Comprehensive Guide to Payroll in Hong Kong for Employers

Hong Kong is a favorable country for foreign investment due to its low and competitive tax system, a free market economy, dynamic opportunities for development, world-class infrastructure, and various incentives offered by the government. The country ranked as the world’s 2nd freest economy in the 2020  Index of Economic Freedom of The Heritage Foundation.

Companies looking to establish a business in Hong Kong can benefit from its low tax regime, easily-obtained business licenses, simple company registration, and corruption-free government. They should adhere to the local rules and regulations specified by the Hong Kong government. Furthermore, they should understand income tax, corporate tax laws, and social security for smooth company operations. 

Understanding how to handle the onboarding process efficiently, including the Hong Kong payroll process, helps you entice, hire, and retain the best talent in Hong Kong. You need a thorough understanding of payroll tax in Hong Kong and labor requirements to establish accurate and compliant payroll. The following guide discusses all facets you must know about payroll in Hong Kong.

How Is Payroll Calculated in Hong Kong?

Payroll is the total compensation an employer provides employees for their services over a specified time.  Hong Kong’s payroll policies and procedures entail factors like payment disbursement and tracking of the employees’ working hours.

You must regularly maintain records to ensure precise payroll calculation. Moreover, you should withdraw social security contributions and other deductions according to payroll rules and regulations in Hong Kong. 

Important Elements of Salary Structure in Hong Kong

The following section explains the elements that form the salary structure in Hong Kong:

Cost to Company (CTC)

The CTC signifies an annual amount owed by a company when onboarding an employee. It entails factors like the employee’s net remuneration, supplementary benefits, gross remuneration, and payroll deductions in Hong Kong.

Gross salary

Gross salary refers to the amount of salary after calculating all benefits. It covers components like health insurance, social security contributions, etc.

Net salary

It denotes the amount remaining after the employer has calculated all deductions from the gross salary. Its amount is credited to the employee’s bank accounts.

Basic salary

It indicates the amount employees get after calculating all deductions and additions from the annual package. It considers the employee’s job designation and the employer’s business activities.

Allowances

The allowances cover the employment expenses owed by employers to their employees. Regardless of the industry and the employer, all employees are eligible for allowances.                

How to Set Up a Payroll in Hong Kong

Companies can set up a payroll in Hong Kong by following the steps below:

• Step 1: Gather all the vital employee information like their personal information (name, date of birth, postal address, bank statements, passports, and evidence of health insurance coverage) to accurately calculate pay amounts of employees.
• Step 2: Establish a legal entity to process a payroll in Hong Kong. 
• Step 3: Select a company name for which you require an Incorporation Form, the Company’s Articles of Association, notice to the Business Registration Office (IRBR1), and a local bank account.
• Step 4: Register your business with the Commercial Court and apply for a business ID. 
• Step 5: Register for the national tax number, severance fund, labor and tax registration, the Labor Risks Administrator, and Family Compensation Fund.
• Step 6: Register your company and employees with the Social Security Allowance (SSA) Scheme for social security registration.
• Step 7: Open a Hong Kong bank account with a local bank to release payroll-related payments to both employees and the authorities. You will need  court and registration information, a business registration certificate, the certificate of incorporation and/or articles of association, statistical number, proof of health insurance registry, etc. before your business bank account gets approved.
• Step 8: Finalize the employee payroll amount.
• Step 9: Approve the payroll structure and payroll cycle for your company.

A Step-by-step Process of Payroll Processing in Hong Kong

The various stages involved in the processing of payroll in Hong Kong are discussed below.

1. Pre-payroll stage

The mandatory components involved in processing payroll and payments are described in the following section:

Business Profile

1. You must register your business as a legal entity. The Business Registration Ordinance (Chapter 310, Laws of Hong Kong) (“BRO”) administers the business registration process, and it will give you a unique business number. 

2. You must specify a unique business number on all official payroll communications.

Statutory components

These refer to the prevailing and new statutory compensation laws and regulations that authorize employees with wage and leave entitlements.

Attendance policy

The attendance policy assists you in calculating overtime, standard and special attendance, permissions, and more.

Salary components

It focuses on various factors influencing salary calculation, i.e., deductions, allowances, payroll tax in Hong Kong, and leave types.

Payment schedule

It stipulates a fixed payment schedule to disburse salaries and eliminates payment delays. 

With this component, employees stay informed about when they will receive their monthly payment.

Employee details

Collecting professional and personal details about all your employees is crucial to correctly disbursing salaries. Enter these details in the payroll system to start the payroll processing. 

2. Payroll calculation stage

In this stage, the data gathered from the above stage is entered into the payroll system. You should track working hours and calculate deductions and taxes. Subsequently, calculate employees’ net salaries and print payslips to ensure the payroll process is error-free. 

You should calculate and uphold payroll records through a traditional paper-based or automatic method. Consequently, you can timely process employees’ payments and streamline the compliance and reporting procedures.

3. Post-payroll stage

Statutory compliance

1. The payroll administrator should rigorously abide by statutory compliances when processing payroll. 

2. Different deductions like EPF (Employees’ Provident Fund), TDS (Tax Deducted at Source), ESI (Employees’ State Insurance), and more must be deducted during the payroll processing stage. 

