Payroll in Hong Kong represents the list of all the company’s employees who are entitled to remuneration. It is also the process of handling the payments made to these employees, complete with an adequate tracking of their worked hours, overtime, and other bonuses. This activity is essential for any company in Hong Kong, irrespective of its total number of employees.
While there is no tax for payroll in Hong Kong per se, employers do need to make the needed payments for social security purposes. Both the company (the employer) and the employees make these contributions in varying percentages of the employees’ relevant income.
A company in Hong Kong can choose to deal with the employee’s salaries internally or outsource payroll to another company that offers professional services. Our Hong Kong company formation agents can help you with payroll services for your company.
The basics of payroll in Hong Kong
Hong Kong has a relatively simple payroll system. The employee remuneration package is decided by the company and there are a few taxes in Hong Kong that need to be considered when doing so. The mandatory social contribution is one of them.
Although there is no tax for payroll in Hong Kong, the social security contributions that apply are the following:
- – 5% of the relevant employee’s salary – the contribution to the MPF scheme (see below) which is made both by the employer and the employee according to the relevant minimum and maximum income rates;
- – for employees paid on a monthly basis, the minimum income level is HKD 7,100;
- – for employees who are paid monthly, the maximum income level is HKD 30,000;
- – employees who have a monthly income below HKD 7,100 do not make contributions to the MPF scheme, only the employer is required to pay the required 5% to this scheme;
- – when the employee’s monthly income is HKD 7,100 or more, the employer will pay the 5% in the form of its own contribution and will deduct the employee’s 5% (the employee’s portion for the MPF scheme).
The remuneration of an employee in Hong Kong is calculated by taking into consideration the basic monthly salary to which bonuses can be added or leave days can be deducted. Car allowances, commissions, holiday payments and other allowances must also be considered.
The Hong Kong Labour Department imposes a statutory minimum wage. Its value increased starting with May 2023, from an hourly rate of $37.5 to $40. Employers are expected to take this into consideration, as well as all the other rules and regulations for hiring employees in Hong Kong, in addition to issues considering payroll in Hong Kong.
For complete information on how the minimum wage is calculated (how to compute work hours, and how to calculate the wages for employees with disabilities, among other issues), please refer to our team specializing in company formation and management matters in Hong Kong.
The advantages of using payroll services in Hong Kong
As previously mentioned, most companies will choose to outsource payroll in Hong Kong. Although this is a solution employed by large companies with a significant number of employees, it is also recommended for small or medium companies.
Using a payroll provider allows the company to make sure that the entire process of handling the payments to their employees is properly handled, with no omissions or irregularities (which could result in liabilities on the part of the company).
Some of the advantages of using professional payroll services for your company in Hong Kong are summarized below by our team:
- – Ensure compliance with the legal and tax filing requirements;
- – Ensure the timely payments of employees;
- – Maintain records for accounting purposes;
- – Provide records concerning the bonuses, or leave/personal time used by the employees.
The professional payroll service provider is a third-party, meaning that it does have access to the company’s financial information. The company itself remains liable for any tax issues.
Keeping in mind the advantages and the issues of using professional payroll services, our team can provide you with additional information on the current requirements, and offer you suitable solutions depending on the size of your business and the industry in which you activate.
A company’s accounting and payroll needs differ according to many factors, among which we can mention its type and number of employees. Small businesses will be in need of simpler solutions, while self-employed individual in Hong Kong will not be subject to the same accounting requirements. Our team can help you understand these differences.
Payroll services for companies in Hong Kong
Our experts in Hong Kong can provide various payroll services for your company. We can help you with the following:
- – the gross/net pay for employees, monthly payroll calculations;
- – electronic payment transfer to employees;
- – social security contributions calculations;
- – taking care of the formalities required by the Inland Revenue Department for new employees;
- – the mandatory insurance packages for your workers;
- – annual employer’s return;
- – enrolling in the Mandatory Provident Fund (MPF) – private pension for employees who work more than 60 days.
In addition to services related to payroll, social security contributions, and the management of the payments to the employees, businesses usually request a more comprehensive accounting package, like those offered by our local accountants in Hong Kong. These also include the preparation of the annual financial statements, tax filing and payment, complete bookkeeping, cashflow management, bank account reconciliation, or tax counsel and optimization.
The Employment Law in Hong Kong
Payroll in Hong Kong is an essential part of business management, however, the timely period payments made to employees are only part of the requirements a business has to follow under the Employment Law.
Our team summarizes some of the most important issues stipulated in the Employment Ordinance:
- The contract of employment: includes the express and implied terms of the employment relationship (conditions of service, duration, wage, etc.); an employer who does not keep the proper records concerning the attendance, leave, and wages of their employees for the purpose of calculating the statutory entitlements are subject to prosecution and a fine upon conviction;
- Wages: employers who fail to pay wages or those who make illegal deductions from the wages of an employee are liable to prosecution, a fine and even imprisonment, depending on the offence;
- Rest days and leave: all employees are entitled to rest days, statutory holidays, and paid annual leave; individuals may work voluntarily on rest days; alternative holiday arrangements are to be made when the employer required the employee to work on a statutory holiday;
- Sickness allowance: the employee is entitled to sickness allowance when several conditions are met; this allowance is calculated as four-fifths of the average daily wages earned in the 12-month period prior to the sick allowance period; employers who fail to pay this allowance (without reasonable excuse) are subject to a fine;
- Maternity and paternity leave: a continuous period of 14 weeks of maternity leave; 5 days of paternity leave;
- The lawful termination of the employment agreement: according to the employment condition, different types of lengths of notice or payments in lieu of notice apply;
- Other issues: the Ordinance also deals with matters concerning severance payment, protection against anti-union discrimination, and others.
For more information on employment matters, wages, and the mandatory requirements for employers, you can reach out to our team even before you hire employees in Hong Kong.
Taxation in Hong Kong
Making the needed social security contributions according to the employee’s salary, along with the monthly calculations for payroll in Hong Kong are not the only issues company owners should take into account as part of their business expenses.
While business overhead differs according to the size and type of company and, more importantly, the industry in which it activates, the following taxes are relevant for all Hong Kong companies:
- – 8.25% corporate income tax rate on the first HKD 2 million of assessable profits ( and 7.5% for unincorporated businesses);
- – 16.5% corporate income tax (15% for unincorporated businesses) on the remainder of the company’s assessable profits;
- – no withholding tax on dividends;
- – no sales or value-added tax;
- – social security contributions as per the rules briefly outlined above.
Hong Kong has signed more than 40 tax treaties that allow for the avoidance of double taxation. These impact both companies and individuals and our team can give you more details if you are a tax resident of a country that has signed such a treaty with the HKSAR and you also derive income from Hong Kong.
According to the requirements for tax filing and payment set forth by the Inland Revenue Department, Hong Kong companies are expected to file IRD returns on an annual basis, and they pay a provisional profits tax, usually based on the profits recorded for the previous year. The annual report is accompanied by audited financial statements (as needed). Surcharges and penalties apply when taxpayers fail to comply with the filing and payment obligations, this is why many companies choose to outsource accounting.
If you are interested in company formation in Hong Kong we can also help you with information about company registration and staffing, in addition to Hong Kong payroll matters. Our partner lawyers in Hong Kong can help you with legal services for concluding employment contracts.
You can contact our Hong Kong company formation representatives if you are interested in additional services except payroll, like accounting in Hong Kong.