How to do Payroll in Hong Kong

Hong Kong is one of the fastest-growing financial hubs in the world and the 7th largest trading entity.

Companies see various benefits expanding to Hong Kong with its investment-friendly climate, limited government intervention, and a favorable tax system. 

However, when hiring and compensating employees, Hong Kong’s payroll policies can seem quite complicated. 

So, how should companies approach payroll in Hong Kong?

What are the main challenges, and how can they be overcome?

The Employment Ordinance

The Employment Ordinance seems to be the greatest guide in Hong Kong when it comes to the different types of employment and the minimum entitlements of every employee.

These entitlements include severance pay, sick pay, maternity leave to name a few. 

The two types of employment contracts in Hong Kong are the employment contract and the continuous employment contract.

Employees are considered to be on a continuous employment contract if they work 18 hours a week for more than four weeks for the employer.

Such a contract guarantees more rights to the employee. 

Employers must also inform the Inland Revenue Department of any new hires within three months from when they begin employment by the employer.

Employers are also required to keep records of their employee’s wages and all payroll records for the past seven years. 

Compensation and Working Hours

Compensation packages in Hong Kong are extremely flexible and are stipulated in the employment contract.

The employment contract also stipulates work hours and days required of the employee.

While a typical working week usually lasts from 9 am to 6 pm, Monday to Friday, there are no statutory working hours.

The Employment Ordinance only prescribes a minimum of 1 rest day in a period of 7 days. 

Furthermore, employees can be compensated in many ways, from a salary to a range of benefits.

There are no limitations to the way employers can compensate their employees.

However, employers must pay their wages by the end of the last day of the wage period.

If employers take seven days longer than the last day, they must pay interest on the delayed wages or face legal reprimands. 

Tax

There is currently a corporate tax rate of 16.5% on every business in Hong Kong.

However, there is no income tax withholding at the source via payroll throughout the tax year.

This means that the employee has to file and pay their own taxes to the Inland Revenue Department.

However, the employer is required to notify the Inland Revenue Department if an employee intends to leave Hong Kong one month before the intended leaving date.

The Inland Revenue Department will withhold any salaries or payments to that employee until a ‘letter of release’ is issued.

This will be after they have recovered the reinvent tax owed by that employee. 

Social Security 

All employees and employers in Hong Kong must contribute to the Mandatory Provident Fund (MPF), a pension fund put in place by the government.

The MPF applies to all employees in Hong Kong who have a contract of employment of more than 60 days and all self-employed people between the ages of 18 and 65. 

Additionally, certain exemptions exist, such as foreign citizens only working in Hong Kong for less than 13 months.

Both the employer and the employee must contribute 5% of the employee’s relative income subject to minimum and maximum relative income levels.

For example, for an employee paid every month, a minimum of $7,100 up to a maximum of $30,000 must be contributed to the MPF.

You can learn more about paying your employee’s MPF here.

Reporting

Reporting is an extremely important aspect of payroll and is required both on a monthly and yearly basis.

On a monthly basis, a remittance statement must be submitted on the 10th of each month.

This can be submitted both electronically and manually. 

The Mandatory Provident Fund Payment is also required on the 10th of each month.

In addition, at the end of every tax year, forms BIR56A and IR56B must be submitted.

These are essentially the annual returns that the employer must submit that report employee remuneration and pensions.

You can find out more information about the Inland Revenue Department forms here. 

Setting up a Business in Hong Kong

Haven’t quite opened your business in Hong Kong yet?

You can set up a business in Hong Kong through the following ways:

  1. A representative office
  2. A branch office
  3. A registered subsidiary company

Registering a company and establishing a legal entity in Hong Kong is a very simple process.

All applications for company incorporation and business registration alongside their respective fees are available online and processed within an hour.

You can learn more about setting up a business in Hong Kong here.

A company does not have to pay employees through an in-country bank account.

When it comes to paying employees, companies are more than welcome to make payments using bank transfers.

These payments may, however, take longer as international transfers can take up to 7 days. 

However, companies are required to have corporate bank accounts in Hong Kong.

Additionally, payments made to the Mandatory Provident Fund (MPF) must be made through an in-country bank account. 

Final Words

Here is what you should keep in mind:

  • Employers do not need to withhold income tax but must withhold social security contributions. 
  • Employees are responsible for reporting their own income and filing their own taxes. 
  • Employees must contribute 5% of their salaries to the MPF, and employers must do the same. These contributions can be from a minimum of $7100 to a maximum of $30000.
  • Reporting to the Inland Revenue Department is essential and must be done regularly on a monthly and yearly basis. 
  • Payroll in Hong Kong can be quite complicated, and understanding the legislation is essential to structuring employment contracts and capitalizing on expanding into Hong Kong. 
  • Many outsource their payroll to global payroll providers who ensure compliance with payroll legislation, pay employees promptly and keep appropriate records where necessary. 

Want to ensure your company complies with payroll legislation?  

Register your company in Hong Kong with Air Corporate today so we can handle all your payroll needs!

Focus on your business. We focus on the rest.

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