What You Should Know About Managing Payroll in Hong Kong

Here’s what you have to know when it comes to payroll in Hong Kong:

1. Salaries include basic pay, allowances, and all earnings

The Hong Kong Employment Ordinance uses the term “wages” as the legal term for “salary.” The Ordinance defines wages as all remuneration, earnings, allowances, tips, and service charges payable to employees for work done or to be done, and these must be capable of being expressed in monetary terms. In other words, salary refers to basic pay, allowances, and all earnings an employee has agreed to receive from their employer under a contract of service.

In Hong Kong, allowances include travelling allowances, attendance allowances, commissions, and overtime pay. Overtime pay must be included in an employee’s entitlements if it is consistent in nature or if its monthly average over the past 12 months is at least 20% of the employee’s average monthly salary during the same period.

2. Salaries must be paid once a month

In Hong Kong, the standard practice for salary payment is on a monthly basis, with payments typically released on the last working day of each month.

If you are unable to disburse salaries on the agreed date, the Hong Kong Employment Ordinance requires that you disburse salaries no later than seven days after the end of the wage period. Failure to do so obligates you to pay interest on the outstanding salaries.

However, if you fail to pay an employee their wages within one month after they become due, the employee has the right to consider their employment terminated. Additionally, employers may face a fine of up to HKD 350,000 and three years of imprisonment if they willfully fail to pay salaries without reasonable excuse.

3. Pay slips must be issued to all your employees

The Hong Kong Employment Ordinance also requires employers to provide a pay slip each time an employee is paid. The pay slip should include specific details such as the employee’s name, employment period, salaries earned, deductions made, and the employer’s name.

Employers are also required to maintain detailed employment and salary records for all employees, as mandated by the Ordinance. This practice helps employees gain a clearer understanding of their employment terms, rights, and benefits, while also reducing labour disputes arising from ambiguous employment terms.

4. Prorated and overtime pay must be calculated and paid correctly

If an employee works for only part of a month, they are entitled to a prorated portion of their salary. In Hong Kong, employers typically use one of two methods to calculate prorated salaries: based on calendar days or based on working days.

Below is the basic formula for calculating prorated salary using both calendar day and working day methods.

Gross monthly prorated salary based on working days

Prorated Salary =( Monthly gross rate of payTotal of working days in a month) x number of days worked in a month

Gross monthly prorated salary based on calendar days

Prorated Salary =monthly gross rate of pay x ( Number of days worked in a monthTotal number of calendar days in a month)

The Hong Kong Employment Ordinance does not explicitly define overtime work and mandate overtime pay. However, overtime pay is typically at least 1.5 times the basic hourly rate and is usually negotiated between the employer and the employee. The agreed overtime compensation rate should be clearly outlined in the employment contract.

As mentioned earlier, overtime pay must be included as part of an employee’s monthly salary if it is regularly disbursed or if its monthly average over the past 12 months constitutes at least 20% of the employee’s average monthly salary.

5. Pay attention to contributions

As an employer, you are required to make retirement contributions for your employees. In Hong Kong, these contributions fall into two categories: mandatory and voluntary contributions.

Mandatory contributions:

The Mandatory Provident Fund (MPF) requires both employers and employees to contribute 5% of the employee’s salary to the national retirement program. However, if an employee’s monthly salary exceeds HKD 30,000, the employer’s contribution is capped at HKD 1,500.

Voluntary contributions:

You can also make additional voluntary contributions to the MPF scheme on top of the mandatory contributions. Employers often make these additional contributions to attract talent and retain existing employees. 

Additionally, both mandatory and voluntary contributions made for employees can be claimed as tax deductions under profits tax, with a maximum deduction of 15% of the employee’s total annual emoluments.

The arrangements for voluntary contributions to the MPF are determined by the MPF trustees. Therefore, the Mandatory Provident Fund Schemes Authority (MPFA) advises employers to consult their MPF trustees to understand the specific terms and conditions, including the minimum contribution amount and calculation methods, and to determine the most suitable approach for making voluntary contributions.

Consider investing in a payroll software

Successful payroll management is integral to keep your employees motivated and therefore it is your duty as a business owner to ensure that the process runs smoothly and payments are made in a timely manner.

As the number of employees you are hiring continues to grow alongside your business, payroll processing will naturally require more time and effort on your part. You may want to consider investing in a payroll software that can help you handle the process in a less stressful and more cost-effective way. 

There are many software options available to help you manage payroll, but Aspire’s Business Account could be the ideal choice for you.

With its Bulk Payment feature, Aspire’s Business Account enables you to pay salaries to thousands of employees in just a few clicks, all with transparent and competitive fees. Say goodbye to manual transfers and errors, saving both time and money.

Beyond salary payments, the Bulk Payment feature also allows you to pay thousands of vendors or suppliers simultaneously. Apply now!