Hong Kong’s dynamic economy and strategic location make it a key business hub. Managing payroll requires familiarity with local labor laws and tax regulations. Gloroots streamlines payroll processes, ensuring compliance. Employers hiring in Hong Kong or through an Employer of Record (EOR) must understand these regulations for efficient operations.

How is payroll calculated in Hong Kong?

In Hong Kong, payroll calculation involves determining gross pay, including salaries, overtime, and bonuses. Employers must deduct mandatory contributions like the Mandatory Provident Fund (MPF) and taxes. Accurate tracking of working hours and meticulous record-keeping are crucial to ensure compliance with Hong Kong’s payroll regulations and to provide employees with their correct net pay. The net salary is calculated using a straightforward formula:

Net Salary = Gross Salary - Deductions

How to set up payroll in Hong Kong 

1. Collect Employee Information

Begin by gathering essential employee details, such as names, dates of birth, addresses, bank account information, passport copies, and health insurance documents. These details are necessary for accurate payroll processing.

2. Establish a Legal Entity

Form a legal entity in Hong Kong to facilitate payroll operations. This step is crucial for adhering to local laws and ensuring that payroll activities are carried out smoothly and legally.

3. Choose a Company Name

Select a company name and prepare the necessary documentation, including the Incorporation Form, the Company’s Articles of Association, and a notice to the Business Registration Office (IRBR1). You’ll also need to open a local bank account.

4. Register Your Business

Register your company with the Commercial Court and obtain a business ID. This registration is essential for legal recognition and allows you to operate within the regulatory framework of Hong Kong.

5. Complete Necessary Registrations

Secure a national tax number and register with relevant entities such as the severance fund, labor and tax authorities, the Labor Risks Administrator, and the Family Compensation Fund. These registrations ensure compliance with labor and tax laws in Hong Kong.

6. Register for Social Security

Sign up your company and employees with the Social Security Allowance (SSA) Scheme. This registration is mandatory to comply with social security regulations in Hong Kong.

7. Open a Business Bank Account

Open a business bank account in Hong Kong for payroll transactions. Required documents typically include business registration certificates, the certificate of incorporation, the articles of association, and proof of health insurance registration.

8. Finalize Payroll Calculations

Calculate the final payroll amounts for each employee, ensuring accuracy and compliance with local regulations.

9. Set Up Payroll Structure and Schedule

Establish a payroll structure and determine the payroll cycle that fits your business needs. This ensures timely and consistent salary payments to employees.

Payroll Process in Hong Kong 

Business Registration and Compliance

To begin, your business must be registered as a legal entity under the Business Registration Ordinance (Chapter 310, Laws of Hong Kong). This registration provides a unique business number, essential for all payroll documents and official communications.

Understanding and adhering to statutory compensation laws and regulations is crucial. These laws govern employee wage and leave entitlements, ensuring compliance with local labor laws.

Establishing Payroll Policies

Implement a clear attendance policy to accurately track work hours, overtime, and leave. This policy is vital for precise salary calculations. Salary components should include deductions, allowances, various types of leave, and applicable payroll taxes.

Setting Up Payment Schedules

A fixed payment schedule is necessary to ensure timely salary disbursement. This schedule keeps employees informed about their payment dates, fostering transparency and trust. Collect and enter detailed employee information, including personal and professional details, into the payroll system for accurate payroll processing.

Payroll Calculation and Record-Keeping

In the payroll calculation stage, input all gathered data into the payroll system. Track working hours meticulously and calculate the necessary deductions and taxes to determine net salaries. Generate payslips to ensure transparency and accuracy in payroll transactions.

Maintaining payroll records, either through traditional methods or automated systems, helps streamline compliance and reporting processes. Accurate record-keeping is essential for meeting legal requirements and for auditing purposes.

Post-Payroll Compliance

After payroll processing, ensure strict adherence to statutory compliance by deducting contributions such as EPF, TDS, and ESI, and remitting these to the appropriate authorities. Accurately track payments and payroll expenses to fulfill reporting and compliance requirements.

