Let the payroll process for your Hong Kong business up and running. We can serve as your main payroll team and conduct everything in time with the regulations leaving the burden of compliance off your shoulders.
Content Outline
Pay Your Hong Kong Team
With an economy growing at a leading speed in Asia Pacific and being one of the world’s financial hubs, Hong Kong has been very appealing as an international multinational destination for a long time. The Autonomous Region in southeastern China is known as the heaven for international organizations with a highly talented workforce with excellent English fluency which means less effort being put into hiring local employees.
The payroll process in Hong Kong can be quite challenging due to many factors. Even though employers are not mandated to deduct the income tax from employee’s monthly salaries and wages during the payroll process, the regulations associated with payroll are too many.
Setting Up Payroll In Hong Kong
Employers are required to register with some government authorities before they start the payroll process in Hong Kong.
- Registration with the Inland Revenue Department (IRD) is necessary in order to receive the employer tax file number.
- Employees must have a registered Employees Compensation Insurance (ECI) as mentioned in the Employees’ Compensation Ordinance.
- Registration in the Mandatory Provident Fund (MPF) system must be done within 60 days after the employee joins the organization as a member.
Besides this requirement, employers have to inform the IRD within the first three months from the date of employment start under the employment commencement notification.
Employees in Hong Kong can generally receive overseas payments, but MPF contributions need cash transfers from local banks. Thus the establishment of a local bank account before making the first contributions becomes mandatory.
Income Tax and Social Security in Hong Kong
Employers can save a lot of payroll burden because there is no obligation to withhold the income tax from employee’s wages and salaries. Nevertheless, employers still have to comply with certain duties related to obligatory social security contributions.
Read Salary Tax Return (BIR60) Guide for Business Owner
Tax Considerations
Employment income is taxable at progressive rates from 2% to 17%. In general, taxable employment income stands for all types of remuneration given to the employee by the employer and these may include payroll and other benefits such as commissions, bonuses, gratuity, leave pay, and some allowances – however, there could be some exemptions to certain employer-provided allowances for some employees.
Certain rules apply especially to fringe benefits and housing allowances, but employees would not be taxed for the income tax that their employer would contribute on their behalf for MPF. Besides, the employee-made contributions to the MPF Scheme are exempt from income tax payments at a maximum amount of HK$18,000 per year.
During employment, the employee can stumble upon deductions that can be used to lower tax burden. It contains employment expenses to some extent, charitable donations, education expenses with a hint of the Voluntary Health Insurance Scheme (VHIS), and mortgage interest payments. Besides, many personal allowances in taxation can also be found, such as allowances for children and allowances for dependent family members.
It is also difficult to establish what determines residency. The Hong Kong resident status under the Inland Revenue Ordinance is based on the fact that an individual whose normal place of residence is in Hong Kong even with temporary absences should be considered as a resident. Whether the employee is considered a resident or not, they are obligated to pay income tax on employment income sourced in Hong Kong, also a general rule applies to employees working under the employment contracts with a foreign employer rendering services in Hong Kong.
Nonetheless, there is a case of a 60-day rule that comes into play when foreigners are working temporarily in Hong Kong for some period of time. A person does not need to pay local income tax if they spend 60 days or less within a tax year in Hong Kong. However, if their stay is over 60 days, they may be subjected to paying local income tax liabilities.
| 2022 Tax Bands | Corresponding Tax Rates |
|---|---|
| Up to HKD 50,000 | 2% |
| HKD 50,000 – HKD 100,000 | 6% |
| HKD 100,000 – HKD 150,000 | 10% |
| HKD 150,000 – HKD 200,000 | 14% |
| Over HKD 200,000 | 17% |
Employers are not under the obligation to deduct income tax from the monthly salaries of their employees during the payroll process. The individual income tax is often assessed annually. The amount set is calculated as two payments and the payments are directly made by the employee.
