Understanding Payroll in Hong Kong: What Global Companies Need to Know About Hong Kong Payroll
Feb 5, 2017
As Hong Kong continues to emerge as one of the most rapidly growing markets in the APAC region, this global financial center it has garnered increased attention from multinational corporations. Companies that expand their operations to Hong Kong experience numerous benefits – including a highly educated, English-speaking population, an open and fast-growing economy, and a business environment highly receptive to international investment.
Yet Hong Kong’s payroll policies and regulations, as outlined in its extensive Employment Ordinance, can make hiring and compensating employees pretty complicated. One reason for the complexity is Hong Kong’s history; it was under British control until 1997, and is now considered a Special Administrative Region of China.
So while Hong Kong’s labor policies were initially influenced by Great Britain, they are gradually being revised to be more similar to those of China. Thankfully, however, they remain far less complex (and more stable) than the China payroll guidelines.
As these employment laws continue to change, employers can be hard pressed to ensure they meet compliance when leveraging the Hong Kong workforce. Fortunately, working with a global team of international payroll experts can help organizations stay up to date with Hong Kong’s changing regulations – helping companies comply with the country’s unique laws and regulations in each of the following areas.
There are 3 main options for business set-up in Hong Kong: Representative office, branch office, and registered subsidiary company. Hong Kong has no restrictions on foreign ownership for any company structure. However, regulations require every business to have at least one permanent representative resident in Hong Kong.
Only limited companies/subsidiaries can capitalize on all of the tax benefits and trade opportunities available to Hong Kong businesses – including the country’s free trade agreement with China. Once the organization has filed its articles of incorporation to the Companies Registry and applied for a business registration certificate from the Inland Revenue Department, it can typically be approved for incorporation within two to three days.
It is not mandatory to make payments to employees or authorities from a bank account in Hong Kong, but branch offices and registered companies are expected to have corporate accounts in-country. Establishing a corporate account usually takes one day and is fairly straightforward, though minimum deposit requirements vary across the country.
With very few exceptions, the Employment Ordinance covers all employees – full-time, temporary, or part-time. Generally, your employment contract terms must satisfy the minimum entitlements of the Ordinance regarding statutory holidays, Mandatory Provident Fund payments, sick and maternity leave, and severance and long-service payments. However, the Employment Act distinguishes between employees as either employed under an employment contract, or employed under a continuous employment contract, with broader rights and protections for the continuous group. (A continuous contract means the employee will work for the same employer for 4 weeks or more, at least 18 hours each week.)
While there no firm legal guidelines around probationary periods, Hong Kong’s Labour Department has suggested a maximum period of three months. A foreigner must have a valid work visa to be able to work in Hong Kong, so organizations must apply for a valid work visa on the employee’s behalf before he or she can commence employment.
Following the hiring of any new employee, an organization must inform the Inland Revenue Department within three months. Termination requires sufficient notice per the employment contract (though no less than seven days is common). Employers in Hong Kong must ensure that they keep proper records for each employee’s wage and employment history, and all accounting and payroll records must be kept for at least seven years. Companies need to report remuneration paid to employees on an annual basis.
Compensation & Severance Considerations
The work hours, days, compensation rates, and overtime details for each employee are stipulated in the employment contract. However, a 40- to 50-hour, 5-day work week is common. Both ‘contract’ and ‘continuous contract’ employees receive 12 paid public holidays for year.
The limit for entitlement to severance pay is at least 24 months for continuous employees made redundant or laid off. The amount of severance pay is two-thirds of a month’s pay for each year of employment or two-thirds of HK$22,500 (i.e., HKD$15,000), whichever is less, up to a maximum payment of HKD$390,000. Employees who have been with an organization for 5 years or more may be eligible for a ‘long service payment’ upon dismissal if certain conditions are met.
Under all circumstances, wages become due on the end of the last day of the wage period. Employers must pay wages to employees on or before the due date, or no later than 7 days after that day; otherwise they must pay interest on late wages or risk legal repercussions. Hong Kong employers are allowed to incorporate bonuses, commissions, awards, and various allowances into their employment contracts. End-of-year (13th month) bonuses are common.
Tax & Withholding Considerations
The corporate income tax is 16.5% on profits from business carried out in Hong Kong. Notably, income tax is not withheld from employees via payroll throughout the tax year; employees are required to independently file with and pay Hong Kong’s Inland Revenue Department at the end of each tax year (which runs from April 1st to March 31st).
Hong Kong employees and employers contribute to a sole mandatory pension/retirement protection scheme – Mandatory Provident Fund, or MPF – with uniform rates of 5% (from both employer and employee) across the territory, though the mandatory minimums can be supplemented with additional amounts. The employee joins the employer's MPF Scheme automatically after completing 60 working days.
All continuous employees are entitled to rest days, paid public holidays, and paid annual leave under the Employment Ordinance. Annual leave is granted to employees every 12 months given that they are employed under continuous contract, following 12 month of service. The number of leave increases progressively in parallel to the completed length of service period – scaling from seven days (for the first and second year) up to 14 days per year for their 9th year and onwards. Annual leave is compensated at 100% of wages.
Employees also receive sickness allowance, equal to four-fifths of their average daily wages. Female employees are also entitled to maternity leave pay at four-fifths of their average daily wages for no less than 10 weeks. Given the differences in leave types, employers must track and remunerate different categories of absence days such as holidays, annual leave, sickness and maternity leave.
|Date||Hong Kong's Public Holiday Schedule|
|January 1st||New Year's Day|
|1st - 4th days of 1st lunar month||Chinese New Year|
|April 4th||Ching Ming Festival|
|Friday before Easter||Good Friday|
|Saturday after Good Friday||Day following Good Friday|
|Monday after Easter||Easter Monday|
|May 1st||Labor Day|
|8th day of the 4th month in the Chinese Lunar calendar||The Buddhas birthday|
|May 30th||Dragon Boat Festival|
|July 1st||Special Administration Region Day|
|October 1st||National Day|
|October 5th||Day after mid Autumn festival|
|October 28th||Chung Yeung Festival|
|December 25th||Christmas Day|
|December 26th||Boxing Day|
Multinational organizations have much to gain by expanding their business into Hong Kong. But in order to ensure maximum benefit and avoid serious penalties, it is crucial to understand the many aspects of the region’s payroll legislation.
As governance and international regulations continue to expand, employers must recognize the major provisions of all of Hong Kong’s employment laws. To ensure ongoing compliance, companies can benefit from working with experienced global payroll professionals and up to date with all of Hong Kong’s complicated procedures.
This article is for informational purposes only and not intended to convey or constitute legal or any other advice. It is not a substitute for advice from a qualified professional.