, you do not need to provide for a staffer who is expected to leave your company before he reaches his fifth anniversary at your company. If you have any reasons to use a lower threshold for accrual for the whole staff, you may override this number. Possible reasons are general staff benefits and provision for possible severance payments. You may want to look at the relevant parts of your companies’ accounting policies.
Salaries of the Staff
You need to gather the current year salaries of each staffer for the computation. You may want to use 12 months ending 30 April for LSP accounting purpose to coincide with the cutoff of MPF-LSP offsetting on 1 May 2025 for simplicity.
Note that if a staffer is hired during the fiscal year, you need to annualize the salary so that the engine will properly calculate the yearly salaries of the years that matter to the computation.
Hire Years of Each Staffer
The year cutoff should be the same as that for the salaries of the staff discussed above. The number to input is the year number of the last day of the 12 month period. For the same reason, you may want to base the hire year on the 12 months ending 30 April. For example, if a staffer is hired on 1 October 2020, the hire year is 2020/21 and the number will be 2021, assuming your period for LSP purpose ends on 30 April.
Using LSP Genie Pro to Compute LSP Costs and Liabilities
You will input the above information on the LSP Genie Pro input page:
- Fiscal Year
- Interest Rate
- Minimum Expected Years of Service for Provision
- Company Default Expected Years of Service
- Company Default Future Salary Growth Rate
- Company Default LSP Benefit Cap
- Company Default Full Last Month Salary Cap
For data of individual staffers, you will find it useful compile the data in our Excel file.
Compile the Data of Individual Staffers
Download the LSP Staff Date Input Excel file.
Note that Microsoft may have blocked macros in the file from running as they regard all files from the Internet with macros untrusted by default. You may follow Microsoft’s instructions to unblock the macros, or simply copy the contents you input (From Cell A4 to cell in Column H of the last data row) in this worksheet as a single range and paste the contents in the Staff Data box of LSP Genie Pro.
Delete any sample data that may be in the file (Anything row 4 and below). Fill in the data listed below, with each staffer on one row in the spreadsheet:
- Staffer ID and Staffer Name are for identification and are optional.
- Hire Year is mandatory
- Yearly Salary is mandatory
- Expected Years of Service for individual staffers is optional. If a number is not inputted a staffer, the company default will be used for the staffer. It is very likely that some of your staffers had already worked in your company longer than the default value. So you may want to review this. LSP Genie is able to discover such problems during data validation.
- Future Salary Growth Rate, LSP Benefit Cap, and Last Full Month Salary Cap are optional. If a number is not inputted a staffer for any of the field, the company default will be used for the staffer for that field.
Please do not change the format of the cells in the file. You may want to use paste any numbers into the cells using “Paste Values” function in Excel. Please make sure you do not have thousand separators in the numbers.
The data contained in this file will be copied to the Staff Data box for validation and computation.
Next Step
After finishing the above preparation, you can start the LSP computation using LSP Genie Pro.