At Bradford Jacobs, our Employer of Records (EOR) platforms provide full-proof solutions for companies wishing to establish their presence in Hong Kong’s economy. where compliance with the local payroll laws and regulations are vital for a business' smooth and hassle-free transition. We offer dedicated Hong Kong Payroll solutions that can be tailored to your requirements.
We make business expansion easy. We navigate the administration of the Hong Kong payroll system for you – and as part of our service, we make the returns and associated payments for income tax and social security contributions directly from our payroll system to the local tax authorities. We do the work, so you do not have to.
You may encounter some challenges regarding payroll during your expansion into Hong Kong but allow us to take the reins and answer any of your questions and concerns with our trusty guide on all thing Hong Kong payroll.
What Hong Kong Payroll Options Are Available for Companies?
Businesses in Hong Kong have access to a variety of payroll options, depending on their needs:
- Remote payroll - Businesses can operate under a single payroll system for all employees, by adding employees in Hong Kong to your parent company’s payroll. However, these employees will have to operate under different regulations, which can cause some confusion.
- Internal payroll - You may also operate payroll out of your subsidiary, especially if you are committed to growing your company’s presence in Hong Kong. However, this does require hiring a dedicated HR staff that understands the local employment and compliance laws.
- Hong Kong payroll processing company - If you are keen on outsourcing, working with a Hong Kong payroll processing company will help in your payroll process – but not when it comes to compliance.
- Hong Kong payroll outsourcing - An option that solves both payroll and compliance needs - working with a company like Bradford Jacobs. We can handle both your payroll and compliance for all your employees in Hong Kong. We take the stress of administration off your shoulders so you can focus on what you do best.
Hong Kong Payroll Services
Payroll regulations in Hong Kong go through frequent updates, and businesses can risk sanctions and financial penalties if they do not comply with these changes. Our payroll service requires staying up to date with these shifting demands – which includes administering returns and associated payments for wage tax and social security contributions directly from our payroll system to the tax authorities. Our role consists of:
- Registering with the Inland Revenue Department (IRD) for a Tax Identification Number
- Registering for a Mandatory Provident Fund (MPF) with the Social Welfare Department to pay social insurance contributions
- Registering employees with the Inland Revenue Department (IRD)
- Registering employees for Hong Kong ID Cards, and the valid visas/residence permits
- Creating employment contracts for your new employees, in Chinese and English
- Applying for employees’ special expatriation status (if applicable)
- Calculating employees’ monthly salaries and sending them their pay slips
- Researching for any available tax incentives
- Submitting employees’ or employer’s wage tax returns and national insurance forms
- Corresponding with the applicable national authorities regarding payroll changes and payments
- Creating and submitting your company’s annual accounts, administration, and year-end statements
- Creating payment schedules for wage tax, national insurances, and net wages
- Ensuring proficient personal income tax returns for you and your employees
Outsourcing payroll is a popular practice for Hong Kong employers, and it is easy to see why. Outsourcing company payroll saves money and time, and guarantees paid employees, filed tax returns, and fulfilled social security obligations in full and on time. Bradford Jacobs provides the complete service to remove the anxiety and stress from your administration.
What Is Required to Set up Hong Kong Payroll?
To set up Hong Kong payroll for your expansion efforts, you will need to meet specific requirements, which will depend on how you establish your presence in the country.
If you would like to set up as a subsidiary, you will need to have your subsidiary established first – but this can take some time, depending on where you incorporate as well as the entity type you choose (to see more about establishing a subsidiary, click here).
To start processing payroll in Hong Kong, you will need to register with Inland Revenue Department (IRD) and the Social Welfare Department to set up your own Mandatory Provident Fund (MPF).
You will also need to apply for a local bank account.
Registering with the relevant authorities will take at least 5 working days, whilst registration with the bank will take any time between a few days to a few weeks, depending on the documentation required and the bank that you choose.
The Inland Revenue Department also requires the employer to submit these forms to set up payroll:
- Form IR566: For reporting all new hires, to be submitted within three months of employing the new individual.
- Form IR56F: For reporting employee terminations, which must be filed within one month of the employee’s last day of work.
- Form IR56G: For reporting an employee leaving Hong Kong for a specific length of time.
What Entitlement/Termination Terms Are Needed to Set up Hong Kong Payroll?
Employees in Hong Kong benefit from entitlements for employment and termination, which are enforced by The Employment Ordinance and the Labor Department, as well as influence from trade unions:
National Minimum Wage:The minimum wage is Hong Kong is HK$37.50 per hour.
Working Hours:There are no restrictions on working hours, although it is common for employees to work around 44 hours a week. Expectations around working hours, rest days and overtime should be detailed in the employment contract.
Rest Days:Any employees working under a continuous contract is entitled to no less than one rest day in a period of seven days. Whether these days are paid or not is generally agreed to between employers and employees – however, it is common practice to pay for rest days in Hong Kong.
Overtime:Overtime payments are not standard and depend on conditions of an employment contract or applicable trade union agreements. Overtime pay is generally the same rate as regular pay.
Annual Leave:An employee is entitled to paid annual leave after being employed under a continuous contract every 12 months. Leave entitlement increases progressively, according to the years of service:
- 1 year – 7 days
- 2 years – 7 days
- 3 years – 8 days
- 4 years – 9 days
- 5 years – 10 days
- 6 years – 11 days
- 7 years – 12 days
- 8 years – 13 days
- 9+ years – 14 days
Sick Pay:An employee working under a continuous contract is entitled to sick allowance if they meet the following requirements:
- Sick leave taken is not less than four consecutive days
- Sick leave is supported by an appropriate medical certificate
- The employee has accumulated enough sickness days
An employee can accrue paid sickness days after having been employed under a continuous contract. Paid sickness days are accrued at the rate of two paid sickness days per each completed month during the first year of employment, with an increase of 4 paid sickness days every month after that. However, paid sickness days cannot exceed 120 days at any one time.
