Processing Payroll In Hong Kong

Processing Payroll In Hong Kong

It has been established that Hong Kong is amongst the world’s most rapidly expanding financial centers and the seventh largest trading economy.

Many expanding organizations appreciate several benefits of venturing into Hong Kong, because of its liberal investment climate, non-interventionist government, and attractive taxation system.

However, if handled improperly, managing the payroll in Hong Kong might be challenging especially if one has no clue regarding the laws governing the employment of workers in this area as well as the taxation rules that are in place. It is crucial for those processing payroll and dealing with related rules and procedures to comprehend these subtleties.

This is why many companies consider outsourcing the payroll services and these normally cost between HK$ 60 to HK$ 120 per employee per month.

Therefore, how should companies operate the payroll in Hong Kong, and what are the main difficulties and solutions related to them?

The Employment Laws of Hong Kong

The Employment Ordinance is one of the main legal instruments in Hong Kong that provides guidance on different forms of employment and minimum standards for employment relationships.

There are two main types of employment contracts: The two forms of employment contract are the standard form of employment contract and the continuous form of employment contract. Subordinate to a ‘working while in continuity’ contract if the individual performs the work for 18 hours for the employer at least for four weeks in succession. The following is an account of how the contract awards more rights and privileges to the employee.

The employers are required to report the new employee to the Inland Revenue Department within three months from the beginning of his employment. They also need to keep employee wage records and every type of payroll record for the previous seven years.

Master Payroll Management with Intelligent Payroll Software
Get Started

Statutory Employee Leaves

Some of the employee’s benefits are the entitlement of these benefits: severance payment/long service payment, paid sick leave, paid annual leave, maternity leave pay, and paternity leave, and these are a few examples.

Sickness Leave

Employees of the company earn paid sick leave on a continuous basis within the contractual agreement. For the first 12 months of the employment period, employees earn 2 days for each month they work full time, and increase to 4 days after 12 months. The highest accumulation is 120 days.

The daily pay rate for paid sickness days is 80% of the daily average wages earned during the previous 12 months.

If an employee needs a sickness leave, they must get a medical certificate and have at least a certain number of accumulated sick leave as well. 

Maternity Leave

The employees who are pregnant are entitled to 10 weeks of paid maternity leave.

During her work on maternity leave, a pregnant employee may also adopt sickness leave for any illness related to the pregnancy on top of the scheduled maternity leave days by providing a doctor’s medical certificate.

Paternity Leave

In Hong Kong, there is no statutory paternity leave plan for male employees. Some organizations may have a paternity leave policy as part of their benefits. 

Annual Leave

Every employee is entitled to at least seven days of paid annual leave each year. Some companies can raise the number of annual leave days with the length of the service year. 

Statutory Holidays

To be eligible for the paid holidays, that are statutory, the employees should have a continuous working contract that has been in place for more than 3 months and should currently be in continuous working contract.

Compensation and Working Hours

Hong Kong remunerations are very flexible and the provisions concerning it are included in the basic contract of employment.

The schedule and working hours and days for the employee is also outlined in the contract that needs to be followed. The standard working week is normally considered to be between 9:00 am to 6:00 pm, from Monday to Friday however there are no restrictions to the working hours as per the statutes.

According to the terms of the Employment Ordinance in Hong Kong, employers are free to give employees only one rest day in a week.

Furthermore, compensation can be provided to the employees in form of wages and several other incentives such as remunerations.

Overtime Pay

While local legislation in Hong Kong does not require overtime or its compensation, if an employment contract provides for overtime pay, employers are required to do so by law. If not done, then it leads to fines, which is as same as not paying the employees’ normal wage rates.

Any overtime paid is considered as equal to any other wages that are paid to the employees and is protected by the law. Thus, during the computation of the amount of entitlements that employees are entitled to, the amount of promised overtime pay has to be incorporated.

The remuneration policy of employees is fully at the discretion of employers, so they have full control over the employees’ remuneration. However, they must ensure that wages are given to the employee before the end of the wage period or at the end of the wage period.