The tax declaration is the form of assessment that applies to both the employer and the employee where they are required to file an annual tax return containing all the remuneration paid to the employee within a given tax period. The IRD sends out the relevant forms to taxpayers in order to make them aware of their tax obligations starting in May of every year. Starting from the date of issuance, it is balanced between employees and their employers to submit the tax return within one month and send it back to the IRD for final checking. The taxpayer will be given an additional one month for electronic filing. The tax year starts from the 1st of April through to the 31st of March.
Social Security Contributions
Any employer with a permanent establishment in Hong Kong must contribute at least 5% from each employee’s monthly earnings to a retirement scheme, whereas there is also the option to make additional voluntary contributions. This scheme shall be classified under the jurisdiction of the Mandatory Provident Fund (MPF) Schemes Ordinance. Employers have the duty of appointing an MPF trustee and moving to the MPF provider designated the new employer when a new job is taken.
The maximum monthly salary to which both the employee and the employer pays contributions will be capped at HKD 30,000, so that no amount of salary is subject to contributions exceeding this amount. The staff don’t have to make any contributions, if their salary is lower than HKD 7,100, though the employers are obligated to contribute.
The law mandates all employees to contribute at a rate of 5% which is exempted for the new hire during their first 30 days of employment and the subsequent pay cycle. While employers are not required to make MPF contributions for the first 60 days of an employee’s employment period, this is applicable only if the employee will not remain employed for more than 60 days.
The employers need to perform the calculations, deductions, and payment of employees’ monthly MPF contributions at every pay period. Payment should be made no later than 10th on the following month via MPF scheme administration with the remittance form filled in accordingly.
Furthermore, under employees compensation ordinance, employer are mandated to buy insurance policies for injuries which are work related, and diseases which are occupational. The allowed amount of insurance coverage in one event, if there is enough employees, can be separated into more than one event. The sole liability of the employer is stipulated by premiums, which are based on the employee’s occupation risk.
| Contribution Type | Employer Rate | Employee Rate |
|---|---|---|
| Mandatory Provident Fund (MPF) | 5% | 5% |
| Employee Compensation Insurance (ECI) | varies | / |
Employment Obligations
Employees in Hong Kong are entitled to several benefits which include:
Annual leave and public holidays:
- Employees are entitled to between 7 and 14 days of annual leave, depending on their length of service.
- There are 13 statutory public holidays.
Maternity leave:
- Maternity leave is 14 weeks, which can commence up to 4 weeks before the expected due date.
- Maternity leave is paid at four fifths of the employee’s daily average wages, capped at HKD 80,000.
Paternity leave:
- Paternity leave is 5 days, which can be taken consecutively or separately.
- The right to take paternity leave begins 4 weeks before the expected due date and ends 14 weeks after delivery.
- Paternity leave is paid at four fifths of the employee’s daily average wages.
Sick leave:
- During the first year of service, employees are entitled to 2 paid sick days per month.
- Thereafter, employees are entitled to four paid sick days per month of service, up to a maximum of 120 sick days.
- Sickness benefits amount to four fifths of the employee’s daily average wages.
Read Hong Kong 2024 Public Holidays
Compensation
Currently, Hong Kong’s minimum wage is set at HKD 40 per hour. This increased minimum wage has been in affect since May 2023.
The Employment Ordinance stipulates that employees are to be paid at the end of the year as a year-end payment by their employers. Employment contract rarely details the severance pay unless it explicitly says otherwise. This entitlement should be equivalent to the average of the employee’s monthly earnings. In addition, the term for this payment should include in the contract at this stage. Provided that it is not part of the job specification, an employee should be paid on the last working day of the pay period or not later than seven days following the last working day of the last pay period of the year.
Payroll Requirements
If not otherwise specified by the worker and employer, then the regular pay period is one month. Employment Ordinance stipulates that employees’ salary must be paid before the end of the pay period or within 7 days after the last day of it.
Employees are entitled to a payslip for each pay-check, which can be made available either through a physical format or electronically. The other part is the employers on the other hand they are responsible to collect and retain pay records with an essential minimum retention period of 7 years.
How FastLane Group Can Help?
FastLane Group can help you to simplify your payroll and HR administration. Let our experts and cloud-based solutions streamline your processes, and allow you to focus on growing your business. Contact us today to discover how our payroll services can benefit your company.