The daily rate of sickness allowance is 80% of daily wages earned in the 12-month period exceeding the sick day.
All employees are entitled to holiday leave. That are 12 statutory holidays, and most employers extend this entitlement to also include at least 5 general holidays. However, holiday pay is not required for general holidays. The statutory public holidays are:
- New Year’s Day
- Lunar New Year’s Day
- The second day of Lunar New Year
- The third day of Lunar New Year
- Ching Ming Festival
- Labor Day
- Tuen Ng Festival
- Hong Kong Special Administrative Region Establishment Day
- The day following the Chinese Mid-Autumn Festival
- Chung Yeung Festival
- National Day
- Chinese Winter Solstice Festival or Christmas Day (optional)
The general holidays include:
- Good Friday
- The day following Good Friday
- Easter Monday
- Buddha’s Birthday
- Eighth day of the fourth month (Lunar calendar)
- The day following Christmas Day
Maternity & Paternity Leave:
Employees are entitled to 14 weeks of maternity leave, which can begin any time between 2-4 weeks before the child’s expected date of birth. The employee is entitled to maternity leave pay (which is 80% of the employee’s average daily wages) if they have been under a continuous contract for no less than 40 weeks before the start of scheduled maternity leave.
Paternity Leave is 5 days and is only eligible for the pay if they have been under a continuous contract for no less than 40 weeks before the start of the scheduled paternity leave. Paternity allowance is 80% of the employee’s average daily wages.
Employment contracts can be terminated by the employer or employee through standard notices. The notice periods vary according to the employment stage:
Probation Period: Notice within the first month is not required. After the first month, however, this depends on whether the contract mentions a required length of notice. If it does not, the standard notice period should be no less than 7 days.
After Probation Period: If a specific notice period is agreed to in the contract, it should be followed. However, if no timeframe is mentioned, the standard notice period is no less than one month.
Severance payments are split into two categories – severance payments, and long service severance payments. Both payments are delivered according to certain conditions:
- Severance Payment - At least 24 months under a continuous contract, Requirements - employee is dismissed due to redundancy, contract expires without being renewed due to redundancy, the employee is laid off, Maximum amount of payment cannot exceed HK$ 390,000, Sum: (2/3 of last month’s wages x years of service)
- Long Service Payment - At least 5 years under a continuous contract, Requirements – employee is not dismissed for serious misconduct, dismissal is not due to redundancy, employment contract expired and is not renewed, employee dies, employee resigns due to ill health, employee retires, Maximum amount of payment cannot exceed HK$ 390,000, Sum: (2/3 of last month’s wages x years of service)
In Hong Kong, 13th month pay is not mandatory, but it is customary to be paid as an extra month’s salary in December or before the Chinese New Year and is included in payroll for the month it is carried out.
What Taxation Rules Exist for Payroll?
When discussing payroll, it is crucial to include tax. To effectively deliver payroll services for your employees in Hong Kong, you must know the local tax regulations. Employment and corporate taxes are managed by the Internal Revenue Department in Hong Kong.
Employees pay a progressive income tax rate and contribute to a Mandatory Provident Fund, which is set up by the employer. However, employees may choose to make extra social contributions.
Income Taxes are paid yearly by the employee in an annual tax return. Taxes for the Provident Fund are contributed monthly by the employee through the employer withholding the appropriate amount from salaries. Employers are also obliged to make their own contributions to the funds.
Employers are obliged to pay employee salaries monthly. The employer must also make monthly social security contributions, file a monthly social security tax report, as well as a yearly income tax report which states employees’ annual earnings.
Employers are also obliged to file annual tax returns reporting remuneration and pension payments of employees. The forms are sent by the Inland Revenue Department to companies in the beginning of April every year and must be submitted within one month of being received.
- Corporate Tax: Hong Kong’s corporate tax rates are 16.5% (after HK$ 2 million in profits), and 8.25% (under or reaching HK$ 2 million in profits), for both foreign and domestic corporations. The tax period is a year, starting on 1 April and ends on 31 March if the following year.
Corporate income is subject to annual tax returns on income and profits, a tax calculation of profits or losses, and an annual audit. Payments must be submitted within a month of receiving the forms (usually on the first working day of April).
- Income Tax: Income Tax is worked out progressively, according to the employee’s income. Employees are responsible for making their own payments to the tax authorities. Individuals must file an annual tax return, which is issued on the first working day of May and must be submitted within a month from the date of issue. Individual Tax Rates are as follows:
- HK$ 0-50,000 - 2%
- HK$ 50,000-100,000 - 6%
- HK$ 100,001-150,000 - 10%
- HK$ 150,000-200,000 - 14%
- Over HK$ 200,000 - 17%
- Social Taxes: All employees must comply with the company’s pension scheme but can also choose other investment options. Employees are eligible for fund schemes being in employment for 60 days. Contributions can vary by salary and the length of employment. Both employees are employees are required to pay a monthly contribution at a minimum of 5% of an employer’s salary.
Employers are obliged to pay fund contributions to the approved trustee monthly before the 10th of each month, as well as report a Remittance Statement on these payments before the 10th of each month.
- Employee: 5%
- Employer: 5%
For more information on taxes, you can check out our Hong Kong Tax page or Hong Kong's Inland Revenue Department website.
Get in touch with Bradford Jacobs
If you are looking to expand into Hong Kong and need your employees’ payroll managed with extensive management in compliance, contact us today to see what our International Payroll services can do for you.