Employers are allowed to delay the payment of wages for up to seven days from the last day of the wage period, but if the wages are not paid within the stated period, interest thereon has to be paid or else the employer risks legal action.


When it comes to the tax system, Hong Kong’s tax system for businesses and employees is different compared to other countries. 

Hong Kong’s corporate tax rate is posed at 16.5% on profits generated from businesses in Hong Kong.

The corporate tax and employee income tax are quite different in Hong Kong. Hong Kong does not wholly impose income tax at source from payroll as a yearly progress, and employees are supposed to file and pay their income taxes directly to the Inland Revenue Department, unlike the other countries. 

Employee Exit and Departure Tax

The high-income taxpayer has to pay the departure tax if they are leaving Hong Kong permanently. It is calculated proportionate to the income they earn. 

Employers should give the Inland Revenue Department a notification a month in advance of the employee’s intended departure.

When the notice is made known to the IRD, it will withhold the employee’s salary or payments that are due to the employee. This way, it makes sure that the possible departure tax liability is clear even before the employee is leaving.

The IRD will generate a “document of release” after the tax of departure is settled. The employer can issue such withheld money to the departure employee only after receiving this letter.

Social Security

The employees and the employers of Hong Kong must all contribute to the Mandatory Provident Fund (MPF) as the Hong Kong Government puts in place a pension fund.

The MPF is applicable to all Hong Kong employees working in a contract with a 60-day or more and all self-employed individuals who are between 18 and 65 years old.

However, some exclusions are involved, e.g., foreigners working in Hong Kong for less than 13 months are not included.

From the side of the employee and the employer, 5 % of the employee’s relative income is paid subject to a set of minimum and maximum income thresholds it.

For instance, an employee who is remunerated monthly is expected to contribute at least $7,100 and a maximum of $30,000 to the MPF.


Reporting is another important function of the payroll system and it is legally mandated to report both monthly and yearly.

Sending in a remittance statement monthly on the 10th day of every month is a statutory obligation and can be submitted either electronically or manually.

Additionally, Mandatory Provident Fund Payment should be done on the 10th of every subsequent month.

By the end of every fiscal year, both the BIR56A form and IR56B form must be filled.

These shall be known as annual returns that the employer has to submit to the register showing their employee wage and salaries for pensions.

Establishing A Business in Hong Kong

Still in the process of setting up the business in Hong Kong? 

In Hong Kong, there are several different ways to establish a startup:

  • A representative office
  • A branch office
  • A registered subsidiary company

Business registration and the creation of a legal entity in Hong Kong is a simple process.

The company incorporation and business registration forms that accompany these fees are available online and the processing period is absolutely an hour.

A company is not required to compensate its employees through clearing via a local bank account.

There is indeed no problem in paying employees with the help of bank transfers.

These payments can be sent across the world but the process might take up to 7 days.

However, companies are supposed to have a corporate bank account in Hong Kong. 

Moreover, the mandatory provident fund contributions are to be made only through the appropriate local bank.


Here are some of the considerations that you should keep in mind: 

  • Employers do not have to withhold entire income tax, however, they need to withhold other social contributions such as social security contributions.
  • Employees are potentially accountable for reporting their own incomes and filing their own taxes. 
  • The employees have to set aside 5% of their incomes for the MPF and employers have also to match it. This contribution can range anywhere from $7100 to the highest of $30000.
  • Compliance with the requirements of the Income Revenue Department involves regular reporting at the end of each month and every year.
  • The payroll process in Hong Kong might be complicated and having all the knowledge about their existing laws and regulations could be helpful in structuring the employment contract and taking advantage of the expansion potential of Hong Kong.
  • Some organizations may use outsourced payroll services as long as they follow payroll legislation, make payments on time, and keep proper records; hence the payroll outsourcing services are a good asset.

Do you want to ensure your company complies with payroll legislation?

Register your company payroll with FastLane Group today, and we can help you fulfill all of your company payroll requirements.

Call us today and see how we can help you achieve your business success!