3. All these deductions must be funded by the corresponding government agencies or authorities.

Payroll accounting

This component focuses on tracking payments and payroll-related expenditures that help you to fulfill payroll reporting and compliance requirements. 

Payroll reporting and compliance

1. It suggests you must prepare all mandatory compliance and reporting forms to deliver to local regulatory authorities. 

2. It also stipulates all contributions, compensation, withholdings, and other details requested in your reporting and compliance forms. 

Payroll Contributions

Depending on the salary, employers and employees must contribute to social security in Hong Kong to fulfill the Hong Kong payroll requirements.

Employer contribution

Employee contribution

Employee payroll contributions cover the following elements.

Employee payroll contributions

Employee Income Tax

Payroll Cycle

Generally, the payroll cycle in Hong Kong is monthly. The payments are released on the last working day of the month. If the employer can’t disburse it on the agreed day, a grace period of 7 days is provided. After the grace period completes, the employer must pay interest in addition to the wages.

Hong Kong Payroll Options for Companies

Based on their budget and requirements, employers can opt for one of the options to process payroll in Hong Kong. The following section discusses various HR payroll Hong Kong options.

• Internal payroll: Larger companies with a long-term commitment to Hong Kong can operate an internal payroll. They process the payroll for local and foreign employees. They should complete incorporation, register the business, and onboard the skilled workforce. An experienced HR must administer payroll in Hong Kong and satisfy all tax, withholding, and payroll-related requirements.
• Remote payroll: This HR payroll Hong Kong option in the Hong Kong payroll guide represents that combining your payroll company and remote payroll can simplify payroll processing in the country. Moreover, the remote payroll will pay the employees.
• A Hong Kong payroll processing company: You must thoroughly research the market if you want to use this option of the Hong Kong payroll guide. It involves using a reliable and experienced payroll processing company acquainted with establishing payroll and payroll rules and regulations in Hong Kong.
• Hong Kong payroll outsourcing: It benefits you with a straightforward, economical, and flexible method of managing payroll in Hong Kong. Companies can partner with a worldwide PEO service provider like Multiplier, which manages all the Hong Kong payroll process elements and authorizes the corresponding processes to meet Hong Kong payroll requirements.

Entitlement and Termination Terms

Entitlement terms in Hong Kong

The following section discusses the benefits to which Hong Kong employees are entitled.

Paid time off

• In Hong Kong, employees who have finished at least three months of employment are entitled to 7 days of paid leave per year. 
• It increases by one day for each extra year of employment until the annual leave makes up to 14 days on the employment’s 9th year.

Sick leave

• The employees are compensated for two days of sick leave per month during the first year of employment.
• The number of sick leave increases to four per month for employees who have completed more than one year of employment.
• Sick leave is compensated at 80% of the average daily earnings (in the previous 12 months) before the first day of sickness.
• It is compensated based on the average earnings gained since the employment joining date if the employee has worked at the company for less than a year.
• Employees can accrue sick days during their whole employment up to 120 days.

Maternity leave

• Female employees in Hong Kong are entitled to 14 weeks of paid maternity leave.
• It can increase to 18 weeks in cases like complicated or multiple births. 
• Female employees can apply for maternity leave if they are employed under a continuous contract for at least 40 weeks before the start of scheduled maternity leave. 
• The employer compensates the maternity payment based on four-fifths of their average daily wages (from the last 12-month period up to HKD 80,000). The government will reimburse it. 

Paternity leave

• The employees get paid paternity leave of 5 days if they are employed under an employment contract for at least 40 weeks before the start of the paternity leave.
• It is compensated at 80% of the average daily earning (in the previous 12 months) before the first day of paternity leave.

Public holidays

• They get 17 public holidays per year.
• These holidays are listed below:

Termination terms in Hong Kong

• The termination process in Hong Kong follows the Labor Law requirements except when an employer can present fair cause for firing without notice.
• The termination notice should be written and delivered to suitable governmental authorities. Generally, the notice is of 30 days.
• The employers can state longer notice periods in the employment contract.

An employer may instantly terminate an employee without notice or releasing payment in lieu of notice if the employee:

• Deliberately disobeys a legal order
• Misconducts
• Is guilty of dishonesty or fraud
• Is regularly negligent in their duties

 An employer can’t dismiss an employee under the following circumstances:

• Paid sick leave
• Maternity protection
• Providing evidence or details to the authorities
• Injury at work
• Trade union activities

Hong Kong Payroll Processing Company

To administer timely, precise, and compliant payroll in Hong Kong, foreign investors must exhaustively understand reporting, local tax, and employment and compensation requirements. They must know compliance with Hong Kong Labor and local employment laws before setting up payroll in Hong Kong. You can use services from a global PEO company like Multiplier to acquire the optimum benefits of payroll rules and regulations in Hong Kong.

How Can Multiplier Help with Global Payroll?

Hong Kong’s payroll management oversees various factors, from the payroll cycle to entitlement and termination terms. Businesses may decide not to autonomously administer the entire payroll process since it is time-consuming. You can use the service from a global EOR platform like Multiplier to easily complete the Hong Kong payroll process.

Multiplier is a well-known EOR solutions platform that handles payroll processing and other relevant tasks. We offer one-click payroll for global teams with payments disbursed in local currency.