Prepare and submit all required documents to local regulatory authorities, ensuring all contributions, withholdings, and other relevant details are correctly reported.

Payroll Cycle

In Hong Kong, the payroll cycle follows a monthly schedule, with salaries typically disbursed on the last working day of each month.

Payroll Processing

Ensuring smooth payroll processing in Hong Kong  requires the use of advanced systems that guarantee compliance and boost efficiency. Accurate payroll schedules and precise wage calculations are essential for timely salary payments and adherence to legal requirements. Managing deductions and benefits effectively not only ensures compliance with German laws but also keeps employees satisfied.

Payroll Management

Effective payroll management in Hong Kong relies on sophisticated software for accurate calculations and timely salary disbursements. Maintaining detailed records and staying updated with labor laws are essential for compliance. Rigorous auditing and cloud-based systems enhance payroll processes, particularly for remote workers. Partnering with Gloroots or local payroll firms ensures reliable, compliant solutions, allowing businesses to focus on growth.

Payroll Components

Minimum Wage

In Hong Kong, the hourly minimum wage is set at 40.00 HKD. 

Working Hours

• Standard working hours: 9 am to 6 pm, Monday to Friday.
• No legal maximum working hours for adults.

For young workers (ages 15 to 18) in industrial settings:

• Limited to 8 hours per day.
• Working hours restricted to 7 am to 7 pm.
• Maximum of 48 hours per week.

Overtime

Overtime regulations are not legally defined; they are typically outlined in company policies found in employment contracts or collective bargaining agreements.

Social Security 

In Hong Kong, social security contributions are primarily focused on the Mandatory Provident Fund (MPF) and employment insurance, ensuring financial security for both employers and employees.

Employer Contributions

Mandatory Provident Fund (MPF): Employers are required to contribute 5% of an employee’s salary to the MPF, applicable to salaries up to HK$30,000 per month. This fund is crucial for providing retirement savings for employees.

Employment Insurance: Depending on the industry, employers may also need to contribute up to 2% towards employment insurance, which covers various employment-related risks.

The total contribution from employers amounts to 7% of the employee’s salary, covering both retirement savings and employment insurance.

Employee Contributions

Mandatory Provident Fund (MPF): Employees contribute 5% of their monthly salary to the MPF, applicable to salaries ranging from HK$7,000 to HK$30,000. This contribution helps in building a retirement fund for employees.

The total employee contribution to social security is 5% of their salary, focusing on retirement savings through the MPF.

Sick Days

In Hong Kong, employees accumulate 2 paid sick days per month during their first year of employment. After completing one year of service, this increases to 4 paid sick days per month, up to a maximum of 120 days.

Sick pay is calculated at 80% of the average daily earnings from the previous 12 months before the sickness period begins. For those employed for less than a year, sick pay is based on the average earnings since their employment started.

Employees must provide a medical certificate from a registered medical practitioner or dentist as proof for any claimed sick days. This ensures that the sick leave is legitimate and properly documented.

Employee Income Tax Rates

In Hong Kong, employee income tax is progressive, with different rates applied based on annual income brackets:

• 2.00%: Applied to annual income up to 50,000 HKD.
• 6.00%: Applied to annual income between 50,001 and 100,000 HKD.
• 10.00%: Applied to annual income between 100,001 and 150,000 HKD.
• 14.00%: Applied to annual income between 150,001 and 200,000 HKD.
• 17.00%: Applied to annual income over 200,001 HKD.

These rates ensure that higher earners contribute a greater proportion of their income in taxes, while lower-income earners face a smaller tax burden.

Find the Best Hong Kong talent for Your Business Today

To attract the best talent in Hong Kong , focus on key skills that are in high demand, such as expertise in software development, data analysis, and international business management. Gloroots simplifies this process by ensuring compliance with Hong Kong labor laws and providing comprehensive payroll management solutions. Our proficiency in risk management, seamless onboarding, and efficient payroll integration allows businesses to concentrate on growth while we handle the complexities of payroll and talent acquisition effortlessly.